I will be attending the Hard Asset Conference in New York a little later this month where I am sure the topic of gold will be hotly debated. For one, I believe that gold is relatively cheap and will make its way considerably higher. As for gold equities, they are trading at valuations only seen once in the last thirty plus years and despite all those who argue that gold ETFs have killed gold stock investment, I would not be too quick to count these stocks out.
With that said, I would like to talk about a more important commodity for mankind. Yes, gold is important for those who are concerned about purchasing power, currency devaluation and a general hedge against economic and political uncertainty but when push comes to shove, could anyone really argue that anything is more important than food?
All food is grown (crops, fruits, vegetables, etc.) or comes from animals that themselves survive on things that are grown and, in order to grow things, we need fertilizer. Fertilizer in comprised of nitrogen, potash and phosphate and whether you realize it or not, North America has a problem when it comes to phosphate because North America is not self-reliant.
Canada has only one operating phosphate mine (Agrium’s Kapuskasing Mine) which is scheduled to close within a year and Florida’s operations have had issues mostly brought on by environmental concerns. The result is that North America’s deficit will continue to grow adding to our reliance on foreign countries to offset this shortage.
Many people understand the importance of Saudi Arabia when it comes to oil as it represents roughly 10% of the world’s supply. When it comes to phosphate, Morocco makes up 35% of the world’s export market, making it 3.5 times more important when it comes to fertilizer and thus food. Other North African and Middle East countries are significant producers as well and, with last year’s “Arab Spring” uprisings, North Americans better pay attention. Imagine, if you will, what a supply disruption would mean to phosphate supply around the world and, especially North America where currently 100% of our deficit is supplied by this region.
Agrium has already announced that its current plan to make up its deficit caused by the Kapuskasing closure will be to get additional supply from Morocco. North America is not alone in its predicament as growing economies also struggle with mounting populations and an increasing desire for higher protein diets. India is currently the world’s largest importer of phosphate; importing roughly 8 million tons a year. Fortunately, China which is a large producer of phosphate is self sufficient but large export taxes keep their supply from the global market.
All of this has resulted in gradually higher prices, and although the phosphate market is generally a contract market, the closest thing to a “benchmark” would be Moroccan FOB which currently sits at roughly $200/ton. I say the “closest” because unlike gold or copper, phosphate can differ greatly depending on where it comes from and the nature of the deposit. While Moroccan phosphate trades at $200/ton, higher grade phosphate from some Russian deposits can fetch considerably more. Lastly, like other industrial commodities, issues such as transportation are considerable factors.
For the rest of this article, please go to the ResourceInvestor.com website: http://www.resourceinvestor.com/2012/05/08/let-them-eat-the-case-for-phosphate-mining?utm_source=DailyENL&utm_medium=eNL&utm_campaign=RI_eNL&_LID=36960352