Ethiopia vs Sask
Posted on SH by jstinvest
In spite of recent market weakness in potash stock prices, they will rebound but the same may not be said for others such as gold stocks, silver, etc. With more planting needed to be done by farmers all over the world to meet higher demand for food, animal feed and even fuel, potash has a strong future. What does not have a strong future are the junior potash companies in Saskatchewan. It's amazing that people still invest in those companies when you have AAA and FED that are the only Canadian juniors with potential to have a mine that makes money with low potash prices.
Saskatchewan is going to have over supply when new Potash Corp, Agrium, Mosaic and K+S mines come online in coming years. As for Jansen, that's out of the question as there's no way BHP goes ahead with that. Potash prices must stay around $500 or lower per tonne, otherwise Asia is not going to buy. New Saskatchewan mines will not make back their CAPEX and daily operating costs to run new mines if the potash price is less than $500 per tonne. With these types of prospects facing Saskatchewan, no one is going to buy juniors there. Potash one was the last (and lucky) to get bought out. In Ethiopia, the metrics are completely different and the basin can still allow companies to make money with prices well below $500 per tonne -- most of you know this so I will not explain. This means there are only two Canadian junior potash company that have a future (either going into production or a take out) AAA and FED.
Why choose the Potash Sector?
World will need more food, animal feed, plant fuel, etc. Looking at other sectors all have many junior companies to invest in but for Canadian junior potash, there really is only AAA and FED. BHP appetite for potash already have them in the Ethiopian basin and with continued great drilling results from AAA and FED, this will only confirm to BHP that they need to make a take over in the basin and get some of the good quality land - BHP came late to the basin (after AAA and FED who both took better land position than BHP). BHP can't afford to just sit back and see FED and AAA releasing these high grade KCL without making a move, otherwise India or China will beat them to it and then they probably can't get into the sector in the future. Where else could BHP go if they don't buy out AAA and FED? Their own land in the Ethiopian basin is no where as good as FED or AAA, they can't build new mines in Saskatchewan as they will not make a return on their investment. So looking at the bigger picture, BHP is sort of in a situation where they have to take out AAA and FED or don't get into the potash business at all (where else in the world would they go and build new mines that can earn a return on investment with low potash prices?).
