Lack of Listed Potash Plays Means All Are Going Higher
By David J. DesLauriers
TORONTO (ResourceInvestor.com) -- Anyone who watches Business News Network or can follow a chart knows that potash is a hot commodity and that listed potash equities are equally hot.
The reality for investors is that there are very few ways to play potash – and it is not going to be a situation like the uraniums where all of a sudden we have even, in this case, more than 25 juniors.
Currently Potash One [TSX-V:KCL], Athabasca Potash [TSX:API], Anglo Minerals [TSX-V:ALM] and Raytec [TSX-V:RAY] are to our knowledge the only ways to play potash unless you want to buy the majors like Potash Corp of Saskatchewan [TSX:POT] or Agrium [TSX:AGU].
Saskatchewan’s potash belt which is host to 9 mines and 32% of the world’s annual potash output has now been completely staked (not one more claim available in the belt as of last Friday) – but there are only around 10 companies that control that acreage:
1.
Anglo Minerals [TSX-V:ALM]
2.
BHP [NYSE:BHP; LSE:BLT; ASX:BHP]
3.
Kennecott (Rio Tinto Group [NYSE:RTP; LSE:RIO; ASX:RIO])
4.
Agrium [TSX:AGU]
5.
Potash Corp of Saskatchewan [TSX:POT]
6.
Athabasca Potash [TSX:API]
7.
Potash One [TSX-V:KCL]
8.
Mosaic [NYSE:MOS]
9.
Saskatchewan Syndicate
10.
Canada Potash Corp.
11.
Raytec [TSX-V:RAY] and a few other small juniors
In scanning the list, only Canada Potash Corp and the Saskatchewan Syndicate, who collectively control nearly half the belt, or 5 million acres, are not public. It is also known that neither of these groups have any intention of piecing off their acreage to juniors – they are going to keep them within their own respective vehicles.
What this means is that the next couple of stories to market are going to be met with an exceptionally warm reception and robust valuations. Currently listed plays (see above) are already doing extremely well and only one company on the above list isn’t a producer, a conglomerate or a player with a market capitalization in the centi-million range.
That story is Raytec, which is up today trading at around 65 cents per share. We believe the company will be able to do a financing here shortly that will position the appropriate institutions. Factoring in a financing the company probably has a C$25 million market capitalization fully diluted at current prices.
Given the lack of product, the high demand for potash itself and for investment product, it is highly likely that Raytec will pop to the C$1 mark here in short order.
The opportunity is therefore both speculative and fundamental, with short and long term potential appreciation for shareholders. Given the lack of product and the degree to which the space is in favour, the prospect of names such as this popping in a vacuum is substantial. We believe that the potash trade is only just getting started, and as previously pointed out, is unique because not only does the underlying commodity have rising price action, but unlike any other precious metal, base metal, or mineral play that we’ve seen in this cycle, the universe of product for public investors is tiny – and it takes 7 years and a couple billion dollars to build a new mine.
Despite handsome runs across the board, recent retracements are a buying opportunity and going forward, most retracements will be buying opportunities in the context of the greater potash bull and its certain longevity in light of supply and demand realities. As the story really gets out there, the most levered players could deliver spectacular returns.
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