report identifies potential australian potash

07/21/2011


Report identifies potential Australian potash stars

Four Australian potash explorers have been tapped on the shoulder and chosen as those most likely to deliver healthy share price gains in 2011-12. Sydney-based Foster Stockbroking analyst Haris Khaliqi said the failed takeover last year when BHP Billiton tried to buy Potash Corp. of Saskatchewan was the catalyst for heightened investor awareness in Australia of the potash sector. We are bullish on ASX-listed companies that provide exposure to potash and believe significant market re-ratings can occur if an economic resource can be established, he writes. Khaliqi says that, while the major producers tend to trade on the TSX at multi-billion valuations, Foster Stockbroking believes there is an emerging set of ASX-listed stocks that can transition from their small cap exploration status and attract the attention of the cashed-up producers.

Those stocks are:

Aguia Resources (ASX:AGR). Market capitalisation A$51.8 million.

AGR recently acquired the Atlantic potash project in Brazil to add to its portfolio of phosphate targets in that country. As the report states, the project is supported by extensive data from 300 historical oil and gas bore holes and 32,000km of 2D seismic studies. The ground is 30km from Brazils only potash mine, Vales Taquari-Vassouras. Vale has built a functioning carnallite solution mining pilot plant, a development seen as encouraging for AGR as it highlights that solution mining in the Sergipe Basin is commercially feasible and that it is possible to get environmental approval for solution mining. Fertilizer blenders are located within trucking distance providing a ready local market. Khaliqi notes that this provides a significant advantage relative to international peers who will need to commit large amounts of capex required for infrastructure solutions. It could also mean operational savings to the tune of $100/tonne.

Elemental Minerals (ASX:ELM). Market capitalisation A$294.4 million.

This company has the Sintoukola project in Republic of Congo. The report describes this as a high grade shallow sylvinite resource with upside. There is an inferred resource of 804 million tonnes at 31 per cent potassium chloride. Given that mineralization remains open in all directions and the resource extends over just 28 square kilometres of the 1,400sq km licence area, Foster Stockbroking expects the resource base to expand with further drilling. In terms of infrastructure, Sintoukola is 9km from a sealed road and 90km from Congo-Brazzavilles international port at Pointe Noire. The company, says the report, is well positioned to export its product to Latin America or Asia providing higher margins compared to its North American competitors due to savings on ocean freight costs. ELM is in the process of making an initial public offering in the Canadian market ahead of dual listing on the TSX.

South Boulder Mines (ASX:STB). Market capitalisation A$190 million.

This company owns the worlds shallowest potash project. The ground in Eritrea contains two potash-bearing horizons at depths between 22.2 metres and 64.8 metres. The project is located 70km south of the shallow water port of Mersa Fatma and less than 200km from the deepwater port of Massawa. There is the option of restoring an abandoned railway line that runs through STBs Colluli project area. A slurry pipeline to port may also be an option. The maiden resource came in at 548 million tonnes at 19 per cent KCI; mineralisation remains open and consists of sylvinite, carnallite and kanite ore. A scoping study is under way to determine the feasibility of an open pit producing between 2 million and 10 million tonnes a year. The report notes that, after a phenomenal share price run in late 2010 and into 2011, the price has come back to attractive levels. It sees STB as on the radar for potential corporate activity.

Transit Holdings (ASX:TRH). Market capitalisation A$33.5 million.

This companys project is located in the Utah section of the Paradox Basin. A U.S. management team has been recently appointed. There is existing access to rail, road and electricity. The report says that historic data from eight holes indicate high grade sylvinite being present. It is located 10km south of the operating Moab potash mine owned by Intrepid Potash (NYSE:IPI). A recent scoping study on 12 per cent of the tenement area (in total, 386 square kilometres) identified an exploration target of 2.3 billion tonnes at 32.8 per cent. The report says that confirmation of a resource will lead quickly to a mining scoping study and significant re-rating.



Posted by Robin Bromby at 10:22:45 PM in Blog, Editor, Robin Bromby

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