* Big miners shelving projects as prices weaken
* Small players now look to fertilizer buyers
* Indian companies have strong interest in deals
* Karnalyte says closing in on second strategic partner
* Western eyes options; Encanto close to off-take
By Rod Nickel
TORONTO, March 4 Undeveloped Canadian potash
projects are drawing investment from a new and unexpected
source, as buyers of the crop nutrient in India cross over to
the industry's supply side.
The strong interest by Indian fertilizer companies in equity
stakes and agreements to take a certain percentage of a
supplier's production is a welcome development for junior miners
that are not getting the same attention from senior potash
producers that they did a few years ago.
China, the world's biggest potash consumer, is also
exploring ways to secure supplies through juniors.
"This is a great opportunity for the buyer side because
those guys consume huge amounts of product and they are
prisoners of the big two distribution groups from Canada and
Russia," said Chief Executive Patricio Varas of Western Potash
Corp, on the sidelines of the Prospectors & Developers
Association of Canada mining convention in Toronto.
"They're thinking, 'we consume all this potash, why not own
some?,'" he said.
Three years ago, as forecasts grew of soaring demand for the
crop nutrient potash, mining giant BHP Billiton Plc and
German potash producer K+S AG bought juniors
Athabasca and Potash One, respectively, and started construction
on new mines.
But today, major mining companies are delaying or shelving
their own projects as potash prices weaken, never mind kicking
the tires on junior projects. BHP has yet to give final approval
to its Saskatchewan potash project, while Vale SA has
put its own Saskatchewan project on hold.
FAVORABLE LONG-TERM DEMAND
Junior potash companies, like senior producers, are facing
investor doubts, given concerns that too much mining capacity
for the nutrient is already in the works for the near term.
Existing producers such as Potash Corp of Saskatchewan Inc
, Mosaic Co and Agrium Inc have
expansions well underway.
A junior mining companies are typically involved in
exploration and development but lack capital to build their
In the longer term, however, demand for fertilizer looks
strong as populations grow especially in China and India,
straining food production. BHP viewed potash as such a strategic
commodity to own that in 2010 it launched a $39 billion hostile
bid for Potash Corp, which the Canadian government ultimately
The unfavorable winds leave the remaining juniors to dig up
other means of funding their mines.
Karnalyte Resources Inc has found that even if
mining majors aren't returning calls these days, companies that
import potash into India are a lot more interested. In January,
the Okotoks, Alberta, miner sold a 20 percent interest in its
Wynyard, Saskatchewan, potash solution mine to India's Gujarat
State Fertilizers & Chemicals Ltd, along with an
off-take agreement for 350,000 tonnes a year.
A second potential partner - also a potash buyer - is close
to making a similar commitment that would push the project
closer to reality, with debt and equity raising the balance,
said Ron Love, Karnalyte's chief financial officer, declining to
offer further details.
"One of the big mantras they have in India is food
self-sufficiency," he said. "They want to set themselves up for
the future and fertilizer is a big part of that.
Investing in new mines "allows them to avoid regular
negotiations of contracts which are sometimes a little painful."
India imports potash to boost yields of its crops of rice,
cotton and wheat, since it produces none of the crop nutrient
itself. Its buyers collectively negotiate supply contracts with
marketing agencies Canpotex Ltd and Belarussian Potash Co, which
represent the big producers in Canada and Russia/Belarus,
respectively, and who use their clout to drive hard bargains.
Karnalyte's project, called Wynyard Carnallite, also looks
appealing for its relatively low cost, at C$600 million ($582
million), due to its small scale and use of less-conventional
Encanto Potash Corp is working toward signing an
off-take agreement with a consortium led by India's Rashtriya
Chemicals and Fertilizers Ltd for its flagship
Muskowekwan project in Saskatchewan, said Ross Moulton,
vice-president of exploration.
The agreement is expected to commit 2 million tonnes a year
of the project's 2.8 million-tonne potential capacity, and
should lead quickly to financing, he said.
"Our fear from Day 1 is that the big boys (of potash mining)
would come in, buy us, and shut us down for pennies on the
dollar," Moulton said at Encanto's booth at the mining
Encanto is seeking government approval for Muskowekwan on
environmental grounds and completion of a bankable feasibility
study by the end of the year.
Western Potash Corp has struggled to attract capital because
of the steep C$3.3-billion price tag on its Milestone project in
Saskatchewan, according to analyst Andrea Rubakovic of Salman
Partners. At the end of 2012, it had a cash balance of just C$5
million and in January it hired UBS Securities to help search
The price tag simply reflects the large size of the
resource, said Western's CEO Varas.
Western is in talks about investments with numerous parties,
from hedge funds, to fertilizer companies in China and India,
Varas said. Unlike its junior rivals, he said Western has turned
down offers of off-take agreements from fertilizer makers as it
looks for a comprehensive plan to build Milestone, he said.
China's state-owned Sichuan Chemical Industry Holding
(Group) Co signed an off-take agreement last autumn
with Prospect Global Resources Inc, which is planning a
potash mine in Arizona.
To be sure, big fertilizer producers aren't completely
ignoring juniors. Last spring, Norwegian nitrogen maker Yara
International ASA bought a one-fifth stake in IC Potash
Corp, which is developing a potash mine in New Mexico.
Several other Toronto-listed potash companies are taking
another tack: developing projects that are closer to the buyers.
Verde Potash PLC hopes to start mining potash in
2015 in the Minas Gerais state of Brazil, one of the world's
agricultural powerhouses and one of its biggest potash
importers. Rio Verde Minerals Development Corp and MBAC
Fertilizer Corp are also eyeing potential Brazilian