ICP's Ochoa Project I too expect IC Potash (ICP:TSX) shares to move towards Yara’s investment price ($1.32), and begin to close the gap to analysts’ upgraded targets of $2.50.
The Yara transaction speaks not only to the value of the asset, but also to the attractiveness of the industry, and the ability of management to advance the project in a challenging market.
With this deal, ICP has:
$60 MM in cash
minimized future dilution
increased the creditworthiness of the company
allayed any remaining process risk concerns
structured a transaction which should not preclude other players from making further strategic investments, signing offtakes or acquiring ICP outright
and most importantly, squarely put ICP in the pole position in the race to develop low cost unconventional SOP supply.
The Ochoa Project is located in southeast New Mexico, a highly industrial region in the United States. Southeast New Mexico has a long history of producing potash from mines currently owned by two large producers, The Mosaic Company and Intrepid Potash, and contains the largest known concentration of potash reserves in the United States.
The United States potash industry was initiated during World War I as the result of a German embargo that drove prices above $450 per metric ton. At the time, the United States government mandated the Bureau of Land Management to find a domestic source of potassium based salts (potash) to ensure United States security of supply. As a result of this initiative, the potash deposits in Eddy County, southeast New Mexico, were discovered in 1925 and the first commercial production occurred in 1931.
New Mexico accounts for more than 77% of potash produced in the United States and approximately 19% of the potash used in the United States. This translates into significant tax revenues for the state and employment for New Mexican residents. For this reason, New Mexico is a leading state in terms of expertise related to the construction, operations, and processing of potash.
IC Potash's Ochoa project is located directly southeast of this historic potash region, referred to as the "Known Potash Leasing Area". This provides IC Potash with excellent access to infrastructure and skilled labour.
The Permian-age Capitan reef is a confined aquifer that is recognized by the New Mexico Office of the State Engineer and U.S. Geological Survey as a significant brackish water resource with a history of industrial use.
The Capitan aquifer is the most viable water supply option for the Ochoa project because (1) no water rights are needed to develop deep brackish water in New Mexico, (2) the New Mexico Office of the State Engineer and Bureau of Land Management are both supportive of the use of deep brackish groundwater for industrial purposes, (3) there is a track record of previous deep brackish groundwater development from the Capitan Reef, and (4) the hydrogeology of the system is favorable in that there would be no expected impacts on other water-right holders.
The Capitan aquifer is composed of the Capitan Formation, parts of the Goat Sheep Formation, and the Artesia Group (all referred to as the Capitan Reef complex). The Capitan Reef complex is a horseshoe-shaped limestone deposit surrounding the Delaware Basin, and is present in southeastern New Mexico and western Texas. The complex extends over a distance of approximately 200 miles. Within Lea County, the aquifer ranges from 800 to 2,200 feet thick and is approximately 12 miles wide near the Eddy County and Lea County boundary and 6 miles wide near Jal, New Mexico.
