The K+S Board approved capital spending of up to CAD$ 3.25 billion for the project last November, clearing the final obstacle facing the Legacy project, which represents the first major greenfield potash project in Saskatchewan in the past 40 years. The mine is estimated to have an annual production capacity of 2.7 million tons. The Legacy project represents the future of potash for K+S, which is also a large salt supplier, as its German potash mines are expected to deplete in about 40 years; the Company’s production of potash in Germany has remained steady at 6.9 million tons, but it is expected to start dropping in the next few years.
Construction for the project has already begun including the road network, the electricity and water supply. The project had initially been developed by Potash One until K+S acquired the company in 2010. The Legacy project will start production in 2015 and apart the engineering, contracted to AMEC Americas, is already underway and the equipment tender and bidding process is already underway.
The price and outlook for potash has been the subject of some debate in the past month as farmers have held back on purchases of fertilizer; nevertheless, potash companies are optimistic that demand for this material will increase. K+S, the world’s fourth largest potash producer, is very optimistic as demonstrated by its eagerness to proceed with the Legacy project. Indeed, bucking potash investors’ fears and predictions from Russia’s Uralkali and Canada’s Potash Corporation, respectively the world’s number two and number one potash producers, K+S expects strong demand for fertilizer in 2012 and beyond. Last March, the company announced higher earnings than analysts’ forecasts.
The Company’s CEO, Norbert Steiner, expects the price of agricultural raw materials to remain high leading to sustained fertilizer demand from farmers, even if such demand, typically involving early stocking-up of crop nutrients, has been ‘postponed’ due to trade uncertainties at the end of 2011 caused by the prolonged European debt crisis and slow economic recovery in the United States. K+S’s optimism about the resumption potash demand has already shown its fruits as some of the largest global buyers have placed large contracts for the second quarter of 2012. Israel Chemicals Ltd has signed a deal to provide China with 550,000 tons of potash at a price of USD$ 470/ton (the same as 2011). At the end of March China’s Sinofert and Sinochem had already placed potash orders, while India remains on hold. Potash prices should rebound later in the year, according to most analysts,as a drought in South America is causinga shortage in soybean, leading to higher demand – and prices - for canola, palm oil and corn, all fertilizer intensive crops.