Dec. 19, 2017
The world's biggest producer of potash used in fertilizers says it is temporarily cutting production at two mines to help balance supply output. It's a move that is also likely to help strengthen the global price for potash, which has been rebounding this year.
Potash companies that are suddenly on investors' radar as a result include Potash Ridge (TSX: PRK) (OTC: POTRF), Potash Corporation of Saskatchewan Inc. (TSX: POT) (NYSE: POT), The Mosaic Company (NYSE: MOS), and Uralkali (URAYY).
About 95% of potash is used for fertilizer in agriculture with the remaining 5% used in commercial and industrial products such as soap. Where potassium is deficient in the soil, potash fertilizers can correct the problem and boost crop yields and quality.
Large producers of potash have benefited from stronger pricing over the last year and even smaller producers are leveraging the rise. One junior mining company getting attention for its North American interests is Potash Ridge (TSX: PRK) (OTC: POTRF), which is a potential near term producer in Utah and Quebec.
Large miners have seen an increase in global demand for potash this year, but are moving to balance supplies in the areas they service including Potash Corporation of Saskatchewan Inc. (TSX: POT) (NYSE: POT), the world's largest supplier, The Mosaic Company (NYSE: MOS) a large global producer based in Minnesota, and Uralkali (URAYY), the Russian fertilizer production company with operations around the world.
POTASH HELPS FEED THE WORLD
Potash is a naturally occurring mineral created during the evaporation of ancient sea beds. Potash is also referred to as Muriate of Potash or Potassium Chloride (MOP) and Sulphate of Potash (SOP) or Potassium Sulphate.
Potassium is one of the three primary crop nutrients required for plant growth. Potassium serves as the "Regulator" of many essential processes within the plant.
MOP, which is also known as 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.
MOP is the most widely used potassium fertilizer and has a global market size of about 55 million tons per year.
POTASH SUPPLIES STABLE, GROWING
Potash supplies have remained stable over the last year and show continued growth.
According to the report on the Potash Fertilizers Market Global Forecast to 2022 published by MarketsandMarkets, the global market is projected to reach USD 28.45 Billion by 2022 in terms of value, at a CAGR of 4.49% from USD 22.83 Billion in 2017.
The global Potash Fertilizers Market is expanding with considerable growth potential during the next five years. The growth of this market can be attributed to the need for higher productivity using limited land area and increase in applicability of potash fertilizers.
MOVES BY MAJORS ADD STRENGTH
Potash Corporation of Saskatchewan Inc., the world's largest producer, says it's temporarily cutting production at two mines to balance its overall output.
The Saskatoon-based company has announced that it will curtail production at its Allan mine for 10 weeks beginning in November, and at its Lanigan operation for eight weeks starting in December.
This move by PotashCorp. follows similar moves by other major suppliers who have temporarily cut production at several mines worldwide. An overabundance of potash has slowed pricing, but has not slowed demand.
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.
PotashCorp is in the midst of a merger with Agrium Inc. that Canadian Competition Bureau OK'd last week, with the companies expecting approvals from the U.S., India, and China before the end of the year.
Potash prices have bounced back stronger this year. Granular potash prices in Brazil have risen as much as 17% YoY (year-over-year) to $274 as of the week ending October 6. 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.
JUNIOR POTASH RIDGE BRINGS PREMIUM TO MARKET
While MOP pricing continues to hold value, higher premium SOP potash could be a boon for juniors looking to develop resources, especially Potash Ridge.
Potash Ridge Corporation is in the fortunate position of having two highly de-risked and advanced development stage potassium sulphate (SOP) projects with its Blawn Mountain assets in Utah and its strategically located Valleyfield project in Quebec, Canada.
Both projects are well received in their respective jurisdictions and have garnered strong support from the various levels of government, agencies, financial groups, and stakeholders in their locale.
The company has just announced plans to spin-out the Valleyfield project 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.
The project is in its final stages of completion with all major environmental and regulatory permits in place. With a before tax NPV of $482MM, Blawn Mountain has the potential to become a significant and lowest cost producer SOP in North America.
Potash Ridge is one of very few junior public companies devoted to developing a pure SOP project, and may be the only one headed for near term production.
The opportunities for potash producers could shift as even more as the merger between PotashCorp and Agrium shift into high gear this winter.
In the meantime, curtailment by majors, including PotashCorp. should add balance to supplies and add price momentum to a market looking for an even stronger 2018.
Potash Corporation of Saskatchewan Inc. (TSX: POT) (NYSE: POT)
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. The company's products primarily include standard and granular potash; diammonium phosphate, monoammonium phosphate, and phosphoric acid; and ammonia, urea, nitric acid, ammonium nitrate, and nitrogen solutions, as well as purified acids and phosphate feed products. 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 (NYSE: MOS)
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. It owns and operates mines, which produce concentrated phosphate crop nutrients, such as diammonium phosphate, monoammonium phosphate, and ammoniated phosphate products; and phosphate-based animal feed ingredients primarily under the Biofos and Nexfos brand names. 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.
Public Joint Stock Company Uralkali, together with its subsidiaries, engages in the extraction, production, and sale of potash fertilizers. It holds operating licenses for the extraction of potassium, magnesium, and sodium salts from the Durimanskiy, Bigelsko-Troitsky, Solikamskiy, Novo-Solikamskiy, and Romanovskoye plots of the Verkhnekamskoye field. The company also owns a license for the Ust'-Yaivinskiy plot and the Polovodovskiy plot of the Verkhnekamskoye field. It produces standard and granular muriate of potash; and carnallite and sodium chloride. In addition, the company provides construction, repair and maintenance, transportation, sea terminal, IT, and trading services. It has operations in Russia, China, India, Southeast Asia, Latin America, the United States, Europe, and other countries. The company was founded in 1930 and is based in Berezniki, Russia.