Canada’s pink gold rush attracts the world

With the precious cargo slung over his shoulder, Vikram Singh strides through his field spreading the white granular stuff where it matters most.“I can't afford to waste any…I had to buy it on the black market,” says the 38-year-old farmer from Dostpur Mangroli village in the northern Indian state of Uttar Pradesh.

For the last two decades, Singh has toiled his field for wheat and rice to feed his family of six, using the white stuff to stimulate the crops and his livelihood, in India's once-fertile Gangetic Plain.

“I have to use more and more because the land is not as good as it once was…this is not only expensive, it’s very hard to get,” says Singh, who paid twice the retail amount of 1,200 rupees (about $23) for a bootleg 50-kilogram bag of the white stuff — potash-based fertilizer.

Like Singh, farmers around the globe are demanding better access and prices to the indispensable and irreplaceable pink salt known as potash, which optimizes the delivery of nutrients to plants.

Pressure is also mounting on the governments of fast-emerging economies like China and India, which view the daunting challenge of providing their booming populations with better quality food as a potential threat to national security.

A greater reliance on potash promises to virtually double the output of their agricultural sectors, as well as other similarly-challenged emerging economies. That’s because this strategic mineral can significantly improve crop yields, while requiring less arable land and less water. Investment industry analysts therefore agree that there will be heightened global demand for many years to come.

This reality has for the past several years spurred on a multi-billion dollar, high-stakes race to acquire and control the world’s few remaining undeveloped potash deposits. Most of them can be found in Saskatchewan where potash lies abundantly in the salts left behind by an ancient inland sea.

According to a January 2012 report by Toronto-based bond ratings agency DBRS: “The anticipation of persistent demand growth for fertilizers and the rapid rise in potash prices has led to an explosion of expansion projects from existing producers and new entrants.”

Hence, China and India have high-priority national mandates to get a piece of the action before it is too late in what is now being dubbed as Saskatchewan’s Pink Gold Rush.

Saskatchewan's Minister of the Economy, Bill Boyd, looks forward to a boom in the potash industry that he believes will fertilize the future of his province.

“We have established a global reputation as the world's largest potash producer with nearly half of the world's proven potash reserves,” he says in a recent interview. “This means billions of dollars of potential new investments, and thousands of jobs for Saskatchewan residents.”

Patricio Varas, the CEO of Western Potash, agrees. “There is no doubt that Saskatchewan is the Saudi Arabia of potash,” he says. This helps explain why his small company is being courted by China and India, which have an eye on its Milestone project, just outside of Regina.

Both emerging superpowers are particularly anxious to lock-in long-term potash supplies by partnering-up with any of the several smaller players in the Pink Gold Rush — ones that cannot afford to go forward alone, like Western Potash.

This Vancouver-based company's emerging story is being followed by Ben Isaacson, a Toronto-based mining analyst for Scotia Bank.

“Given the recent re-emergence of ‘the potash independence theme' by several emerging economies —Brazil, China, and India—we would not be surprised to see aSOE(state-owned enterprise) take a run at Western Potash in the near-term,” Isaacson said in an investment newsletter to clients late last year.

Varas declined to comment on any pending deals and the investment industry's speculation. But he is keen to emphasize his company’s pragmatic business strategy.   

“Western Potash’s ultimate aim is to help solve food security issues in Asia by guaranteeing a secure, long-term supply of potash,” he says.

The upstart company’s proposed solution mine in Milestone has the potential to produce at least 2.8 million tonnes of potash per year for at least 40 years. Solution mining involves pumping water into the mineral deposits and dissolving them for extraction. It is less costly, more environmentally-friendly, and faster to commercialize than conventional mining.

In fact, Western Potash made headlines earlier this month by announcing its intention to pay the city of Regina to redirect much of its treated sewage water to its mine site. Currently, this effluent is deposited into the Wascana River.

Potash sales are already worth some $150 billion a year on a global basis. Saskatchewan accounts for about a third of the world’s annual production of about 55 million tonnes. Russia and Belarus are the only other major producers.

Yet Canada’s potash riches and its favorable political environment make it the preferred jurisdiction for all the new players who want to muscle-in on this lucrative industry. In the past couple of years, two leading global mining multinationals, Brazil’s Vale Ltd. and Australia’s Rio Tinto Group have entered the hunt for potash in Saskatchewan. The latter did so by partnering-up with one of Western Potash’s peers in the junior potash sector, North Atlantic Potash, in 2011. The German fertilizer heavyweight K+S Ag Group also took the fast-track to becoming a potash producer in Canada by acquiring another small player, Potash One, last year.

But the biggest new entrant to Saskatchewan's potash mining business by far is the world’s largest mining company, Australia’sBHPBilliton. It is developing its own mega potash mine at Janzen, near Saskatoon. This would become by far the largest mine of its kind when it eventually reaches full capacity at about eight million tonnes per year. AndBHPBilliton has four smaller mines in the pipeline, too. A couple of them were formerly owned by two more of Western Potash’s past rivals, Anglo Potash and Athabasca Potash, untilBHPBilliton gobbled up both companies in 2008 and 2010, respectively.

Meanwhile, Saskatchewan’s existing operators —Potash Corp., Mosaic Co. and Agrium Inc.—are midway through multi-billion-dollar expansions to their mines, all of which are at least 40 years old, but are still going strong. Potash Corp., alone, plans to almost double its output from about nine million tonnes a year to around 17 million tonnes by 2015.

Collectively, this clutch of deep-pocketed mining behemoths promises to more than double Canada’s existing production within the next few years. But these game-changing developments will mean little to poor, struggling farmers like Singh in India and others elsewhere in the world’s emerging economies. That is unless they get the potash at steady, reasonable prices.

Currently Saskatchewan’s trio of producers sell their potash via a marketing agency known as Canpotex, which manages both prices and supplies. However, it is renowned for sometimes demanding lofty, inflexible prices, which was especially the case in 2008, when its prices spiked over $1,000 a tonne, as compared to current levels of around $475   a tonne. Canpotex’s ‘take it or leave it’ mindset has long been a thorn in the side of China, its biggest customer, as well as India.

This is where new market entrants like Western Potash and the mining industry’s interloping titans come into the picture. They aim to break the stranglehold that these existing producers currently have on Canada’s supplies.

“This should make for a more competitive environment by allowing supply/demand fundamentals to dictate pricing of this vital commodity, Varas says. “This should translate into a win-win situation.”

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