COMMENTARY – ProspectingJournal.com (click for original article) – January 7, 2011 – Doomsayers and economists alike are warning the public of the sharp rise in world food prices that are expected in the near future. Already we can use the record levels hit in December in sugar, grain and oilseed prices as our indicator of things to come. With these trends, many investors are seeking the answer in their portfolio to help soften the blow made by the increased cost of dinner time.
Early in November of 2010, the Canadian Government made a landmark decision regarding the purchase of Potash Corp. [POT - TSX] by BHP Billiton, opting to reject the transaction on the basis of it providing “no net benefit to Canada.” Since the announcement was made, much speculation erupted over what were the true reasons behind the feds' intervention. Potash Corp. currently reigns as the world's largest fertilizer producer, and thus wasn't particularly an entity the government wanted to see handed over to the BHP group from down under. The implied future control over our own food supply is apparently more important to the feds than the foreign entities entering into Alberta's oil sands.
But in the aftermath of the ordeal, potash as an investment focus has gained a lot of steam. The price for the big players such as Potash Corp. or even its provincial rival Mosaic are a little too high for those who follow the higher-yield, higher-risk TSX Venture Exchange. Here are some of the stocks we're following closely as impacts from the global food market weave their investment magic.
Marifil Mines Ltd. [MFM – TSX.V]
Current Price: $0.21
52wk Range: $0.06 - $0.25
Market Cap: $10.88M
Instead of dabbling in the rolling prairie fields of Saskatchewan, Marifil snapped up 47,150 hectares of potash lands in Argentina. The K3 Project as it is called has good potential for salt horizons at depths ranging from 500m to 2,000m, while further analysis in the works from local abandoned oil wells. The site is nearly 50kms NW of Brazilian giant Vale's massive Rio Potasio potash mine, which has a resource of 2 billion tons of potassium chloride. On top of the potash upside of K3, Marifil also has further prospective amounts of uranium, sulfur, lead, zinc and asphaltites on the property. All in all, the company holds over 20 properties that also focus in precious metals, copper, nickel and an oil and gas target called Mina El Carmen.
Encanto Potash Corp. [EPO – TSX.V]
Current Price: $0.42
52wk Range: $0.11 - $0.54
Market Cap: $93.50M
A feel good story from Saskatchewan is Encanto and its success in operating with full community support of First Nations. The company boasts four substantial properties totalling over 75000 hectares within an 80km radius. The stock made significant jumps in late November after the positive assay results from its Lestock 11-18 well on its Muskowekwan Property hit the newswires. That said, when results from its third and fourth wells on the property hit in the following month, the reaction wasn't as positive as the previous round. A negative report regarding junior potash companies published on Reuters didn't help the cause either. But the stock is still holding at a price that's double the November values, and results from their other three projects are due in the near future. There's still room for Encanto to grow, and the correction regarding food prices could give it the nudge it needs.
PhosCan Chemical Corp. [FOS – TSX]
Current Price: $0.64
52wk Range: $0.35 - $0.67
Market Cap: $110.20M
In order to produce its product, fertilizer companies require phosphoric acid. According to PhosCan's latest corporate presentation, 1/3 of global phosphoric acid production is stranded without its own source of phosphate concentrate (phosrock). North America is a net importer, going from a former level of exporting 10 million tons per year to importing 4 million tons, due to major changes such as permitting issues in Florida and Idaho which have provided environmental issues. Enter PhosCan and its Martison Project to help fill the gap. Timing is everything and PhosCan is banking on giant producer Agrium [AGU – TSX] to come knocking once its Kapuskasing phosphate mine runs out of ore in 2014. PhosCan's target production rate is 2 million tonnes of phosrock, with an added economic bonus of 4 million kilograms of niobium which is used as a superalloy in the manufacturing of jet and rocket engines and as a superconducting material used in magnets and MRI scanners. The stock is currently on a run, jumping $0.10 within a day in December, and holding close to the $0.70 mark ever since. If fertilizer is the gold of the future, phosphoric acid will be used in the alchemical method to produce it.
G. Joel Chury
Editor in Chief
DISCLOSURE: No fee has been paid for the production and distribution of this article and as such should be viewed in the context of a commentary. The author does not currently own any shares of the companies referred to within the article.
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