WINNIPEG, Manitoba, March 13 (Reuters) – Two junior potash producers working in unusual locations look set to shake off the most bearish industry conditions in five years and open new mines, helped by their proximity to Brazil and Africa, two of the world’s most promising but under-served fertilizer markets.
Tepid global demand for the crop nutrient and sagging prices have crimped profits for producers across the industry and hurt prospects of many of the exploration companies aiming to develop new mines for the already-oversupplied industry.
The world’s biggest fertilizer company, Potash Corp of Saskatchewan , slashed 1,000 jobs in December, while Mosaic Co, a major U.S.-based producer, last year suspended part of its expansion plans.
Yet prospects are bright for Allana Potash Corp and Verde Potash PLC, two small producers developing low-cost potash mines in Ethiopia and Brazil respectively, far from the world’s main potash regions of Western Canada and eastern Europe.
Each promises a shortcut to fertilizer-hungry markets and has attracted strategic or government backing, removing some of the risk.
Shares of Verde, which is still in the early stages of project development, have doubled in value since July 30, when Belarusian Potash Co, one of the world’s biggest potash traders, broke up and potash prices went into free fall because of the prospect of increased competition.
Allana stock is slightly higher over the same period even as Karnalyte Resources Inc, owner of a similar project in potash-rich Western Canada, has lost about half of its value.
The faith in Allana and Verde shows investors are still willing to bet on the long-term fundamentals of potash, which are based on population and income growth in the developing world fuelling greater food demand. Even so, only junior projects with such unique, built-in advantages are likely to proceed in the near term.
MINING POTASH IN AFRICA
Allana’s 1-million tonne Danakhil mine in Ethiopia may turn out to be the world’s first major greenfield potash mine in seven years if it opens on schedule in late 2016.
The estimated $642 million cost of building the mine is lower than the cost of conventional underground projects. It uses a technique that pumps water into shallow potash beds, producing a brine that is evaporated on the surface, leaving potash-bearing crystals.
Allana would provide significant domestic potash supplies for African crops and benefit from short distances to established buyers in India and Southeast Asia.
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