Cultivate - The future of potash miningDon"t think this was post before.
Cultivate - The future of potash mining
November 2013
The end of an era
Despite the importance of potash in agriculture and the size of the market, potash is not traded on any exchange. About two-thirds of global production capacity has, until quite recently, been controlled by two major companies: Belarusian Potash Co (BPC) and Canpotex Ltd.
BPC is an export sales joint venture between Belarus’s Belaruskali and Russia’s OAO Uralkali. Canpotex is a similar venture between the three biggest North American producers: the Canadian Potash Corp of Saskatchewan Inc, Agrium Inc, and the US Mosaic Co.
BPC and Canpotex would each negotiate sales contracts, sometimes with entire countries, at a fixed price that would become the global benchmark for months at a time. They would then adjust output to support market prices.
30 July 2013 saw the public announcement of the break-up of BPC – a sudden move driven by the growing dissatisfaction of both partners of BPC with the actions of the other. The shock announcement caused the share prices of potash companies to drop sharply, by more than 20 per cent in some cases.
Uralkali’s strategy was always one of ‘price over volume’, but given the break-up it is now free to pursue a greater market share by agreeing lower prices. Uralkali has suggested that prices may fall by up to 25 per cent as competitors compete for market share, as reported by The Financial Times1.
This has prompted serious concerns for some investors about the future of potash prices and the consequences of a price war between the largest producers2.
Enter new players
New entrants to the potash mining sector are seeking to take advantage of potash deposits in new areas, including the Republic of Congo and Ethiopia.
One of these junior miners is Allana Potash Corp, listed on the TSX. Allana’s flagship asset is its Ethiopia Potash Project in the Danakil depression in north-eastern Ethiopia. Ethiopian potash deposits in this region are well known and highly concentrated. The Danakil depression is an atypical potash reserve, making it comparatively easily accessible, and therefore less costly to extract. Given the recent changes to the potash market, potential offtakers and equity investors are increasingly interested in Allana’s lowcost production potential.
BHP Billiton has also confirmed that it will go ahead with the development of its Jansen project in Canada, albeit with a slower timetable.
The fact that new entrants – such as Allana and Billiton – are continuing to progress their projects indicates that market players recognise the ‘compelling long-term fundamentals of the potash industry’ outlined by The Financial Times3.
Enter new players
New entrants to the potash mining sector are seeking to take advantage of potash deposits in new areas, including the Republic of Congo and Ethiopia.
One of these junior miners is Allana Potash Corp, listed on the TSX. Allana’s flagship asset is its Ethiopia Potash Project in the Danakil depression in north-eastern Ethiopia. Ethiopian potash deposits in this region are well known and highly concentrated. The Danakil depression is an atypical potash reserve, making it comparatively easily accessible, and therefore less costly to extract. Given the recent changes to the potash market, potential offtakers and equity investors are increasingly interested in Allana’s lowcost production potential.
BHP Billiton has also confirmed that it will go ahead with the development of its Jansen project in Canada, albeit with a slower timetable.
The fact that new entrants – such as Allana and Billiton – are continuing to progress their projects indicates that market players recognise the ‘compelling long-term fundamentals of the potash industry’ outlined by The Financial Times3.
Potash today
Footnotes