For potash juniors, the pressure’s on – by Brenda Bouw (Globe and Mail – August 22, 2013)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Junior potash companies, already suffering from tight financing conditions, will start to feel more pain following an industry shakeup that has increased competition among suppliers of the crop nutrient.

The dismantling of the world’s largest potash oligopoly last month has already hit stock prices for potash companies, and is expected to lead to a drop in potash prices, which would lower margins for producers and make new projects less viable.

BHP Billiton Ltd.’s decision this week to push ahead with its Jansen project in Saskatchewan, expected to be the world’s largest potash mine, also threatens to create a glut of the mineral. BHP’s announcement follows a move by Russia’s OAO Uralkali to drop out of Belarusian Potash Co. (BPC), a joint venture with rival Belaruskali of Belarus.

Only those potash projects with low-cost projects as well as money and time to spare are expected to survive the next few quarters, analysts say.

“Even before Uralkali’s announcement last month and BHP’s Jansen update this week, the junior potash projects were already in trouble. One or two were going to get built. Now that likelihood has reduced significantly,” said BMO Nesbitt Burns analyst Joel Jackson. “The global potash industry is oversupplied and will be for some time. Plus, the ability to general mine financing is relatively impossible.”

Junior mining companies were already contending with financing difficulties amid a rise in interest rates and uncertainty stemming from slower growth in China and other emerging markets. The outlook for many junior potash players worsened after the BPC announcement. Uralkali will instead go it alone in selling potash to markets, a move that will increase supply. Analysts and Uralkali itself say they expect prices to drop by about 25 per cent in the coming quarters, to about $250 (U.S.) per tonne, down from about $300 today.

The threat of falling prices has hammered potash stocks. Juniors have been especially hard hit, and their sinking valuations lessen their chances of getting projects off the ground.

Analysts say those companies with higher capital expenditures, particularly in potash-rich regions such as Saskatchewan, are seen as riskier compared to lower-cost ones in places such as Africa and Brazil.

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