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Feeding the World: the case for potash

 

http://www.bhp.com/media-and-insights/pros...case-for-potash

The BHP view of potash is a very bullish one. It sees demand for potash doubling by the late 2040s. The case is credible. As the world's population continues to grow and the living standards in the key developing economies continue to rise, the average calorie intake will increase and the need for higher crop production will intensify.

 

Yet the availability of arable land, on a per capita basis, is already shrinking and will inevitably fall further. That implies a need for greater yields from the land that is available, which in turn points to increasing demand for nutrients like potash.

 

It is a compelling long-term story. The problem, at the moment at least, lies on the supply side.

 

When BHP bid for Potash in 2010 (ultimately blocked by the Canadian government), potash was selling at close to $US900 a tonne and the market was effectively controlled by two loosely-co-ordinated cartels, a Canadian-led cartel headed by Potash Corp and a Russian partnership between Uralkali and Belaruskali that fell apart in 2013.

 

While prices have come off last year's lows of close to $US150 a tonne, they are still only around the $US220 to $US230 a tonne level.

 

The breakup of the Russian cartel led to volume rather than price-led marketing by those producers and along with the continuing entry of new production and producers, has exacerbated the glut of supply. There's also quite a lot of mothballed higher-cost capacity on the sidelines.

 

Last year Potash Corp and the other major North American producer, Agrium, announced a merger that only now appears to be nearing completion. Apart from the synergies, there is an expectation that the merger will add to the supply discipline of the Canadian cartel.

 

The bears on potash see no fundamental improvement in the supply-demand equation. The long-term growth rate in demand of about three per cent per annum ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ about one percentage point greater than global demand for grains ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ is attractive but there is substantial latent capacity available to meet it for the next decade or so.

 

Potash mines are very capital intensive and tricky to operate. There has been a consistent stream of withdrawals from the supply base ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ about five million tonnes a year ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ from resource depletion and damage to mines, which are very susceptible to water damage. Potash Corp has said it expects at least another seven million tonnes of supply to disappear from the market by 2020..

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WA potash miners hope to ride food boom

 

Several projects to produce potash from beneath WA salt lakes are being advanced, as investors hope to gain from growing demand for high quality food.

 

Source: AAP

8 HOURS AGO

 

A slew of junior explorers are advancing plans to mine potash in Western Australia, hoping to ride a boom in food production that is expected to boost demand for the fertiliser.

 

Five separate projects to produce Sulphate of Potash (SoP) from brine beneath WA salt lakes are currently undergoing pre-feasibility studies.

 

ASX-listed companies looking to develop local potash projects include Agrimin, Australian Potash, Kalium Lakes, BC Iron and Salt Lake Potash.

 

The businesses hope to benefit from potential future shortages in the fertiliser market that could replicate the current scramble for minerals such as lithium and graphite that are used to manufacture electric batteries.

 

Agrimin chief executive Mark Savich says the growing importance of greenhouses will fuel demand for good quality potash, just as the construction of battery plants has boosted demand for lithium.

 

"The demand and supply bubbling away in the background is quite similar to where lithium was ten years ago: three or four major suppliers, plus a cost curve that has very high secondary costs," he says.

 

The key ingredient of potash is potassium, one of the three main nutrients used in every crop, apart from nitrogen and phosphate.

 

Nearly 90 per cent of potash is in the form of potassium chloride or Muriate-of-Potash (MoP), while only 10 per cent is in the form of SoP - a chloride-free product that improves taste, appearance and shelf-life for higher-value foods such as fruits and vegetables, coffee and nuts.

 

Increasing consumption of fruits and vegetables, particularly in Asia, and a shortage of hydrochloric acid used in the manufacturing process has helped push up SoP prices in recent years and resulted in most new production coming from salt lakes.

 

A 2013 Geosciences Australia study that identified lakes in WA as highly prospective for potassium grabbed the attention of Matthew Shackleton, executive chairman of Australian Potash, which is developing the Lake Wells project, northeast of Kalgoorlie.

 

Lake Wells's 150,000 tonnes-per-annum first stage will generate about $42 million in free cash, while a full 300,000 tonnes operation could add $68 million, says Mr Shackleton.

 

Australian Potash, which counts veteran mining entrepreneur Mark Creasy among its investors, this week raised $3 million for project studies.

 

"The changing demographic across Asia is bringing more people into the middle-class and the first thing that people do when they get more money is want better food," Mr Shackleton says.

 

"Demand for this type of potash, because it promotes growth of those higher-quality foods, is unprecedented right now."

 

Mining giant BHP was similarly positive last month, revealing it was close to a final investment decision on the Jansen MoP project in Canada.

 

BHP forecast the world's population to grow 30 per cent by 2050, with crop demand expected to jump 50 per cent in that period.

 

Mr Savich, whose company already counts Australian Super as a backer for its 2,560 square kilometre export-focused Mackay project, says SoP demand will accelerate.

 

"SoP is running its own race at the moment - it is high-value and it is needed for fruits and vegetables every year," he said.

 

"For farmers, it's not a question of economics. You can't sell fruits and vegetables that don't look good."

 

http://www.sbs.com.au/news/article/2017/08...-ride-food-boom

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Thanks for that - surprised that Reward Minerals did not get even a mention - though its progress has been so glacial that it would be easy to ignore. I kicked the tyres of Kalium when it was being IPO'ed and came to the conclusion that some people could make a bundle from it, but the chances of me being one of those lucky folk was remote. From memory, the insiders hold half of the stock and are on very generous incentive packages with fairly low hurdles. I see it has a market cap about twice that of Reward but I'm not sure it has twice the potential of Reward.

 

A main stumbling block for all these local potash hopefuls is that they each requires hundreds of millions to be spent to get any revenue and even then it is not clear to me that the local product is competitive against Canada. There's a reason why a few years ago BHP tried to go all-in on Canadian potash but has shown no interest locally (they were blocked from taking over a major players on national interest grounds). Might be fertile ground for short term speculation (??).

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surprised that Reward Minerals did not get even a mention - though its progress has been so glacial that it would be easy to ignore

 

Know what you means. Had an interest in RWD many years ago - stopped following it - it was like watching grass grow. Not even sure what stage they are at now

 

I think with all these articles one needs to take them with a grain of salt - it's potash one day, graphite, lithium, cobalt, etc, the next. It makes sense to keep an eye on food/agricultural stocks, but I'm not expecting any rockets to take off any time soon. :)

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...but Eritrea needs and wants this industry and other miners are up and running.

 

I don't think funding is a huge hurdle it just comes down to how good the board is when it comes to getting this over the line. The capex is modest and the returns are very FAT. There are some larger holders who have positioned on the register so I am sure there is enough grunt to get the equity component over the line if they aren't taken out by and industry player.

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