Fundamental Research Update on Wpx and Uralkali Considers Dropping out of Cartel
As prices drop, mines with lower operating costs will have an advantage over more expensive operations. Mines with lower operating costs will stand a better chance of surviving, and proposed projects that are expected to have low costs are more likely to be brought to production than their pricier counterparts... ... Two junior potash companies we cover are Western Potash (TSX: WPX) and Passport Potash Inc. (TSXV: PPI). Both have potash projects in North America, Passport in Arizona and Western in Saskatchewan. As can be seen in the table below, PPI was down 7.14% to $0.13, and WPX was down 7.37% to $0.44, at close on July 30, 2013. PPI and WPX have fared well compared to many of other potash companies such as Karnalyte Resources Inc. (TSX: KRN) that dropped by 46.19% in one day... ...We believe most of the development stage potash projects are not attractive, if long-term potash prices drop below US$350 per tonne. Therefore, we do not expect long-term prices to drop below US$350 per tonne. Until we have more clarity on the final outcome of the recent developments, we believe it is prudent to evaluate development stage projects based on a range of possible long-term potash prices... The following table show the sensitivity of our fair value estimates on WPX, and PPI, to long-term potash prices between US$350 and $425 per tonne. Up until the Uralkali announcement, we were using a long-term price of US$425 per tonne for our models. The average fair value of WPX at various potash prices is $1.17 per share. p3from9 Sid Rajeev, B.Tech, MBA, CFA Head of Research Fundamental Research https://www.researchfrc.com/new/wp-content/uploads/2013/08/AIW-Aug-5-20132.pdf