September 25, 2009 / 7:30 PM / 10 years ago

POTASH-Junior explorers may lure top farming nations

* Small-caps not seen as viable targets for big companies

* Top importing countries expected to look for new supply

By Pav Jordan

TORONTO, Sept 25 (Reuters) - Junior potash producers may find willing partners in China, India and other farming nations, as the majors stay off the takeover trail to develop their own huge reserves.

The smaller companies are sitting on large potash deposits they cannot afford to develop. And if the big producers are not interested, the juniors will need to be inventive to get their mines built, given that the huge cost of developing new projects may actually scare away investors.

“The small guys are having very active dialogue looking for strategic investors, looking for that source of equity to help them get built,” said Dan Barclay, head of mergers and acquisitions, Canada, for Bank of Montreal.

“Do I think a bunch of these guys are going to get sold? I do not,” he added. “Do I think they are going to go out and find strategic equity to help them move their business plan along? Yes I do.”

From the cane fields of Brazil to the great rice fields of India and China, potash is an essential nutrient to improve the resistance of plants to disease and to boost crop quality and yield.

But a cartel-like handful of firms currently controls supply and pricing, leaving importers searching for alternative ways to get the fertilizer they need.

The smaller companies “really need a sugar daddy like me to come along and bail them out,” said Bill Doyle, the chief executive of Potash Corp of Saskatchewan POT.TO, the world’s No. 1 producer. [ID:nN21299092]

“Of course we are not going to, because we have hundreds of years of reserves from our own mines and we are doing our own expansions much cheaper than building greenfields,” he said in an interview, referring to building mines from scratch.

Even so, there appears to be some interest in finding alternatives to the big producers.

The Indian Farmers Fertiliser Co-operative Ltd (IFFCO), which relies on imports for its supply, said it was evaluating a few projects.

“We are working on potential joint ventures. Potash is not simple. It is a ... risky venture. We have to evaluate very carefully,” U.S. Awasthi, managing director of IFFCO, said in an interview this week.

He said Canada was one option that IFFCO has considered, as well as projects closer to home.

The Canadian small-cap sector includes Athabasca Minerals (ABM.V), Potash One Inc KCL.V and Western Potash Corp WPX.V.

While some small producers have faded from the spotlight, these are some of companies that continue to beat their drums, insisting they have deposits that are worth developing.

Vancouver-based Potash One said last week that it submitted a proposal to environmental authorities for its Legacy project in the western Canadian province of Saskatchewan — a major source of potash — and said it represents the first new potash production facility in the province in more than 40 years.

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