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In pursuit of potash

The market looks favourably on early-stage Pacific, advanced-stage Western Potash

by Greg Klein

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Just the stuff to develop bigger and healthier crops, potash complements a world growing in population and appetite. Two contrasting companies pursuing the commodity are Western Potash TSX:WPX, the most advanced junior in the space, and Pacific Potash TSXV:PP, with a very big but early-stage property optioned from Western. Those differences aside, both companies have seen a general upturn in share price over the last month.

Pacific Potash TSXV:PP chart for the month ending May 16, 2013

Pacific Potash TSXV:PP chart
for the month ending May 16, 2013.

Pacific’s V.P. of corporate communications Mike Blady largely attributes his company’s stock performance to a $2.25-million financing announced in April. The money will fund exploration on the Amazonas project in the Brazilian potash basin of the same name, a region that’s being compared in size and geology to Saskatchewan’s prolific potash region.

With 796,000 hectares, Pacific holds a substantial chunk of property. Even so, it’s been trimmed from its original size of over 1.5 million hectares. Last September the company dropped claims to the south that involved indigenous communities, protected forests or inaccessible terrain. Much of the remaining land had already been cleared. A 43-101 technical report followed in November.

Parts of the property might be remote but “there are several cities within our claim blocks, with 40,000 to 100,000 inhabitants,” Blady explains. “There are roads in and around the cities but the majority of the property is accessible by boat through tributaries of the Amazon River,” which he calls “the super-highway for commerce in most of Amazon state.”

The location offers an even greater advantage—an already huge domestic potash market with a faster rate of increase than anywhere else on the planet.

Pacific Potash hopes to begin drilling its Amazonas property in September or October

Pacific Potash hopes to begin drilling its
Amazonas property in September or October.

“Brazil has a very large agricultural sector but almost zero domestic production,” Blady points out. The country currently imports over 90% of its supply from places as distant as Canada, Russia and the Middle East, he says. Shipping costs add about $175 to $225 per tonne to the price, compared to an estimated $40 to $60 for shipping if a local mine were developed. Consequently “the government’s very supportive of these projects. Brazil’s trying to increase domestic production to 60% of demand by 2020. They’re very interested in seeing this basin get developed, which is great for a company like us.”

He adds, “In Brazil, agro-business is the fastest-growing industry and one of the government’s largest cash generators. It’s expected that Brazil will have the largest sustained growth in potash consumption over the next 50 to 100 years as it still has 20% of the world’s remaining arable land. Brazil is the number one growth market for fertilizer and potash. It’s growing even faster than China for potash consumption.”

That potential attracted Asian capital to Pacific’s recent $2.25-million financing. A first tranche of $1.25 million closed last month while another $1 million from Sino-Canada Natural Resources Fund is being held in trust until May 31. That’s the day shareholders decide whether to approve a change of control in which the fund would hold about 18.1% of Pacific’s outstanding shares and nominate a co-chairman and director.

Sino-Canada plans to invest more than $500 million over two years in Canadian natural resource companies.

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