With potash prices spiking higher in response to surging global foods costs, the world’s most advanced independent potash project is in the cross-hairs of an increasing number of deep-pocketed suitors.
So say a number of investment-industry mining sector analysts who have been following the rising fortunes of Western Potash Corp. (OTC:WPSHF). Just last week, the Vancouver-based aspiring miner demonstrated why it would be quite a catch.
It announced a major benchmark development, the publication of a better-than-expected pre-feasibility study (an initial blueprint for a mine) -- that attests to the robust economics of a world-class mine in-the-making. Commenting on this solid development, which significantly de-risks the company’s Saskatchewan-based project, Scotia Capital analyst Ben Isaacson says Western Potash has become especially attractive to the world’s potash-hungry emerging super-powers.
“We would not be surprised to see an SEO (state-owned-enterprise) take a run at WPX in the near term,” he says in a research report dated November 1, 2011.
Like several of his peers, this analyst for a major Canadian investment bank believes that at least one government-financed suitor may be poised try to gobble up Western Potash. He highlighted China, India and Brazil as being very anxious to lock in ownership of long-term overseas potash supplies.
Weighing in Western Potash’s favor is the fact that its project, known as Milestone, boasts a projected annual production of up to 2.8 million tonnes of potash. And it has an anticipated minimum 40-year mine life. Another big plus is that the pricing of this future output isn’t going to be set by the cartel that controls all of Saskatchewan’s existing potash sales.
The project’s “independent” status is of significant strategic value to any end user (such as a foreign fertilizer company) that buys into this 945-million-tonne resource, according to analysts -- especially since the cartel, known as Canpotex, is notorious for demanding lofty prices. It is the marketing arm of Saskatchewan’s three dominant potash producers. Canpotex’s “take it or leave it” mindset has been long been a thorn in the side of China, its biggest customer.
Max Vichniakov, a Toronto-based analyst for the investment bank Octagon Capital, believes that India would also likely find it far more cost effective to deal with Western Potash, rather than negotiating pricing with the likes of Canpotex.
“Indians have particularly been struggling to secure a potash supply this past year,” he told the mining news web site Mineweb.com. “So to participate or acquire a project like Milestone would probably make more sense for the end users [Indian or Chinese fertilizer companies or government entities/funds] than for producers.”
His reference to “producers” alludes to the major mining companies already established in Saskatchewan’s expansive potash fields – Potash Corp (NYSE:POT), Vale (NYSE:VALE), Rio Tinto (NYSE:RIO), BHP Billiton (NYSE:BHP) and Acron/North Atlantic Potash. He argues that they already have their hands full with existing potash mines and in-development projects.
However, fellow mining analyst Jaret Anderson disagrees. The Toronto-based researcher for the investment bank Mackie Research Capital says, “I believe there are many logical partners/buyers for Western Potash… including diversified mining companies seeking to enter the potash business.”
“The continuing attraction of some of the largest global mining companies to Saskatchewan is a positive development for the greenfield potash developers in our coverage universe, especially WPX,” he said in previous coverage of the mining junior. He also notes that the Milestone property is adjacent to potash projects owned by the mining heavyweights BHP Billiton, Vale and Rio Tinto/JSC Acron. “Not a bad position to be in.” he concludes.
By way of background, some of the world’s biggest miners have been aggressively vying to muscle their way into Saskatchewan’s increasingly lucrative potash mining business over the past several years. This mineral-rich province hosts about half of the world’s potash reserves and produces about a third of global output.
Joel Jackson, a Toronto-based analyst for major Canadian bank BMO Capital Markets, points out that all the other comparable assets to the Milestone deposit have already been snapped up.
“WPX is the last of an initial high-profile early potash boom graduating class [WPX, Anglo Potash, Potash One, MagIndustries (OTCPK:MAAFF), Athabasca Potash] not to be acquired…” he hints.
Meanwhile, John Costigan, a spokesperson for Western Potash, is quick to diffuse any suggestions that either a takeover or a joint venture deal is imminent: “Building further value into the Milestone Project is our focus right now, rather than completing any kind of industry transaction. At the same time, we want to continue to significantly de-risk the project by undertaking a full feasibility study,” he says.
Meanwhile, time appears to be on Western Potash’s side. In fact, continued strong demand for potash as the key ingredient to boosting crop yields is almost assured. Set against a backdrop of a burgeoning global population that just reached the 7-billion mark, this bodes especially well for supply/demand fundamentals.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.