The forecast is for more consolidation, stoked by a desire by traders to capture margins along the crop supply chain, by mining groups to extend into fertilizers, and by Asian and Middle Eastern countries wishing to increase food security.
IC Potash (ICP:TSX) is well positioned for strategic partnerships with global trading, fertilizer and mining companies.
IC Potash stands out in a crowded junior potash space ie there is a scarcity of low cost assets, with manageable process risk, a proven resource, unparalleled management bench strength, access to infrastructure, and a solid balance sheet.
IC Potash is positioning itself as a key player in the broader agrifood supply chain and a key factor in providing the Sulphate of Potash (SOP) inputs farmers need to grow more food sustainably.
Potash fertilizers will become top of mind for governments where food productivity is imperative with an urgent need to boost crop yields. Responding to attractive agricultural commodity prices, world fertilizer demand is anticipated to rise steadily.
SOP is a significant fertilizer used by producers of vegetables, fruits, tobacco, horticultural plants due to the fact it does not contain the chloride associated with MOP which can damage high value crops.
ICP is developing a world class, long life and low cost potash mine and production facility in Lea Country, southeast New Mexico, a stable and well-known mining jurisdiction where both the Mosaic Co. and Intrepid Potash are currently producing potash with excellent infrastructure with access to railways, ports, natural gas, roads and water. The vast majority of US potash reserves are in the region, including seven existing potash mines.
There are only three SOP producers in the world with naturally occurring sources of SOP and these producers have operating costs less than half the marginal producer, low-cost supply is scarce, and SOP demand is more stable than MOP.
IC Potash has a strategic shareholder base such as Resource Capital Funds, one of the world’s largest mining-focused private equity firms.
The foundation for IC Potash's process of turning polyhalite into SOP is based on previous work performed by the US Bureau of Mines (USBM) and the Potash Company of America (PCA). In its simplest form, the IC Potash process uses heat and water to produce a tailored brine similar to those occurring naturally in a small handful regions in the world. The front-end polyhalite-to-brine process has been proven historically and is well documented. The back-end brine-to-SOP process is currently being used around the world. Though the entire process has not yet been proven at commercial scale, the process risk is far from binary, with any issues now associated with optimization rather than feasibility.
The release of the Prefeasibility Study (PFS) was a material de-risking event for IC Potash.
With the PFS complete, negotiations with potential strategic marketing equity partners, distributers and/or end users can set in motion potential term sheets which are the pathway to monetizing the plan and create credit enhancement facilities to finance this massive resource into production. ICP is well positioned for strategic partnerships with global trading, fertilizer and mining companies.
This is the next catalyst.
The PFS provides for improved economics in almost all of the relevant metrics including lower opex and capex, and higher total production. Production is targeted for a 2015 start-up with a project life of 40 years beginning at a production rate of 568,000 short tons per annum of SOP plus 275,000 short tons per annum of potassium magnesium sulphate (SOPM). Opex per ton of production is $147, which is well below the industry norm (near $400 per ton) and even the lower cost producers (above $200 per ton). The prefeasibility computes a $1.3 billion after-tax NPV and a 26% IRR.
Development capex totals $706 million, which is low relative to most junior potash projects. ICP’s project does not require the same large scale of production as many of the other leading junior potash projects (i.e. Western Potash requires $2.8 billion for its project).
Many analysts continue to prefer SOP over MOP juniors, and as one of only two players in the space, continue to really like the ICP story.
ICP's asset is huge, potentially providing multi million tons of product into a market where 60% of capacity comes from players with over triple the opcosts.
Given this, and the scarcity of low cost assets, analysts believe this project gets built, unlike the vast majority of MOP projects.
ICP currently trades at less than 0.25 x NAV based on the most recent analyst research report which had a $4.16 per share NAV calculation using a 12% discount rate.
IC Potash has 7 analysts with strong buy ratings and targets as high as $2.50.