Potash Corp.’s Merger with Agrium Shaking Up the Potash Market

A deal by Potash Corporation of Saskatchewan for a proposed merger with producer Agrium Inc. is shaking up the potash market and creating optimism around price and market stability.

Companies to watch in the market that are invested in the outcome include Compass Minerals International, Inc. (NYSE: CMP), Intrepid Potash, Inc. (NYSE: IPI), Agrium Inc. (TSX: AGU) (NYSE: AGU) and Potash Ridge (TSX: POT) (OTC: POTRF).

About 95% of potash is used for fertilizer in agriculture with roughly 5% used in commercial and industrial products. Where potassium is deficient in the soil, potash fertilizers can correct the problem and boost crop yields and quality.

Potash companies have been watching the increase in global demand for potash this year, and believe that a balance in supplies gained through consolidation by the majors will benefit all including Compass Minerals International, Inc. (NYSE: CMP), Intrepid Potash, Inc. (NYSE: IPI), and Agrium Inc. (TSX: AGU) (NYSE: AGU), the subject of the merger.

And while large producers of potash have benefited from stronger pricing over the last year, certain smaller potash focused companies are volleying the market on strength. Potash Ridge (TSX: PRK) (OTC: POTRF), is a mining company getting attention for its North American interests, which include near term production in Utah and Quebec.

ONE DEAL CREATES THE BIGGEST POTASH COMPANY

PotashCorp has announced that it has received approval from the Ministry of Commerce of the People’s Republic of China for its merger with Agrium (AGU). China joins the list of countries that have granted approval for the merger, including Canada, India, Brazil, and Russia.

The merger is now awaiting a go-ahead from US (NANR) regulators. Once the merger is approved, the new company will be called Nutrien.

This merger will effectively create one of the largest global NPK (nitrogen, phosphorous, and potassium) producers, and likely the largest potash concern anywhere.

Market watchers believe that the new entity will help bring stability to supply balance and further strengthen potash pricing, which has been rebounding after a decades long slump.

WHY IS POTASH ON THE MAP?

Potash is a naturally occurring mineral created during the evaporation of ancient sea beds. It is most often referred to as Muriate of Potash or Potassium Chloride (MOP) and Sulphate of Potash (SOP) or Potassium Sulphate.

Potassium serves as the “Regulator” of many essential processes within the plant and is one of the three primary crop nutrients required for plant growth.

MOP, which is also known as KCI, is widely used in all types of farming, but contains a chloride ion that can be detrimental towards plant growth, especially fruits and vegetables. If the chloride content isn't managed, it can lead to low quality crops and inhibit place growth in dry soils and saline areas.

MOP is the most widely used potassium fertilizer, especially in major areas of use, such as China and Brazil. It currently has a global market size of about 55 million tons per year.

SOP is a premium form of potassium fertilizer and has a smaller market of about 8 million tonnes per year, but commands a much higher price for its ability to improve crop yield without chloride build up associated with using MOP.

A ROADMAP FOR GROWTH

The analysts see the merger by PotashCorp as a move to galvanize the marketplace.

According to PotashCorp, the demand for potash and the strength in global demand will continue this year. It’s expected to be 62 million–65 million tons in 2017, which will be up from ~60 million tons in 2016.

Potash prices have bounced back stronger this year. Granular potash prices in Brazil have risen as much as 17% YoY (year-over-year) to $274 as of the week ending October 6. In the US Corn belt region, prices have risen ~5% YoY. The standard grade of potash was also 5% higher YoY in the South East Asia region.

The global Potash Fertilizers Market is expanding with considerable growth potential during the next five years.

According to the report on the Potash Fertilizers Market Global Forecast to 2022 published by MarketsandMarkets™, the global market is projected to reach USD 28.45 Billion by 2022 in terms of value, at a CAGR of 4.49% from USD 22.83 Billion in 2017.

The growth of this market can be attributed to the need for higher productivity using limited land area and increase in applicability of potash fertilizers.

POTASH RIDGE WELL POSITIONED

While MOP pricing continues to hold value, higher premium SOP potash could be a source of excellent value for junior miners looking to develop resources. At the forefront of this category is Potash Ridge.

The junior miner is in the fortunate position of having two highly de-risked and advanced development stage potassium sulphate (SOP) projects; 1) the Blawn Mountain assets in Utah and 2) the Valleyfield project in Quebec, Canada.

Both projects are well received in their respective jurisdictions and have garnered strong support from the various levels of government, agencies, financial groups, and stakeholders in their locale.

Taking into account the current climate, Potash Ridge just announced its plans to spin-out the Valleyfield project into a new public company in order to create greater value. The company plans to focus its efforts on the development of its proposed 255,000 ton per year project at Blawn Mountain, Utah.

A prime source for SOP, Blawn Mountain is in its final stages of completion with all major environmental and regulatory permits in place. It has the potential to become a significant potash resource and the lowest cost producer SOP in North America.

In the wake of the merger between PotashCorp and Agrium, opportunities for potash producers could shift in a positive direction. And although the deal is not complete, based on current approvals, the transaction should wrap up by the end of this year.

Either way, the movement by Potash Corp. and majors to bring price strength and balance supply levels with increased market demand can only serve as a springboard for junior miners and others looking to develop potash resources with long term value.

POTENTIAL COMPARABLES

Compass Minerals International, Inc. (NYSE: CMP)

Compass Minerals International, Inc., produces and sells salt, and specialty plant nutrition and chemical products in the United States, Canada, Brazil, the United Kingdom, and internationally. It operates in three segments: Salt, Plant Nutrition North America, and Plant Nutrition South America. Compass Minerals International, Inc., produces and sells salt, and specialty plant nutrition and chemical products in the United States, Canada, Brazil, the United Kingdom, and internationally. It operates in three segments: Salt, Plant Nutrition North America, and Plant Nutrition South America. The company was formerly known as Salt Holdings Corporation and changed its name to Compass Minerals International, Inc. in November 2003. Compass Minerals International, Inc. was incorporated in 1993 and is based in Overland Park, Kansas.

Intrepid Potash, Inc. (NYSE: IPI)

Intrepid Potash, Inc. produces and sells potash and langbeinite products in the United States and internationally. It operates in two segments, Potash and Trio. The Potash segment offers muriate of potash or potassium chloride for use as a fertilizer input in the agricultural market; as a component in drilling and fracturing fluids for oil and gas wells, as well as an input to other industrial processes in the industrial market; and as a nutrient supplement in the animal feed market. Intrepid Potash, Inc. was incorporated in 2007 and is based in Denver, Colorado.

Agrium Inc. (TSX: AGU) (NYSE: AGU)

Agrium Inc. produces, markets, and distributes crop nutrients, crop protection products, seeds, and merchandise products primarily in the United States, Canada, Australia, and South America. It operates in Retail and Wholesale segments. The company offers crop nutrients, including nitrogen, potash, phosphates, sulfur, and micronutrients; crop protection products, such as herbicides, insecticides, fungicides, and other products; and merchandise products comprising fencing, feed supplements, livestock-related animal health products, storage and irrigation equipment, and other products, as well as provides seeds and seed-related information and analysis.

For a more in-depth look into PRK you can view the in-depth report at USA News Group: http://usanewsgroup.com/2017/12/06/potash-supply-to-exceed-demand-by-2020-report/

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