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KCL: Potash One Adds Cash, Production Viability With Buy
by Brian Truscott of Dow Jones Newswires

VANCOUVER (Dow Jones)--Potash One Inc. (KCL.T) received court approval this week for its takeover of Potash North Resource Corp. (PON.V), creating a C$105 million company with enough money to complete a feasibility study within a year, Chief Executive and President Paul Matysek told Dow Jones Newswires.

A new NI43-101 study will come out in early May, which "will be a blockbuster for more resource," he said.

Potash One's flagship Legacy solution mining project in Saskatchewan has 391.5 million metric tons inferred of potassium oxide (K2O) and 40.8 million tons indicated of K2O.

Potash, containing K2O, is used to ramp up crop yields.

A Legacy pre-feasibility study will be completed by late May, he said. The study will be based on a 2.5 million ton/year operation, but there will also be a study for a smaller operation, around 1 million tons a year.

"The good thing about solution mining is that it's scalable," he said. "We'll look at that, then start work on a bankable feasibility study in September. That might take six months to complete."

And if the costing and production figures make economic sense?

"The costs will be robust and the issue will be financing it," he said. "Our Legacy mine could supply 5-10 million tons of potash a year, but who is going to give us C$4 billion to build that?"

He said a smaller mine - 600,000 to 800,000 tons a year - would cost about C$800 million or less to build.

"This would be a good opportunity because (bigger) players aren't going to react over the appearance of another 800,000 tons a year," Matysek said.

Annual global potash production is about 55 million tons a year.

Competing With the Big Potash Players Of The World

There are a dozen big potash players in the world, with Saskatchewan home to the world's largest reserves and producers. The big three: Potash Corp. of Saskatchewan (POT), Mosaic Co. (MOS) and Agrium Inc. (AGU). These three companies are key potash price setters via a wholly-owned "trade association" called Canpotex.

The other big players, such as JSC Belarusian Potash Co., are based in Belorussia.

The big Canadian companies, plus newcomers such as BHP Billiton Ltd. (BHP), are working on billion-dollar greenfield potash mines as older mines fade away. Much of this build-out is being organically funded because financing from banks is problematic in flood-prone Saskatchewan, Matysek said.

Given limited market competition, prices haven't completely collapsed with the economic downturn. A ton of potash, which went from US$200 around 2006 to more than US$1,000 in 2008, now goes for about US$600 to US$800 a ton even though it costs about US$125 a ton to extract K2O from the ground.

Once his mine is in operation, Matysek plans to undercut the prices of majors.

"That's the only chance I have. I say, 'Look, if you don't do a deal with me and Canpotex makes a deal with me, you're just making your situation worse because it will have captured my supply,' " he said.

Company Web Site: http://www.potash1.ca

Brian Truscott, Dow Jones Newswires; 604-669-1595; [e-mail]

April 17, 2009