Another day, another potash stocks sell-off
Uralkali CEO Vladislav Baumgertner's bombshell on Tuesday wreaked havoc among potash miners, wiping billions off majors and turning mid-tier players into penny stocks.
The exit of Uralkali, the world's largest and lowest cost potash producer, from European cartel that controlled roughly 43% of global exports, has set what was up to now a very cozy industry on a headlong rush to cost-based pricing.
Baumgertner sees the price falling below $300 a tonne before the end of the year from a Vancouver FOB price for the soil nutrient of around $400 a tonne at the moment.
The reaction on markets yesterday were swift and brutal with juniors and giants alike suffering 20%-plus losses in market value.
The selling only continued today.
Uralkali (MCX:URKA) plans to grow output next year by 23% from 2013's 10.5 million tonnes giving it more than quarter of the global market which is around 55 million – 60 million annually.
Thanks to cash costs of only around $62 a tonne, the Russian giant is set to grab market share from North America's big three – Potash Corp. of Saskatchewan (TSE:POT), Agrium (TSE:AGU) and Mosaic (NYSE:MOS) represented by their own selling organization Canpotex – but its stock has been hammered nevertheless.
Uralkali gave up another 5% on Wednesday adding to its almost 20% drop yesterday.
Potash Corp was also down another 5% after a brutal day yesterday when the company shed a fifth of its value.
At $31 the Saskatoon company – at one point Canada's most valuable company – is worth just under $27 billion on the TSX.
That's a 60% decline from its all-time peak in 2008 and well below BHP Billiton's hostile takeover bid of August 2011, which ironically was rejected by the Potash Corp board and Canada's government in large part because BHP said at the time it would bypass Canpotex.
Canpotex has not made any statement on events and the marketing organization's other two constituents Agrium (TSE:AGU) and Mosaic (NYSE:MOS) declined again on Wednesday, although Agrium has been left relatively unscathed thanks to its smaller exposure to potash in its fertilizer business.
Mosaic is down 18% since Uralkali's move and at $42 a share is trading an astonishing $110 below its 2008 peak.
Germany's K+S (OTCMKTS:KPLUY) was trading down another 10% on Wednesday bringing its two-day losses to more than 30%. European producers have potentially the most to lose given production costs north of $200.
Israel Chemicals (TLV:ICL) also slid, while Sirius Minerals (LON:SXX) hoping to build a potash mine in Yorkshire declined 5.5%.
Intrepid Potash (NYSE:IPI) in the US was one of the biggest losers, giving up another 7% on Wednesday to add to yesterday's almost 30% plunge.
The Denver-based company's most recent results showed costs per tonne of $236, which leaves it with uncomfortably thin margins. Intrepid is a shadow of its former self – during the heady days of 2008 the stock peaked at $67 compared to Tuesday's $12.84.
Junior players advancing project in Saskatchewan and elsewhere have felt the impact more than the large producers as financing for new potash mines is likely to start drying up.
Karnalyte Resources (TSE:KRN) is down 47% over two days and while Vancouver's Encanto Potash (TSE:EPO) found some support on Wednesday the counter is still 30% cheaper than on Monday. Encanto is in the pre-feasibility phase of 2.8 million tonne mine and has been in talks with Indian and Kuwaiti investors.
Western Potash (TSE:WPX) has escaped much of the carnage thanks to some high-profile Chinese backing and a low-cost production plan for its $2.9 billion mine it hopes to put into commercial production in 2016. The Vancouver company is now worth $96 million in Toronto and has managed to stay in positive territory for the year.
Allana Potash (TSE:AAA) which is advancing a project in Ethiopia and Verde Potash (TSE:NPK) active in Brazil, also eked out gains on Wednesday recovering somewhat from steep losses yesterday.