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Elemental Poised for Comparative Advantage in Global Potash Production

March 2, 2012 by · Leave a Comment 

COMMENTARY-ProspectingJournal.com-Throughout the past two years global potash producers have witnessed sub-par prices that have proved challenging in providing profitable ventures. Much of the lull can be attributed to the European debt crisis and a US economy still reeling from the effects of recession. Potash prices still sit at about $500 per metric tonne, almost $400 below the prices registered in the run up to 2009. To a large degree the recent state of these economies played a hand in forcing major producers to shut down several key mines. In reality, these short-term fluctuations have garnered too much attention. Focus should instead be turned towards one notable long-term trend; that the world will continue to drive population growth in a pattern that will only worsen our strain on global agriculture systems and effectively boost our reliance on fertilizers. Bill Doyle, PotashCorp. President and Ceo, believes “[PotashCorp.] are going to have a very robust nine months this year and…some very good years ahead”. In fact, the International Fertilizer Industry Association believes global potash demand will rise by 3 percent this year, and prices may reach $575 a metric ton in the United States.

But demand is not poised to increase equally. In fact, global demand might take a knock throughout 2012, on the basis that the Indian government just recently announced its decision to cut import subsidies on potash. India is currently the world’s third largest potash buyer and many of its local farmers are likely to be increasingly deterred from rising costs. Even before the announcement many had been lobbying for a reduction in prices in a bid to make their ventures more profitable. The situation won’t provide comfort to potash producers, who will likely realize growing difficulty in satisfying potential Indian consumption in the near future.

This is where companies like Australia-based Elemental Minerals (ASX,TSX:ELM) can come into play. They have recently announced promising results from their phase 2 drilling at a portion of their property in the Republic of Congo. Chief Executive Officer, Iain Macpherson, announced, “we are pushing full-steam ahead to achieving full production of 2 million tons per annum from 2015” and onwards. They believe that they possess ownership of one of the best Greenfields available, and believe the high-grade sylvinite and carnallite formations in Congo represent an exception. It has led the company to project that building work will be completed with a cash cost of only $99 a ton. The low costs of production bode extremely well when compared to similar projects around the world. For instance, IC Potash Corp. (“ICP” or the “Company”) (TSX: ICP; OTCQX: ICPTF) is undertaking a project in New Mexico with a projected operating cost of $147 per ton, by no means high but considerably higher than that boasted by Elemental. Macpherson noted, “we are confident in the project fundamentals and that we can create a low cost, high volume potash producer that will serve the market for many years to come”.

Such low costs of production may provide Elemental with the not-so-distant opportunity to develop trade partnerships with major consumers such as India, who are likely to be attracted by stable, lower prices. Elemental is set to complete its pre-feasibility study in August this year, and if all goes to plan, their lucrative project in Congo may provide them with a significant comparative advantage in global potash production.

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Jason Staeck
ProspectingJournal.com

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