Potash Forecast:In 2012 and beyond, Potash is probably ranked as the most important natural resource for the world given it's importance for food and lack of new supply. With large supply of Phosphate to come out from Morocco and Saudi Arabia beyond 2012, this component of the NPK fertilizer is not s attractive as Potash to invest in. NPK will always be the choice for farmers, especially in places such as India and China as that's the method used for 100s of years. So inspite of some of these new lab developed/experimented fertilizer, food natural nutrient will be NPK. Of course, Nitrogen will never be an issue, but Potash will and that's why it's ranked ahead of resources such as oil & gas or precious metals such as gold or silver. There are enormous amounts of oil & gas being found all over the world (offshore Brazil alone has over 200 billion barrels of oil and those large gas shales all over the world will keep gas prices very low) and what will people do with gold other than hold it as an asset class that varies in value with interest rate risks?
Potash Forecast:
From Dec 1st, 2011:
https://potashinvestingnews.com/4347-india-fertilizer-potash-phosphate-discount-price.html
“There won’t be a price revision, we cannot offer discounts for individual markets while global demand is high and our plants are working at full capacity,” Vladislav Baumgertner, CEO of Uralkali, said in an emailed statement. Potash producers are currently facing an unprecedented challenge to increase output in order to meet growing demand for the crop nutrient. Record-high soft commodity prices have increased farmer’s incentives to maximize yields, and the best way to maximize yields is to fertilize.
Potash headed over $600 per tonne in 2012?
https://www.miningweekly.com/article/potash-prices-could-beat-650t-by-end-2012-2011-08-31
Dated Nov 24th, 2011:
www.scotiacapital.com/English/bns_econ/bnscomod.pdf
"Potash prices (FOB Vancouver) also inched up to US$502 per tonne in October, as Canpotex and BPC implemented a price increase in Brazil and Southeast Asia. Given uncertainty over the global economic outlook, producers may hold off on additional price increases until next year."
Top 3 Picks in the Space by rank:
1. Allana Potash (2 to 3 years time line)
1. Ethiopian Potash (1 year time line)
3. Potash Corp
Of course Potash Corp is a large cap if you wanted to invest in a large company but in the junior space, nothing comes close to AAA and FED given their low CAPEX and OPEX costs. Allana is my top pick if you have a time line of 2 to 3 years. If you have a time line of 1 year, then FED would be my top pick, here's the reasons:
2 to 3 years top pick - Allana:
No other junior has the financial backing that Allana has and almost guarantees that they will be completing a mine in 2 to 3 years time. I just don't see them being take out before they start production given the investment from the World Bank. By the time they start production (2 to 3 years from now), Allana will be worth North of $1.5 billion meaning we should see their share price between $8 to $10. After they start production, they can then sell themselves to BHP or someone else for north of $15 per share (approximately $4 billion) in 4 years time if they choose to.
1 year or less top pick - Ethiopian Potash (FED.V):
FED is now entering the stage where Allana stock price started it's run up, that is they are now about to release assay results (FED is expected to release first results this week). Their results should be just as good as Allana's or better given they had first choice in choosing their land (they were in the basin before Allana) and their geologists probably did some preliminary work to determine which section to stake out. Also, their deposit is shallower than Allana's making it more likely they will have an open pit mine. But despite having their section staked before Allana, their management has not matched up to Allana's and is the reason why they are currently valued less than Allana. I don't see this company ever getting to a mine building stage given what I think management wants - In my opinion they piggy backed on Allana purposely to get to this stage where by they can just release a 43-101 report and prove more than a billion tonne resources at shallow depth and get taken out. I am sure they are not going to get a feasibility report done (they can use Allana's as a proxy) and they will be bought out most likely by BHP for approximately $500 million in less than a year's time. It's the most likely scenario given BHP's hunger for potash and this would be the deposit that gets them producing faster than any other due to open pit mining. Also, BHP was late to the party in Ethiopia and their sections are not as good as the others but FED would certainly bring them in the game and they can later take out Allana to give them a significant amount of production out of Ethiopia.
Conclusion of my opinion - BHP takes out FED after their 43-101 report in 2012 (for approximately $500 million or more) and then takes out Allana somewhere around 2015 for approximately $4 billion to give them significant production amounts.