Why Rinehart, Stokes and BHP are pursuing investments in potash
by Tess Ingram
Australian companies and some of the country's wealthiest individuals are pursuing investments in potash as the crop nutrient's market dynamics improve ahead of an anticipated food boom.
After being stuck in a downward spiral for about a decade due to oversupply and soft demand, potash prices have strengthened slightly in recent months. Along with expectations growth in food consumption will boost demand for fertiliser and therefore potash, investors are examining potential projects with more enthusiasm.
BHP outlined a more positive perspective on potash last month when it revealed it was close to a final investment decision on its Jansen project in Canada which it is aiming to have in production by 2023.
Between now and 2050 BHP expects the world's population to grow 30 per cent and crop demand to grow 50 per cent. Potash demand will grow at 2 to 3 per cent per annum to 2030, according to BHP forecasts.
"That food demand won't be met without more potash," BHP chief commercial officer Arnoud Balhuizen told a lunch in Melbourne last week.
It is a view shared by ASX-listed junior Kore Potash which is advancing its flagship $US1.5 billion Kola project with the backing of investors Summit Private Equity, Chilean lithium and fertiliser company SQM and the sovereign wealth fund of Oman.
Kore claims Kola will be one of the lowest cost potassium chloride (MOP) producers globally once it is operational in 2022.
Chairman David Hathorn, a former Anglo American executive who was chief of its demerged paper business Mondi Group for 17 years until May, said while there may still be some questions about the supply side, the positive demand drivers were not going to change.
"It is a big market, it is growing consistently and it isn't dependent upon the China story to make it grow," Mr Hathorn said
"On the supply side at the moment it is over-supplied and prices are down but even at these prices we would be generating a return on our investment."
Gina Rinehart's Hancock prospecting made a $US300 million play in the industry last year, buying into London-listed Sirius Minerals which is constructing the North Yorkshire polyhalite – a high-grade form of potash – project in the UK.
The deal includes a royalty stream and rights to purchase up to 20,000 tonnes of product each year for use across her expanding Australian agricultural holdings.
Fellow billionaire Kerry Stokes, who has also been increasing his interests in agriculture, recently gained exposure to potash through the 26 per cent stake his private vehicle Wroxby holds in junior iron ore producer BC Iron.
Potash was BC Iron's first commodity of choice under new chief Alwyn Vorster's plans to diversify. It struck a joint venture with Kalium Lakes over its Carnegie potassium sulphate (SOP) project in March, with Kalium's chairman Mal Randall and chief Brett Hazelden both previously at the Stokes-backed Iron ore Holdings with Mr Vorster before it was taken out by BC Iron in 2014.
"[Stokes is] very supportive on the potash and salt, definitely," Mr Vorster said.
"Our confidence in Mal and Brett who worked with me at Iron Ore Holdings helped exploring our entry point into the potash market but we reviewed and did due diligence on most of the other projects available and for various reasons, including the confidence in management, we decided to go with Kalium.
"We believe Kalium with their main project Beyondie is the furthest advanced in the local market."
