The Northern Miner, 6/4/2008

Make way for potash juniors

During its first day of trading under a new name, Potash North Resource Corp. (PON-V) shares soared more than 650%, showing the hunger that investors have for up-and-comers moving into the fertilizer business.

Potash North, known as Timer Exploration prior to May 30, has applied for exploration permits for two properties in Saskatchewan known as KP 416 and KP417, which will be followed up by an $8.4 million private placement for up to 24 million units.

The deal hasn't gone through yet, but that didn't stop Potash North shares from ascending to $1.55 each from a mere 20¢ on a trading volume of 5.5 million shares.

Potash North is one of many companies crossing over to potash, which has skyrocketed in price, but traditionally it's been the few big producers like Potash Corporation of Saskatchewan and Mosaic making headlines and reaping the benefits of the plentiful commodity.

Analyst Terence Orstlan, who specializes in the potash, says he's not surprised to see so many companies adding potash properties to their rosters.

"I believe this trend has just started," he says.

Orstlan compares the current state of the potash industry to that of uranium a few years back. There were only a handful of major uranium companies and metals prices were low as well.

"When the market turned, everybody scrambled," Orstlan says. "Now everybody's looking for uranium and gold and base metals and so on."

Orstlan says that until now, it has been very rare to see anyone promoting fertilizer-based companies.

A quick search of the word "potash" on Marketwire.com, (a newswire service), pulled up more than 20 results, with 12 different companies announcing potash-related news. The same search for May 2007 pulled up four results, but none of the companies had an interest in fertilizer-based products.

Orstlan says there's a reason for that:

"We regard potash and phosphate as 'need' commodities, not 'want' commodities," Orstlan says.

The world population has more than doubled since 1950 to 6.6 billion people from 2.2 billion, and is projected to grow to 9 billion by 2050. That means we'll need more food. But the pressure is being felt now because people in populous and emerging countries like China, India and Brazil, have more buying power and they're eating more meat.

That's putting more demand on staple crops like corn, wheat and rice, lowering inventories and pushing up prices. Corn alone consumes about 40% of all potash, nitrogen and phosphorus in the United States.

"Corn is the biggest consumer of potash," Orstlan says, "And North America produces half the world's basic food."

In the current conditions, the potash market is strong – Orstlan compares the current fertilizer prices to gold at US$1,200 per oz., but the fundamentals are different he says.

"The indicator for gold is price; the indicator for potash is volume," he says. "The market needs volume."

Orstlan says that the price of fertilizer does not play a major role in the overall costs for farmers and that they are more concerned about availability so they can increase their yields.

The other problem is that fertilizer is a bulk commodity and that infrastructure can be a problem for a smaller company. Orstlan says a company can build a heap leach gold operation for under $200 million.

"You cannot do that for phosphate or potash – those things are extremely expensive," Orstlan says. "An integrated operation would cost up to $2 billion."

He says the cost barrier is very high to small companies and that the big producers aren't looking for extra resources. "They have reserves for the next 100 years."

Orstlan says the future will see smaller producers and that small exploration companies will end up consolidating their resources.

"It is possible something may be financed but the most likely scenario is that they will have partners come through the food chain," Orstlan says.