Passport Potash Inc. (TSX: V.PPI, Stock Forum) and (OTO: PPRTF, Stock Forum) is a company that appears to have a lot going for it.
The Vancouver, British Columbia-based junior is in the early stages of attempting to develop a potentially large potash project in northeastern Arizona, at a time when demand for the fertilizer ingredient has rarely been stronger
Yet despite a recent spike, the stock has fallen from $1.86 in February to trade below 60 cents in recent weeks. And after rising 25% on Wednesday following news of two new board appointments, the stock looks it could be heading lower once again.
At the Thursday close of 75 cents, Passport has a market cap of $87 million based on 126 million shares outstanding. The 52-week range is $1.86 and 5 cents.
The recent correction is baffling in light of the fact that analysts who visited the company’s Holbrook Basin project in March all had good things to about the company.
“This has the potential to be a major potash producer,’’ said Sean Brodrick, of Weiss Research Inc. in Juniper, Fl.
Gordon Holmes, the Chairman of Kenwood, Calif.-based Streetwise Reports, said he was impressed to see 200 people from the local community come out to support the project.
“They had a change of management about three months ago, new funding and they have made incredible progress in the last three months,’’ said Bob Moriarty, President of the 321 gold investment newsletter. “I’m really pleased to see how far they have gone.’’
So what gives and why has the stock been on a freefall with potentially more downside to come.
According to Patricia Mohr, Scotia Capital’s vice-president of economics, potash prices continue to move up and the volume of world shipments is expected to be close to the record levels reached in 2007.
So we can conclude that the stock’s performance is not commodity related.
Peter Kletas, Passport’s manager of corporate communications attributed the recent drop to profit-taking following the dramatic run that occurred between January 2011 and late February 2011. In that period the stock jumped to over $1.40 from around 30 cents.
The Holbrook salt basin is estimated to contain up to 2.5 billion tonnes of potash, according to an Arizona Geological Survey’s open-file report. Drilling in the 1960s and 1970s identified potash within an area covering roughly 600 square miles.
Passport’s holdings cover about 80,000 acres.
With an initial resource estimate for Holbrook due in mid-August, Kletas said Passport is in a race with other juniors including Allana Potash Corp. (TSX: V.AAA, Stock Forum), Western Potash Corp. (TSX: T.WPX, Stock Forum) and Karnalyte Resources Inc. (TSX: T.KRN, Stock Forum) to reach the production stage.
The aim is to be up and running before BHP Billiton Ltd. (NYSE: BHP, Stock Forum), which continues to advance its huge Jansen potash project in Saskatchewan through to the feasibility stage. Jansen has the potential to produce 8 million tonnes annually over a projected 70-year mine life, BHP has said.
“If Jansen is developed, it causes a huge overhang for the juniors,’’ Ben Isaacson, a Scotia Capital analyst told Reuters news service last December. “All of a sudden, you are now going to be competing with the largest mining company on the planet and a company that has a very, very low cost of capital.
Kletas agreed. “If BHP can do that, it is pretty much going to be over for a lot of the juniors,’’ he said.
Analysts have noted that only a select few potash deposits will meet the criteria required by major mining companies or potential project financiers.
However, Kletas said Passport believes it has an advantage over its peers because the resource it is hoping to develop is relatively close to surface and vital railway and power infrastructure is available at or near the project site.
“We feel that we can be in production within the next five years, beating everyone else to the finish line,” Kletas said.
He said Passport also hopes to benefit from community support the in Holbrook area, which is best known as a stop-off along the infamous Route 66 Highway.
Meanwhile, Brodrick agreed that the “dominos are lining up” for Passport and its Holbrook project. “Passport is moving down the path to production of a million tons a year,’’ he said during an interview with Streetwise Reports last month. “This company is in a good position to do pretty well, but it has to get into production first,’’ he said.
Richard Kelertas of Dundee Securities told Streetwise Reports that Passport has the advantage of being the only significant explorer/developer in the Holbrook basin. As a result, he said the company could alleviate the U.S. dependence on potash imports.
Industry officials estimate that it could cost about $1 billion to develop a potash mine at the Holbrook site. But Kletas said it is much too early to make cost estimates at this stage of the exploration cycle.