China, India, and Brazil anxious to lock-in ownership of long-term, overseas supplies
With potash prices spikinghigher in response to surging global foods costs, the world’s mostadvanced “independent” potash project is in the cross-hairs of anincreasing number of deep-pocketed suitors.
So say a number of investment industry mining sector analysts who have been following the rising fortunes of Western Potash Corp. (TSX: T.WPX, Stock Forum). Just last week, the Vancouver-based aspiring miner demonstrated why it would be quite a catch.
It did so by announcing a major benchmark development – thepublication of a better-than-expected pre-feasibility study (an initialblueprint for a mine). One that attests to the robust economics of aworld-class mine in-the-making.
Commenting on this “solid” development, which significantly de-risksthe company’s Saskatchewan-based project, Scotia Capital analyst BenIsaacson says Western Potash has become especially attractive to theworld’s potash-hungry emerging super-powers.
“We would not be surprised to see a SEO (state-owned-enterprise)take a run at WPX in the near-term,” he says in a research report datedNovember 01, 2011.
Like several of his peers, this analyst for a major Canadianinvestment bank believes that at least one government-financed suitormay be poised try to gobble-up Western Potash. He highlighted China,India and Brazil as being very anxious to lock-in ownership oflong-term overseas potash supplies.
Weighing in Western Potash’s favour is the fact that its project,known as Milestone, boasts a projected annual production of up to 2.8million tonnes of potash. And it has an anticipated minimum 40-yearmine life. Another big plus is that the pricing of this future outputisn’t going to be set by the cartel that controls all of Saskatchewan’sexisting potash sales.
The project’s “independent” status is of significant strategic valueto any end-user (such as a foreign fertilizer company) that buys intothis 945-million-tonne resource, according to analysts. Especiallysince the cartel, known as Canpotex, is notorious for demanding loftyprices. It is the marketing arm of Saskatchewan’s three dominant potashproducers. Canpotex’s “take it or leave it” mindset has been long beena thorn in the side of China, its biggest customer.
Max Vichniakov, a Toronto-based analyst for the investment bankOctagon Capital, believes that India would also likely find it far morecost effective to deal with Western Potash, rather than negotiatingpricing with the likes of Canpotex.
“Indians have particularly been struggling to secure a potash supplythis past year,” he told the mining news website Mineweb.com. “So toparticipate or acquire a project like Milestone would probably makemore sense for the end users (Indian or Chinese fertilizer companies orgovernment entities/funds) than for producers.”
His reference to “producers” alludes to the major mining companiesalready established in Saskatchewan’s expansive potash fields – PotashCorp, Vale, Rio Tinto, BHP Billiton and Acron/North Atlantic Potash. Heargues that they already have their hands full with existing potashmines and in-development projects.
However, fellow mining analyst Jaret Anderson disagrees. TheToronto-based researcher for the investment bank Mackie ResearchCapital says: “I believe there are many logical partners/buyers forWestern Potash…including diversified mining companies seeking to enterthe potash business.”
“The continuing attraction of some of the largest global miningcompanies to Saskatchewan is a positive development for the greenfieldpotash developers in our coverage universe, especially WPX,” he said inprevious coverage of the mining junior.
He also notes that the Milestone property is adjacent to potashprojects owned by the mining heavyweights BHP Billiton, Vale and RioTinto/JSC Acron.
“Not a bad position to be in,” he concludes.
By way of background, some of the world’s biggest miners have beenaggressively vying to muscle their way into Saskatchewan’s increasinglylucrative potash mining business over the past several years. Thismineral-rich province hosts about half of the world’s potash reservesand produces about a third of global output.
Joel Jackson, a Toronto-based analyst for a major Canadian bank, BMOCapital Markets, points out that all the other comparable assets tothe Milestone deposit have already been snapped up.
“WPX is the last of an initial high-profile early potash boomgraduating class (WPX, Anglo Potash, Potash One, MagIndustries,Athabasca Potash) not to be acquired…” he hints.
Meanwhile, John Costigan, a spokesperson for Western Potash, isquick to diffuse any suggestions that either a takeover or a jointventure deal is imminent.
“Building further value into the Milestone Project is our focusright now, rather than completing any kind of industry transaction. Atthe same time, we want to continue to significantly de-risk the projectby undertaking a full feasibility study,” he says.
Meanwhile, time appears to be on Western Potash’s side. In fact,continued strong demand for potash as the key ingredient to boostingcrop yields is almost assured. Set against a backdrop of a burgeoningglobal population that just reached the seven-billion mark, this bodesespecially well for supply/demand fundamentals.