There are two sides to this story, since MOP (The common form of potash that is currently over supplied and underperforming), SOP (the non-chloride form of potash) commands a hefty premium and is now in high demand.
We reviewed the current shift in the potash industry and discovered that Potash Ridge Corp. (OTC: POTRF / TSX.V: PRK), a junior resource company, is uniquely positioned to become the smart value player in the premium potash segment. The company is pouring all of its resources into its Blawn Mountain prospect in Utah, which stands to make Potash Ridge the lowest cost producer in the market.
Investors looking to take advantage of the situation will see why we are big on Potash Ridge.
The world is continually losing its supplies of arable land that can be used to produce food. We can argue why it’s happening – climate change, crop saturation, urbanization and many other factors – but the reality is that it is happening, and fast.
In fact, Earth has lost a third of arable land in past 40 years, scientists say. (1)
At the same time, the world’s population continues to boom. Over the next three years, we can expect there to be 7.7 billion people on the planet. (2)
That’s a lot of mouths to feed.
These are not new problems, but they do require new solutions to help feed the billions of people who rely on just a few regions to supply food.
The simplest and most widespread solution is the use of fertilizers. These can increase crop yield and provide higher quality food products with less defects. They can also bring down the cost to produce food.
Of the leading fertilizers, potash is a vital answer.
Potash is a generic term that refers to a group of potassium-bearing minerals, naturally occurring potassium salts and the products produced from those salts.
Here’s why potash is so important:
Potash is a plant’s main source of potassium. It is one of the four primary nutrients required for plant growth. The remaining three nutrients are Nitrogen, Phosphate and Sulphur.
Potash is used as a highly effective fertilizer routinely in the major food and crop growing regions especially China, Brazil and North America.
While potash is widely available –there is currently enough over supply to have the major producers of Muriate of Potash (MOP) close plants in order to limit supply imbalances – the more specialized Sulfate of Potash (SOP) is in more in demand than ever, with very few supply sources.
This is the basis for an excellent opportunity to leverage SOP resources in a big way.
Not All Potash is Equal
There are two forms of potash, both used as fertilizer, but differentiated by their makeup and pricing model.
Muriate of Potash (MOP) also known as Potassium Chloride (KCI), is widely used in all types of farming, but contains a chloride ion that can be detrimental towards plant growth, especially fruits and vegetables.
If the chloride content isn’t managed, it can lead to low quality crops and inhibit place growth in dry soils and saline areas.
Sulphate of Potash (SOP) is the most commonly used non-chloride potash fertilizer in the world, with an annual worldwide demand of 6 million short tonnes per year (3).
It can be sold as a powder for use in compound fertilizers containing nitrogen, phosphate, potassium, and sulphate, as a granular product for direct application, or as a soluble product for use in fertigation.
SOP is priced at a premium to MOP, and is utilized for sensitive, high-value crops including many fruits, vegetables, tobacco and tree crops such as nuts.
China is the largest consumer and producer of SOP with the total demand of 43%.
In China, the use of SOP is driven by a significant tobacco production as it is the largest tobacco producer in the world.
China is the main exporter of SOP fertilizer and has a production capacity of approximately 4 million tonnes.
Broad Market for Potash Shows Stable Growth Solid
In late 2017, the largest producer of potash, PotashCorp of Saskatchewan, Canada proposed a merger with one of the other largest producers, Agrium, Inc.
Analysts see the merger as a move to galvanize the marketplace.
According to PotashCorp, the demand for potash and the strength in global demand will continue this year. It’s expected to be 62 million–65 million tons in 2017, which will be up from ~60 million tons in 2016.
Potash prices have bounced back stronger too.
Granular potash prices in Brazil have risen as much as 17% YoY (year-over-year) to $274 as of October. In the US Corn belt region, prices have risen ~5% YoY. The standard grade of potash was also 5% higher YoY in the South East Asia region.
The global Potash Fertilizers Market is expanding with considerable growth potential during the next five years.
PotashCorp projects anywhere between 2.5% and 3% CAGR in potash consumption. (4)
The wide potash market has pulled back since its highs prior to 2008, mostly due to over production.
