Rio Tinto looks to catch up in potash – by Emiko Terazono (Financial Time – July 3, 2014)

Miner’s Canadian joint venture is latest in oversupplied market

Dark clouds are gathering over the potash industry again. Last week, Rio Tinto and its partner, Russian fertiliser group Acron, said they would push ahead with the development of the Albany project in Saskatoon, Canada.

In its first disclosure of the size of the asset, north Atlantic Potash, the 50-50 joint venture between Rio and Acron, said the project area contained 1.4bn tonnes of assumed potash resources, a key fertiliser ingredient, of which 329m are estimated to be recoverable.

The announcement does not bode well for an already oversupplied sector where several other major developments, the biggest being BHP Billiton’s Jansen mine with its 5.3bn tonnes of measured resources and 1.3bn tonnes of inferred potash, are also on the drawing board.

Rio, which invested in the joint venture in 2011, has not disclosed how much it has spent on the project, but it sees it as a “tier one” exploration asset.

According to last week’s announcement, the next steps for Rio and Acron are a continuation of the environmental assessment and the pre-feasibility study.

BHP originally eyed potash as a way of profiting from the second wave of commodities demand from developing countries such as China. The reasoning goes that after the first wave of development, which boosts steel and copper consumption, the next wave will be for energy and agriculture as the middle classes grow.

After a failed bid for Canada’s PotashCorp, BHP has spent billions developing the Jansen project, although the Anglo-Australian miner recently pulled back from moving the mine into production until 2020 and allowed an exclusive lease deal for potash exports with the Port of Vancouver to expire after four years of negotiations.

So why is Rio pushing ahead with its Albany development? Paul Gait, analyst at Bernstein Research, says Rio is playing catch-up to BHP. “This is Jansen lite,” he says.

To be fair, it is not Rio’s first foray into potash. In 2009, along with other assets, it divested potash projects – Potasio Rio Colorado in Argentina and Regina in Canada – in the aftermath of the financial crisis, when it rushed to raise cash.

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