Withgrowing grain prices and burgeoning fertilizer demand tipped tomakepotash one of the hottest commodities of the next few years,investorsare flocking to potash stocks in burgeoning numbers—but thisweek was notwithout turbulence.
Major firms areseeing multi-year highs: Potash Corp. of Saskatchewan(POT:TSX) closedFriday trading at $186.99,its highest level since late2008, Agrium Inc.(AGU:NYSE) is also at an over two-year high at $98.49,as is the MosaicCompany (MOS:US) at $88.57.
That’s impressiveenough, but down in the minor leagues, investors arebuying juniorpotash stocks in a frenzy not seen since the price ofpotash spiked up inthe first half of 2008. And the gains made so far in2011 have beennothing short of amazing.
AllanaPotash Corp. (AAA:TSX-V) shares have shot up over 200% sinceJanuary 1,hitting a new 52-week high of $2.43 on Wednesday—but declinedto $1.69 bythe end of the week. Encanto Potash Corp. (EPO:TSX-V) hit a52-week high of 65 cents on Feb. 9, and currently trades at 53 cents.ICPotash Corp. (ICP:TSX-V) set a 52-week high of $1.89 on Feb. 11,sinceslipping to $1.81. And Western Potash Corp. (WPX:TSX-V) hit a52-weekhigh of $1.70 on Feb 9, edging down to $1.69 at press time.
Analystspredict growing inflation in top consumers such as China, tocombinewith looming food shortages to keep prices heading upward for atleastthe near and medium terms. Initially the major potash firms saw aburstof investment, but as the majors’ share prices steadily increasemanyinvestors are looking for riskier—but potentially muchmorelucrative—stocks among the small-cap set.
Interestingly,the riskier early-stage potash plays, such as MarifilMines Ltd.(MFM:TSX-V; 50-week high of 44 cents on Feb 8) and PassportPotash Inc.(PPI:TSX-V; 52-week high of $1.86 on Feb 9) are seeingsubstantially moreinflow than the more predictable advanced plays.
Butis this rush to invest in higher-risk, early-stage plays rational?Theproof, as they say, is in the potash. The pressure is on thesejuniorfirms to deliver—the major firms will come calling with lucrativebuyoutoffers if they can develop something promising.
Afterthe last run on potash stocks in 2008, the star junior stocksfrom thatperiod, such as Potash One Inc. (KCL:TSX-V), Athabasca PotashInc. andAnglo Potash Inc., were bought out by the majors. Thecurrentwave of investors are banking on the latest leading juniors suchasAllana, Encanto and IC Potash getting snapped up in the next waveofacquisitions—and considering the heightening M&A activity inthepotash sector, these acquisitions could well start sooner ratherthanlater.
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