Legendary Investor Jeremy Grantham Has Identified A Quasi-Monopoly - I'd Like To Profit From It

| About: Passport Potash, (PPRTF)

An investor can spend all day watching and listening to the talking heads on CNBC and not learn a single thing. Actually, that isn't entirely true. I've learned that most of the voices on CNBC are experts at speaking at a conversational level on a multitude of subjects, but rarely true experts in any single subject.

Rather than looking to the experts on CNBC for guidance, I like to read what a select group of proven and thoughtful investment managers are thinking. At the top of my reading list is Warren Buffett. A close second is Jeremy Grantham.

Grantham has a track record that suggests his opinion should be taken seriously. In the past when Grantham is pounding the table on an investment theme, it has been worth the while to listen to him. In 1989, Grantham warned about inflated Japanese equities; in 2000, he warned on horribly overpriced growth stocks; and in late 2007, he suggested avoiding everything risky. He was exactly correct in each instance.

Grantham is pounding the table again and demanding that we listen. I, for one, will do just that.

This time however, Grantham isn't warning us about overpriced assets, he is alerting us to a long-term sustainable bull market. Which means he is giving us an investment idea for the long run. That bull market is in commodities:

Prices of global raw materials are now rising fast. This does not constitute a bubble, however, but is a genuine paradigm shift, perhaps the most important economic change since the Industrial Revolution. Simply, we are running out.

The price index of 33 important commodities declined by 70% over the 100 years up to 2002 -- an enormous help to industrialized countries in getting rich. Only one commodity, oil, had been flat until 1972 and then, with the advent of the Organization of the Petroleum Exporting Countries, it began to rise. But since 2002, prices of almost all the other commodities, plus oil, tripled in six years; all without a world war and without much comment. Even if prices fell tomorrow by 20% they would still on average have doubled in 10 years, the equivalent of a 7% annual rise.

This price surge is a response to global population growth and the explosion of capital spending in China.

Grantham isn't a contributor on CNBC who is giving his opinion on an issue after carefully considering his answer for five seconds. Grantham has done his homework over a long period of time. His opinion is based on a level of due diligence that I can't hope to duplicate.

Ever better for us investors, Grantham also narrows down his list of commodities to one specific area where shortages and price increases have to occur:

Then there is the impending shortage of two fertilizers: phosphorus (phosphate) and potassium (potash). These two elements cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. It's a scary set of statements. Former Soviet states and Canada have more than 70% of the potash. Morocco has 85% of all high-grade phosphates. It is the most important quasi-monopoly in economic history.

What a great sector in which to look for investment opportunities. Potash and phosphate producers aren't exactly like Apple (NASDAQ:AAPL), which has everyone and their dog following the company. This is not a sexy area of the market, which could make for excellent opportunities.

Looking For Off-The-Radar Opportunities In Potash/Phosphate

I'm new to this sector, and like everyone else, I'm aware of companies like Potash Corp (NYSE:POT) and Mosiac (NYSE:MOS), but I'd rather try and find opportunities among smaller companies.

One such opportunity might be Passport Potash (OTCQX:PPRTF), which is a publicly traded corporation engaged in the exploration and development of advanced potash properties. Its major focus is on a previously explored potash property in Arizona. Passport has acquired a strategic position in the Holbrook Basin with land holdings encompassing over 121,000 acres.

I came across Passport while reading this Seeking Alpha article, which detailed some very interesting insider purchases:

Insider buys

· Michael Brauser purchased 92,500 shares on October 22, 110,000 shares on October 17, 50,000 shares on September 19 and 25,000 shares on September 14. Michael Brauser currently controls 14,650,196 shares of the company.

· Joshua Bleak purchased 57,500 shares on October 17 and currently holds 4,443,188 shares of the company. Joshua Bleak is the President and CEO of the company.

· Billionaire Phillip Frost purchased 150,000 shares on October 15 and currently controls 30,139,611 shares of the company. The company has172,751,863 shares outstanding, which makes Phillip Frost a 17.4% owner of the company.

In addition to the insider purchasing, there are a few things that, upon first review, strike me as attractive about Passport:

1) Location - The infrastructure in the Holbrook Basin is a strategic advantage for Passport, with immediate access to BNSF rail lines, Interstate 40 and a major power plant within 25 miles of the project.

2) Depth - Passport's 30 hole drill program combined with historic records show that the potash deposits in the Holbrook Basin are relatively shallow by industry standards, with deposits being found at depths between 800 and 1300 feet

That combination of an easily accessible location and shallow resource depth to me spell the opportunity for Passport to be a relatively low cost producer. It is far cheaper to have a location in the United States, near all necessary infrastructure, than it is to be doing business in a remote location where infrastructure needs to be built out. And the shallower a resource is in the ground, the easier and less costly it is to extract.

I think Passport Potash merits further investigation.

While the insider buying and the attractive location of Passport's property do have me intrigued, it is important to note that this company is not yet even at the production stage. Passport's near-term goals are to complete a preliminary economic assessment by Q1 2013 and a feasibility study by Q1 2014.

Personally, I don't risk my capital on development-stage companies. I like to wait until later in the business cycle, when investment risk has been reduced somewhat. But what I will do with Passport is subscribe to the company news feed, learn as much about the company as I can and be ready to pounce once I'm comfortable.

Patience and discipline always pay off for the long-term investor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.