There are two sides to this story, since MOP (The common form of potash that is currently over supplied and underperforming), SOP (the non-chloride form of potash) commands a hefty premium and is now in high demand.
We reviewed the current shift in the potash industry and discovered that Potash Ridge Corp. (OTC: POTRF / TSX.V: PRK), a junior resource company, is uniquely positioned to become the smart value player in the premium potash segment. The company is pouring all of its resources into its Blawn Mountain prospect in Utah, which stands to make Potash Ridge the lowest cost producer in the market.
Investors looking to take advantage of the situation will see why we are big on Potash Ridge.
The world is continually losing its supplies of arable land that can be used to produce food. We can argue why it’s happening – climate change, crop saturation, urbanization and many other factors – but the reality is that it is happening, and fast.
In fact, Earth has lost a third of arable land in past 40 years, scientists say. (1)
At the same time, the world’s population continues to boom. Over the next three years, we can expect there to be 7.7 billion people on the planet. (2)
That’s a lot of mouths to feed.
These are not new problems, but they do require new solutions to help feed the billions of people who rely on just a few regions to supply food.
The simplest and most widespread solution is the use of fertilizers. These can increase crop yield and provide higher quality food products with less defects. They can also bring down the cost to produce food.
Of the leading fertilizers, potash is a vital answer.
Potash is a generic term that refers to a group of potassium-bearing minerals, naturally occurring potassium salts and the products produced from those salts.
Here’s why potash is so important:
Potash is a plant’s main source of potassium. It is one of the four primary nutrients required for plant growth. The remaining three nutrients are Nitrogen, Phosphate and Sulphur.
Potash is used as a highly effective fertilizer routinely in the major food and crop growing regions especially China, Brazil and North America.
While potash is widely available –there is currently enough over supply to have the major producers of Muriate of Potash (MOP) close plants in order to limit supply imbalances – the more specialized Sulfate of Potash (SOP) is in more in demand than ever, with very few supply sources.
This is the basis for an excellent opportunity to leverage SOP resources in a big way.
Consider Potash Ridge as one of the only pure SOP potash plays in North America. See Our Recommendation.
Not All Potash is Equal
There are two forms of potash, both used as fertilizer, but differentiated by their makeup and pricing model.
Muriate of Potash (MOP) also known as Potassium Chloride (KCI), is widely used in all types of farming, but contains a chloride ion that can be detrimental towards plant growth, especially fruits and vegetables.
If the chloride content isn’t managed, it can lead to low quality crops and inhibit place growth in dry soils and saline areas.
Sulphate of Potash (SOP) is the most commonly used non-chloride potash fertilizer in the world, with an annual worldwide demand of 6 million short tonnes per year (3).
It can be sold as a powder for use in compound fertilizers containing nitrogen, phosphate, potassium, and sulphate, as a granular product for direct application, or as a soluble product for use in fertigation.
SOP is priced at a premium to MOP, and is utilized for sensitive, high-value crops including many fruits, vegetables, tobacco and tree crops such as nuts.
China is the largest consumer and producer of SOP with the total demand of 43%.
In China, the use of SOP is driven by a significant tobacco production as it is the largest tobacco producer in the world.
China is the main exporter of SOP fertilizer and has a production capacity of approximately 4 million tonnes.
Broad Market for Potash Shows Stable Growth Solid
In late 2017, the largest producer of potash, PotashCorp of Saskatchewan, Canada proposed a merger with one of the other largest producers, Agrium, Inc.
Analysts see the merger as a move to galvanize the marketplace.
According to PotashCorp, the demand for potash and the strength in global demand will continue this year. It’s expected to be 62 million–65 million tons in 2017, which will be up from ~60 million tons in 2016.
Potash prices have bounced back stronger too.
Granular potash prices in Brazil have risen as much as 17% YoY (year-over-year) to $274 as of October. In the US Corn belt region, prices have risen ~5% YoY. The standard grade of potash was also 5% higher YoY in the South East Asia region.
The global Potash Fertilizers Market is expanding with considerable growth potential during the next five years.
PotashCorp projects anywhere between 2.5% and 3% CAGR in potash consumption. (4)
The wide potash market has pulled back since its highs prior to 2008, mostly due to over production.
Still, demand for the mineral is growing and the major producers have managed to help bring pricing in line with demand by limiting production.
Our research shows that the SOP segment is a quiet performer that’s being largely ignored within the potash space.
SOP Is the Premium Product Potash Ridge Plans to Produce in the US
Potash Ridge is a junior resource company based in Toronto, Canada. It holds two highly de-risked and advanced development stage potassium sulphate (SOP) projects; the Blawn Mountain Project in Utah, and the Valleyfield project in Quebec, Canada.
Potash Ridge just announced plans to spin-out the Valleyfield project into another public company in order to create greater value and focus its efforts on the development of its proposed 255,000 ton per year project at Blawn Mountain.
This will provide Potash Ridge with further value and the ability to apply all of its resources to its Utah assets.
The Blawn Mountain Project is comprised of four areas of alunite mineralization covering approximately 11,550 acres of land owned by SITLA (State of Utah School and Institutional Trust Lands Administration) near Milford, Utah.
State-owned land provides Potash Ridge with several advantages including a simpler permitting process, leasehold and royalty agreements in place and no environmental, social or aboriginal issues.
Most importantly, the Blawn Mountain project has the support of both the municipality and state.
The region has all the necessary infrastructure to support in place to accommodate the development of the Blawn Mountain Project, including nearby highway and rail access.
Extensive development was completed on the leases in the 1970s including a mine plan, feasibility study and 3-year pilot plant operation.
A prefeasibility study in 2016 showed Blawn Mountain to have proven and probable mineral reserves of 153 million tons; reserves that support a 46-year project life with an average of 255,000 tons of potassium sulphate per annum during first 10 years of operation after ramp-up.
Potash Ridge plans to extract alunite – the potash mineral –through surface mining operations, considered much lower-cost and lower-risk than underground mining operations.
Potash Ridge To Be North America’s Lowest Cost Source of SOP Potash
There are two methods used in the production of SOP.
Primary production methods include directly extracting SOP from mineral ores containing both potassium and sulphate.
This method is currently fairly rare and may yield by-products, which can contribute additional revenue.
Potash Ridge plans to use this method of production at the Blawn Mountain Project.
The most common secondary production method is referred to as the Mannheim Process and involves the reaction of KCI with sulphuric acid.
This method for producing SOP accounts for 50% to 60% of the global production.
The Mannheim Process is the most expensive method of producing SOP due to energy requirements and high cost of purchasing MOP and sulphuric acid.
Potash Ridge will rely on direct extraction methods to become the lowest cost producer of premium SOP in North America.
Using this approach, Potash Ridge expects to produce from its Blawn Mountain prospect for about $250 per tonne all in. That’s compared to an industry average cost to produce SOP of roughly $550 per tonne.
This is a huge advantage for Potash Ridge.
There’s No Such Thing as a Sure Thing
Somethings are inevitable, besides death and taxes. These include the rising population and the need to feed people. For that reason, we really like the potash space and Potash Ridge’s approach.
The companies that sell MOP will continue to see predictable prices through production controls and increases in market demand. The industry CAGR of around 3% is reasonable, and there will likely be upward movement as the big players join forces in the M&A game.
But there’s another side to the potash market and that’s where we see Potash Ridge leaping ahead. It’s also where early investors can look for rewards by getting ahead of market moves.