Still, demand for the mineral is growing and the major producers have managed to help bring pricing in line with demand by limiting production.
Our research shows that the SOP segment is a quiet performer that’s being largely ignored within the potash space.
SOP Is the Premium Product Potash Ridge Plans to Produce in the US
Potash Ridge is a junior resource company based in Toronto, Canada. It holds two highly de-risked and advanced development stage potassium sulphate (SOP) projects; the Blawn Mountain Project in Utah, and the Valleyfield project in Quebec, Canada.
Potash Ridge just announced plans to spin-out the Valleyfield project into another public company in order to create greater value and focus its efforts on the development of its proposed 255,000 ton per year project at Blawn Mountain.
This will provide Potash Ridge with further value and the ability to apply all of its resources to its Utah assets.
The Blawn Mountain Project is comprised of four areas of alunite mineralization covering approximately 11,550 acres of land owned by SITLA (State of Utah School and Institutional Trust Lands Administration) near Milford, Utah.
State-owned land provides Potash Ridge with several advantages including a simpler permitting process, leasehold and royalty agreements in place and no environmental, social or aboriginal issues.
Most importantly, the Blawn Mountain project has the support of both the municipality and state.
The region has all the necessary infrastructure to support in place to accommodate the development of the Blawn Mountain Project, including nearby highway and rail access.
Extensive development was completed on the leases in the 1970s including a mine plan, feasibility study and 3-year pilot plant operation.
A prefeasibility study in 2016 showed Blawn Mountain to have proven and probable mineral reserves of 153 million tons; reserves that support a 46-year project life with an average of 255,000 tons of potassium sulphate per annum during first 10 years of operation after ramp-up.
Potash Ridge plans to extract alunite – the potash mineral –through surface mining operations, considered much lower-cost and lower-risk than underground mining operations.
There are two methods used in the production of SOP.
Primary production methods include directly extracting SOP from mineral ores containing both potassium and sulphate.
This method is currently fairly rare and may yield by-products, which can contribute additional revenue.
Potash Ridge plans to use this method of production at the Blawn Mountain Project.
The most common secondary production method is referred to as the Mannheim Process and involves the reaction of KCI with sulphuric acid.
This method for producing SOP accounts for 50% to 60% of the global production.
The Mannheim Process is the most expensive method of producing SOP due to energy requirements and high cost of purchasing MOP and sulphuric acid.
Potash Ridge will rely on direct extraction methods to become the lowest cost producer of premium SOP in North America.
Using this approach, Potash Ridge expects to produce from its Blawn Mountain prospect for about $250 per tonne all in. That’s compared to an industry average cost to produce SOP of roughly $550 per tonne.
This is a huge advantage for Potash Ridge.
There’s No Such Thing as a Sure Thing
Somethings are inevitable, besides death and taxes. These include the rising population and the need to feed people. For that reason, we really like the potash space and Potash Ridge’s approach.
The companies that sell MOP will continue to see predictable prices through production controls and increases in market demand. The industry CAGR of around 3% is reasonable, and there will likely be upward movement as the big players join forces in the M&A game.
But there’s another side to the potash market and that’s where we see Potash Ridge leaping ahead. It’s also where early investors can look for rewards by getting ahead of market moves.
FEATURE STOCK: FOR COMPARISON
OTC: POTRF // TSX.V: PRK
Market Cap: $21.617 million
Potash Ridge Corporation explores, develops, and produces mineral properties in North America. The company explores for alunite deposits to produce sulphate of potash, sulphuric acid, and alumina. It principal mineral project is the Blawn Mountain project covering an area of approximately 15,403 acres of land located in Beaver County, Utah. Potash Ridge Corporation was incorporated in 2011 and is based in Toronto, Canada.
Potash Leaders: Big Gains Already Built in, But Good Models to Study
We’ve offered a few of the leading potash companies who dominate the potash space. These stocks represent some of the largest and most mature potash companies who have already experienced initial growth, so those milestones are built in to their prices. It’s unlikely they will achieve the kind exponential growth that our feature company could produce, but they are great models for solid growth and well managed potash players.
