Fertiliser is a BULK material. Hence, it could be compared to iron ore and coal. There are similarities but also differences. Similarities. a)The main concern with any bulk commodity is the cost of getting product to market. WA is loaded with many high quality IO deposits but many will never be mined despite a high IO price. The cost of building a railway and a port is simply too high for the return/ton received. These are referred to as 'stranded deposits'. A value-trap if ever there is one. AVOID! b) The world is filled with massive deposits of IO and coal. These will never be mined-out. Even if one of these commodities experienced a doubling in demand... there are sufficient deposits to satisfy it. Look at the recent history of coking coal (CC). A unprecedented jump in demand from China 4-5 years ago ignited a huge surge in price of CC. It went from $80/ton - $320/ton in about 30 months. That's a fourfold increase!! The result is 2 massive world-class high quality deposits (Mongolia and Mozambique)have attracted huge capex and will enter production over the next 2-3 years. In addition dozens of CC mines have increased production... to such an extent... that price has plunged from $320 to $200/ton... and that's BEFORE these Big-Boys even sell a single kilogram! The world can double production of IO and coal between 2010 and 2015. Sorry... the world IS doubling production by 2015. Money already committed. IO and Coal prices are tumbling now. What will price be in 3 years with 2x as much product sitting at ports around the world? I use this example to illustrate that a world-class deposit of a bulk commodity (EVEN one in strong demand)... is in-and-of-itself... not a reason to buy into mine. And I haven't even mentioned/considered the biggest of them all... the massive mountain range of IO in The Cameroon. Looks like Chinese could end up owning that sucker... and what will that do to prices? Potash is similar in that it too experienced a surge in demand when food shortages appeared 4 years ago. The price (from memory and please correct me.... afterall I'm typing this from an internet cafe in Robertson in the middle of a wine festival) soared to about $650-700/ton and then fell away to well below $300/ton. BUT... and this is a key factor... the food shortage hasn't disappeared! It's back... BIGGER and BADDER than ever. Soaring grain prices,serious food shortages, food riots and dare i say it.... but sadly famine in many regions is the most likely scenario... for next year and many years thereafter. Over the past 2 years potash has done the EXACT OPPOSITE of IO and coal. Its DOUBLED in PRICE... while its contemporaries have almost HALVED!! And this is NOW! Wait till mass famine hits India. The demand placed on Indian govt to assist farmers with inputs will be bigger than any before it. And there's 100+ other countries that are dependent on grain imports. So will the Big-Boys of potash production double production like those in IO? They are already trying... but cannot come close. The Ukraine region and Canada have large sophisticated mines... and they can and are revving-up output (see BHP website)... but DESPITE this... price of Potash just keeps on rising and rising. Conclusion. The outlook for potash is self-evident.
In another post I'll explain why the quality of a Potash deposit is both important and not-important. The fortuitous irony for ELM is that it wins both ways. i.e. it gains handsomely by having some of the very highest grade potash discovered... but I'll demonstrate why this isn't that crucial. it appears an oxymoron... but it's actually a simple explanation. ELM wins on both counts. meanwhile it's pouring rain outside but i'm heading back into the wine-tent. BUY. disclosure: I hold ELM.
K2P Price at posting:
86.5¢ Sentiment: Buy Disclosure: Held
