Fertile future for phosphate and potash.PURE SPECULATION: Robin...

Fertile future for phosphate and potash.

PURE SPECULATION: Robin Bromby From: The Australian June 28, 2010

WE usually try to avoid jargon, but there's no getting around "metacommodity".

That's a commodity formed by, or about, other commodities. Fertiliser is just such a commodity related to potash and phosphate. They are all joined at the hip when it comes to issues of price, demand and supply.

Pure Speculation has harped on about those two fertiliser feedstocks, so it's nice to read that Fortis Bank Nederland and London-based Virtual Metals have declared that fertiliser is a leading candidate for the title of the 21st century's metacommodity.

One of the main reasons, as we have pointed out on several occasions, is that -- as the report puts it -- "on current trends the world faces a serious arable land crunch". The Food & Agricultural Organisation forecasts that food production will have to grow by 70 per cent between now and 2050 to support the expected world population of 9.1 billion.

With fertiliser at present used in 60 per cent of world food production, it is inevitable that fertiliser use will grow, especially with more land disappearing under urban growth.

Local investors initially got enthusiastic about potash and phosphate a few years back. Potash rose from $US150 a tonne to $US1000/t in 2008, but these markets collapsed along with everything else when the global financial crisis hit.

But here's the key point: the report shows that, while fertiliser prices fell substantially, they did not plunge to levels seen before 2005, and certainly nowhere near prices in preceding decades.

Fortis Bank points out that potash is trading around $US350/t, $US200 above where it started in the run-up to the commodity spike of 2008. Diammonium phosphate is $US370/t now compared with $US232/t before the 2007-08 boom run.

FAO forecasts for the 2008-13 period show that East Asia will account for 32 per cent of extra consumption of fertiliser and South Asia another 22 per cent of growth.

In the potash market, much will depend on whether BHP Billiton (BHP) goes ahead with its $US10bn ($11.5bn) project in Canada. This would be the world's biggest potash mine and would have considerable impact on the supply-demand situation.

Not that this is deterring those potash explorers at the junior end of the market.

One company flying well under the radar has been Elemental Minerals (ELM), which owns the Sintoukola potash project in Republic of Congo, the country of 4.1 million which was the scene in the past week of two tragic accidents -- the death in a plane crash of the Australian mining executives and then a dreadful train smash (with the Brazzaville government now blaming a drunk train driver).

Sintoukola's potash was first known in the 1960s when a company drilling for oil found the mineral. ELM is targeting up to 300 million tonnes of the high-grade sylvinite mineralisation but four of the planned 16 holes will be drilled deeper to assess whether beneath the main target there are economic quantities of carnallite, which a is less valuable potash source but would add to the appeal of the mine project.

The camp will be completed this week and two rigs will be moved in to start work. ELM sees Brazil across the Atlantic as its potential market. Desktop modelling has the company initially producing 600,000 tonnes a year, moving to 1.2mtpa.

But with a market capitalisation of $46 million it is still a minnow by industry standards. Compare that with Calgary-based Agrium, which produces phosphate and nitrogen as well as potash and which is capitalised at $C8bn ($8.8bn).

On the other side of Africa, South Boulder Mines (STB) has begun diamond drilling at its "potentially world class" (their words) Colluli project in Eritrea, a country with a history of potash mining from Italian colonial times. A Canadian company is also drilling in the same basin and has reported grades of up to 34. 8 per cent.

http://www.theaustralian.com.au/business/fertile-future-for-phosphate-and-potash/story-e6frg8zx-1225884964068