NYSE: POT // TSX: POT
Market Cap: $16.25 million
Potash Corporation of Saskatchewan Inc., together with its subsidiaries, produces and sells fertilizers, and related industrial and feed products worldwide. It operates in three segments: Potash, Nitrogen, and Phosphate. It owns and operates five potash mines in Saskatchewan and one potash mine in New Brunswick. The company was founded in 1953 and is headquartered in Saskatoon, Canada.
The Mosaic Company (MOS)
NYSE: MOS //
Market Cap: $8.41 billion
The Mosaic Company, through its subsidiaries, produces and markets concentrated phosphate and potash crop nutrients worldwide. The company operates through three segments: Phosphates, Potash, and International Distribution. The company also produces and sells potash for use in the manufacturing of mixed crop nutrients and animal feed ingredients, and for industrial use; and for use in the de-icing and as a water softener regenerant, as well as fluorosilicic acid for water fluoridation. The Mosaic Company was founded in 2004 and is headquartered in Plymouth, Minnesota.
Compass Minerals International, Inc.
Market Cap: $2.356 million
Compass Minerals is a leading provider of essential minerals that solve nature’s challenges, including salt for winter roadway safety and other consumer, industrial and agricultural uses, and specialty plant nutrition minerals that improve the quality and yield of crops. The company produces its minerals at locations throughout the U.S., Canada, Brazil and the U.K.
Market Cap: $14.89 million
Agrium Inc. produces, markets, and distributes crop nutrients, crop protection products, seeds, and merchandise products primarily in the United States, Canada, Australia, and South America. It operates in Retail and Wholesale segments. The company was formerly known as Cominco Fertilizers Ltd. and changed its name to Agrium Inc. in 1995. Agrium Inc. was founded in 1931 and is headquartered in Calgary, Canada.
Potash Ridge is completely focused on its SOP production at Blawn Mountain in Utah. At production, Potash Ridge will be one of the only producers of SOP in the United States, and potentially the only one using their direct extraction method from surface mining.
They have the opportunity to be North America’s lowest cost producer.
We think that puts them way ahead of the curve, having the foresight to position for increases in demand of SOP.
We also really like the fact that the company has established itself as a pure-play SOP potash company with a 100% domestic property in a mining-friendly jurisdiction. Utah is the perfect home for SOP development.
There is massive opportunity right now in the uncertainty of this market, and we expect the fundamentals to be re-balanced in the near-term.
MOP fundamentals might take a bit to rebalance as the global supply-demand picture vacillates. For our readers, that’s a positive.
We are confident that the premium-priced potash, SOP, is an emerging winner, which gives us reason to focus on junior resource companies, particularly Potash Ridge.
This company has a strong asset base with real promise for the long-term development of a much needed product. Here’s what we think makes SOP a winner:
- SOP markets have very attractive pricing
- There is a significant supply deficit on the SOP side
- SOP has a limited new production pipeline
- SOP demand is growing rapidly in world markets
Potash Ridge stands to leverage its position:
- the lowest cost producer in North America
- located in a mining friendly jurisdiction
- focused on serving California market with soluble SOP
- initial production rate of 255,000 tons per year
- 45+ years proven and probable reserves
- all permits and water rights secured for Blawn Mountain
- all infrastructure within 30 miles
- well-funded and already to advance
- capable management with proven ability to bring projects to production
While MOP might be experiencing a glut right now, that is expected to soon be rebalanced. Couple that with the fact that supply for SOP is tight, and the margins for SOP become increasingly attractive, creating a great spot for juniors breaking into a high-reward versus risk opportunity.
Potash Ridge is poised to be the premier producer of SOP in North America in the next several years. We believe that early investors getting ahead of the rise of in demand of potash supplies will see the biggest gains.
USA News Group
(3) Report Text: (Global SOP Market: Trends & Opportunities (2013-2018) – https://www.scribd.com/presentation/176494443/Global-Sulfate-of-Potash-SOP-Fertilizer-Market-Trends-Opportunities-2013-2018-Daedal-Research
(5) Potash Corp: http://potashcorp.com
(6) The Mosaic Company: http://mosaicco.com
(7) Compass Minerals: http://compassminerals.com
(8) Agrium Inc.: http://agrium.com
(9) Potash Ridge: http://potashridge.com
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