Potash Mining In America Has Long-Term Investment Potential

 |  Includes: BHP, CNRMF, IPI, POT, PPRTF
by: Troy Bayer

A rapidly growing world population, expected to reach 9 billion people by 2050, compounded by a decreasing amount of arable land, is leading to a global panic over a pending hunger crisis. One solution may be for the United States to aggressively mine for an important crop nutrient called potash.

Potash is a potassium-bearing mineral found in the Earth's surface. It has become a critical ingredient in fertilizer and is required to support the healthy growth of crops by regulating enzyme activation, photosynthesis, water use efficiency, starch formation, and protein synthesis. Crops infused with potash are more likely to survive harsh environments and ward off attacks from disease and pests. According to The Fertilizer Institute, billions of people could starve without the use of potash fertilizers.

The Fertilizer Institute also reports that only 12 countries in the world produce potash. Over 80 percent of the world's potash production is exported, and as many as 99 countries import the product, including major consumers such as China, India, Brazil, and the United States. The United States, in particular, relies on foreign production for over 85 percent of its potash demand.

Currently, the United States has limited potash output with just three companies mining in three states. Intrepid Potash (NYSE:IPI) with mines in New Mexico and Utah, is the largest producer in America with an annual output of 870,000 tons. With ownership of 4 mines in New Mexico and Utah, Intrepid supplies 9.3 percent of annual U.S. consumption. Despite meeting only a small percentage of American demand, Intrepid has a market capitalization of $1.75 billion and earned $441 million in revenue in 2011.

Major investors like BHP Billiton (NYSE:BHP) clearly see potential in the potash industry, as evidenced by the company's $40 billion hostile takeover attempt of Canada's Potash Corporation (NYSE:POT), the world's leading potash producer. This potential also exists in the United States as companies seek to invest in prospective potash mines. In January 2012, Magna Resources Ltd announced a deal with Confederation Minerals Ltd (OTCPK:CNRMF) to acquire Confederation's 50 percent interest in American Potash LLC.

American Potash LLC plans to mine for potash in the Paradox Basin in Utah. Another prospective location for potash mining is northern Arizona. The state's potash resources are virtually untouched and provide a geographic advantage with its proximity to California, the country's agricultural epicenter. One company invested in Arizona's potash resources is Passport Potash Inc (OTCQX:PPRTF), which currently controls over 81,000 acres, or 126 square miles, of the Holbrook Basin. A survey completed by the state of Arizona estimated 682 million to 2.58 billion tons of potash are located in the Holbrook Basin. With total U.S. potash production of just 1,100 million tons in 2011, the Holbrook Basin could help America compete with Canada and Russia as leading world potash producers.

There are several other benefits to investing in potash mining within the United States. First, the price of domestic potash will be more competitive since distributors can avoid the high costs associated with importing foreign products. Companies like Passport Potash can sell directly to California farmers, presenting an opportunity to lower prices even further. Second, there could be a correlating drop in food prices as American farmers realize the savings from purchasing cheaper potash. Lastly, companies could see revenue growth by using American ports to export to major foreign consumers with a growing demand for potash. California's ports provide quick access to major markets in China, Brazil, and India.

Experts are in agreement that the demand for potash will continue to grow in both the short and long run. In the U.S. Department of the Interor's 2012 Mineral Commodity Summaries, it is projected that world potash consumption will increase 4 percent annually during the next five years due to world population growth and a correlating need for additional crop production. William Doyle, the CEO of Potash Corp, also predicts that consumption of potash will reach an all-time high in 2012. Considering this growth in potash demand, as well the virtually untapped resources inside the U.S., American potash mining could be a good opportunity for investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: The writer is not a licensed broker or investment adviser and therefore cannot recommend that you buy, sell, or hold any security. While every attempt was made to verify the information in this report, much has been derived from public sources and cannot be guaranteed for accuracy.