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As junior potash producers prepare to bring production online, a new report suggests they face volatility as supply floods the market.
By James Wellstead- Exclusive to Potash Investing News
As potash juniors race to bring projects up to production and into the market, a recent report by ratings agency DBRS predicts that new market entrants and increased potash production capacity could lead to an era of heightened volatility in the potash industry.
Despite an annual average potash consumption growth rate of 3 percent over the past twenty years, DBRS senior vice president, Ernie Lalonde said that “new market entrants and increased potash production capacity could lead to swings in industry profitability over the next several years.”
The report reinforced that “the viability of new potash mines is largely related to the economics of development, not the ability to discover resources.” Further, Lalonde reminded investors that as supply comes into the market, “if the market structure of the industry changes and margins are driven down, the ratings of producers largely reliant on their potash businesses could be negatively impacted.”
With this in mind, we present an incomplete list of a number of potash juniors below, ranked by production start-up date. These projects will have to remain very cost-competitive if their collective supply surge isn’t met with a likewise uptake in potash demand.
1. Karnalyte Resources (TSX:KRN) – 2014
Located in 190km east of Saskatoon, Saskatchewan, Karnalyte hosts proven and probable reserves totalling 789 million tonnes of mineralized material grading 19.6% KCl in addition to substantial inferred resources. Production is targeted for early 2014 with a project life of 68 years beginning at an initial production rate of 625,000 tonnes per annum ramping up to 2.125 milliion tonnes yearly. Development capital expenditures total $1.973 billion inclusive of an initial $593 million, which places them less than $1,000 per tonne of production capacity due to the solution mining process planned for production.
2. Verde Potash (TSXV:NPK) – 2014
Owned and operated in Brazil, Verde’sCerrado Verde project is looking to bring local resources into Brazil’s 7 million tonne/year consumer market. With indicated resource of 74 million tonnes with an average grade of 9.22 per cent K2O and an inferred resource of 1.176 billion tonnes with an average grade of 9.46 percent K2O (at a 7.5 percent K2O cut-off), the company is first developing a thermo-potash slow-release fertilizer product before moving on to the next stage of conventional potash development.
The low phase one capital expenditures of US $196 million gives the project a 2.4 year payback period pending a production start-up in 2014.
3. IC Potash Corp. (TSX:ICP) – 2015
With a highly advanced mineral deposit containing total proven and probable reserves of more than 400 million tons of ore within the proposed mine plan production at its 100 percent owned potash Ochoa property in southeast New Mexico is targeted for a 2015. With a project life of 40 years beginning at a production rate of 568,000 short tons per annum of sulphate of potash (SOP) plus 275,000 short tons per annum potassium magnesium sulphate (SOPM), IC Potash is focused on becoming one of the lowest-cost producers of SOP in the world.
Analysts at Fraser Mackenzie peg development capital expenditures around $706 million with a similar $1,000 per annual tonne benchmark targeted by the strong Greenfield MOP projects.
4. Elemental Minerals Ltd. (TSX:ELM) – 2015
Located less than 90 km from the coast of the Republic of Congo, Elementals Mineral’s Sintoukola Potash project is ideally located to service the emerging Brazilian market place. With a large, shallow and high grade resource of 804 million indicated and inferred tonnes at 31% KCl, Elemental has projected a 2015 start-date with production ramping up to 1.8 million tonnes per year before 2017. With the completion of its Phase 2 resource mineralization estimation to be completed late this year, Elemental hopes to add between 0.328 to 1.8 billion tonnes of potash mineralization to its project.
5. Western Potash (TSX:WPX) – 2016
Located close to Mosaic’s Belle Plaine Mine in southern Saskatchewan—one of the world’s largest solution-extraction potash mines—Western Potash’s Milestone Property in southern Saskatchewan hosts a potash resource with 64 million tonnes measured, 180 million tonnes indicated and 701 million tonnes inferred. With production to begin in 2016 and ramp up to 2.8 million tonnes per year, the company’s US $25 million in cash should also last them the extent of its feasibility stage in 2012 should market prove scarce.
6. Allana Potash Inc. (TSX:AAA) – TBD
Allana Potash focused on its potash resources in Ethiopia. The company has measured and indicated sylvinite resources of 97.8 million tonnes grading 30.04 % KCl, measured and indicated kainitite resources of 284.2 million tonnes grading 19.8% KCl, measured and indicated Upper Carnallitite Resources of 78.3 million tonnes grading 18.4% KCl, and measured and indicated Lower Carnallitite Resources of 212.6 million tonnes grading 12.0 % KCl.
With cash balances around US $55 million, Allana is in a strong position to weather any short term economic volatility impacting global financial markets.
7. Passport Potash Inc. (TSXV:PPI) – TBD
Passport’s main assets is located in the Holbrook Basin 300 km northeast of Phoenix, Arizona with land holdings covering over 81,000 acres. On November 1, 2011 Passport received a NI 43-101 Technical Report from SRK Consulting, which identified an exploration potential for Passport’s holdings in the Holbrook Basin of a conceptual estimated range between 460 million to 500 million metric tonnes KCL at an average grading of 5.3% K2O and 290 to 315 million metric tonnes contained K2O. Earlier this week Passport appointed David J. Salisbury as a Director and Chairman of its Board of Directors.
8. Rio Verde Minerals (TSX:RVD) – TBD
Rio’s northern Brazilian Sergipe potash project is one of the greenest pure fertilizer plays out there. With the recent completion of its first drill hole meeting a target depth of 1,350 m, potash content based on hand-held X-ray fluorescence (XRF) analyses on the core of SED-001-11 indicated that significant potash mineralization has been intercepted in two sylvinite-bearing zones with thicknesses of 12.97m and 5.05m, and one carnallitite-bearing zone with a total thickness of 61.0m, for a total of about 79m of potash mineralization.
A scoping study to be conducted in Q4 of 2012 will provide better insight into further potential for production at Sergipe as the start-date is yet to be determined. Until then, Rio Verde is also concentrating on its portfolio of 12 phosphate projects in the North and Northeast regions of Brazil.
Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.