it's time to punt on potash as prices rise on

Gives TRH a plug in the body of the text

http://www.theaustralian.com.au/business/mining-energy/its-time-to-punt-on-potash/story-e6frg9ex-1225858111495

It's time to punt on potash as prices rise on China demand

Robin Bromby From: The Australian April 26, 2010 12:00AM
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POTASH sales in the US could hit a record this year and evidence is emerging that China's demand for phosphate is about to soar.

Suddenly, things are looking good for the fertiliser feedstocks, a story that Pure Speculation has long been peddling as a long-term investment plan. It has long seemed to us that the combination of an ever growing world population, the reduction in arable land due to urban sprawl and the demand by the fast-growing middle class of Asia for better and more diverse food means that farmers everywhere have to lift their yields dramatically.

A Canadian outfit, Potash Investing News, predicts that American potash sales will this year hit 45 million tonnes compared with 32 million tonnes in 2009. In addition, Saskatchewan's deputy finance minister Doug Matthies is quoted by Bloomberg saying his province's potash sales this year may exceed government forecasts.

Potash, which had risen from about $US100/tonne in 2003 to well over $US1000 in 2008, took a dip last year when China did a long-term deal with Belarus for $US350/tonne and then the Israelis signed the Chinese at $US355. But, already, those deals are looking rather foolish, given that potash prices are set for a strong rebound.

Rob Rutherford, who now runs Sydney-based Red Metal (RDM), knew about potash in the Paradox Basin, which spreads across Utah and Colorado, from the time he was working there for US miner Phelps Dodge. The mineral had also been logged by oil drillers in the area. Now his company has applied for 21 potash permits in Colorado. Red Metal is hoping exploration will justify its plan to produce between 200,000 and 2 million tonnes a year. (Red Metal also has a phosphate target in Queensland.)

Across the border in Utah, Transit Holdings (TRH) holds 386sq km of the Paradox Basin and has now earned its 75 per cent interest. The company hopes to have a JORC-compliant resource later this year.

In demand

On the phosphate front, Andrew Drummond at Minemakers (MAK) sent us parts of a presentation from the China Chamber of Commerce of Metals which shows that country to be digging as much phosphate out of the ground as it can. Last year production was up by 18 per cent. Long term, though, Chinese miners are battling low grades and transport problems.

Many phosphate commentators have focused on what is happening in Morocco and the plans for big expansion in Saudi Arabia, factors which they believe will restrain phosphate prices. But China's demand will keep growing beyond its capacity to mine, and Drummond thinks China's future import needs is the big sleeper issue when it comes to phosphate demand. "When China enters the market to buy (phosphate) rock, the impact on an otherwise roughly evenly balanced supply and demand situation will be dramatic," he says.

He believes the world won't be able to meet the rising demand through to 2020 and prices should increase dramatically.

Naturally, he sees Minemakers' Wonarah project in the Northern Territory as being one of the main beneficiaries, given that it is the nearest deposit to China that is not under some sort of government control. Phosphate rock prices bottomed at $US90/tonne and have now rebounded to $US135/tonne.

Another player worth keeping an eye on is Korab Resources (KOR), which last week was granted the mineral lease for its phosphate project near Darwin. The company estimates its start-up costs there to be under $300,000, which is extraordinarily cheap.

Terrible tax

IT has been a threatening cloud for some time, but now it is about to unleash terrible damage on investors in the resources sector.

We're talking about the resources rent tax. Saturday's Weekend Australian confirms that this is one of the recommendations contained in the Henry tax review.

Look at it from the perspective of the readers of this column, the resource punters: you stump up 20c a share for an IPO, you wait for years as prospects are drilled, assayed and subjected to several feasibility studies. Before anything is pumped or dug out of the ground, companies have to run the Native Title and state environmental gauntlets. Then, finally, they get into production and pay -- rightly -- state royalties.

Projects can take many years to get to this stage, and now they face the prospect of the federal Treasurer standing with his hand out. We'll be up there with Ecuador, Venezuela and Bolivia -- all countries that have decided to squeeze more money out of mining and energy companies to help repair government budgets.

Such a tax will add to the investment allure of Australian companies working in places like Ghana, Papua New Guinea, Burkina Faso, Namibia or Senegal -- jurisdictions beyond the rapacious grasp of a cash-strapped Canberra.

Down to earth

HERE'S a little dash of cold water for those excited by the whole rare earths frenzy.

Dudley Kingsnorth, who runs an industrial minerals consultancy in Perth, knows a thing or two about rare earths. He ran the Mt Weld rare earths deposit for 10 years under its previous owner, that mine now being developed by Lynas Corp (LYC). Kingsnorth is considered one of the top rare earths experts.

He's just done a detailed paper on the subject. There's no room here for all that, but we will post some of it by tomorrow on the Pure Speculation page on this newspaper's website.

However, he believes that the project growth in demand for rare earths will justify only two mines being brought into production between now and 2015, and they will be Mt Weld and Mountain Pass in California. Lynas issued an update during the week, and the owner of the latter project has just announced an IPO in the US to help raise the $US500 million needed to get Mountain Pass back into production. Other mines will have to wait in the queue.

Kingsnorth has another point to make about rare earths. They are not traded commodities, and are supplied to meet technical specifications of buyers. It can take three to four years for a potential miner and customer to develop the right technical capacity. It's all a bit more complicated than digging gold or iron ore.

TAILENDERS

* IT will be interesting to see just furiously investors will stoke the price of Endocoal (EOC) when it hits the boards on Friday. The companys $17m float closed four times oversubscribed, testimony to the prime coal real estate it has in the Bowen Basin. The MD, Rod Austin, formerly ran coal mines in the Hunter Valley. However, apart for its first goal, to get into coal production, Endocoal has a second string to its bow, the newly fashionable underground coal gasification.

* AND Foster Stockbroking remains bullish on Coalspur Mines (CPL) which is developing the Hinton coal project in Alberta, Canada. On Tuesday CPL announced it had placed $30m in new shares with the same Canadians who helped bankroll Mantra Resources (MRU) which is hunting uranium in Tanzania and Mirabela Nickel (MRN), now mining nickel in Brazil. Foster believes Coalspur will continue to be re-rated as work progresses and further resources are proven up.

* STEADY gold production is expected to be achieved this week at the Brightstar project near Laverton. A1 Minerals (AAM) produced an initial 725oz of unrefined gold in the March quarter, and MD John Williams says teething problems at the plant have been overcome.