Western Potash Looks for Partner

The company’s proposed potash mine will require significant funding to support the CA $2.458 billion initial CAPEX costs required to achieve its 2.8 MT/year production target for the proposed mine life of over 40 years.

John Costigan, Vice President of corporate development, said the company’s ideal partner would have financial resources, demand for the product, and the desire to own production.

Contact has been initiated with a number of potential partners, but Costigan confirmed thattalks withChinese fertilizer producer Sinofert Holdings Ltd. (HKG:0297), which is 22 percent owned by Saskatoon-based PotashCorp (TSX:POT), have ended without a viable option being reached between the two groups.

In a recent Reuters interview, China and India were highlighted by Western Potash as interested candidates. The two countries represented approximately 28.5 percent of global potash shipments in 2011 and have yet to gain a significant presence within the Saskatchewan potash space.

Sinofert’s senior Vice President, Harry Yang, announced in February that the company is looking to acquire potash assets both inside and outside of China. China also surprised many last month when it began signing Q2 2012 potash contracts earlier than last year and near quantities and costs close to those of 2011.

India, however, is expecting lower overseas purchasing this year as the country adjusts to the removal of a state subsidy on potash- and phosphate-based fertilizers.

Pushing toward permitting

Western Potash announced its search for a partner after receiving official notice of the start of the environmental impact assessment (EIA) process from Saskatchewan’s Ministry of Environment in March.

The company is hoping to wrap up most of its major permitting and feasibility studies by the end of 2012 so as to begin construction by early 2013, with production hitting full stride by 2016.

The EIA announcement came just a few weeks before the Canadian government outlined its promise to streamline environmental reviews of resource projects with plans for “responsible resource development.”

The development of the EIA is expected to move smoothly regardless of the policy change. Greg Vogelsang, manager of environmental and regulatory affairs at Western Potash said, “[q]uite frankly, we’ve known that we need to do an environmental impact assessment and we’ve been working on that for two years now.”

The EIA is expected to take four to five months to complete and will include negotiations with Regina to use treated wastewater to supply the 400 liters of water per second required for solution mining of the Prairie Evaporite formation.

Potash demand looking to recover

Timing also appears to favor Western Potash’s call for capital. Potash stock data held by North American producers shows a growth of 274,000 tonnes last month to 3.29 MT on the back of positive sentiment in market demand.

The data shows a rise that pushes inventories to 49 percent above average levels and to the highest amount since late 2009.

“We continue to expect near-record global shipments in 2012, and a very strong North American spring season,” said Mosaic Co. (NYSE:MOS) CEO Jim Prokopanko.

High corn and soybean prices have been significantly responsible for confidence around North American demand as feared crop shortages in South America pushed soybean prices up 11.4 percent in the first three months of 2012.

Potash prices over the same period have remained relatively stagnant, fixed around the $500/tonne mark, having increased slightly by 1.2 percent according to The Mays Report.

Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company or resource mentioned in this article.