How to Invest in Potash Fertilizer
What is Potash? Why should you invest in potash producers?
Potash refers to various salts that are mined for the water soluble potassium that they contain. In historical times, pots full of ashes were washed to produce lye. The lye could be put in large iron pots and evaporated. The resultant white powder was called "pot ash". It was known to be an effective fertilizer for crops due to the potassium component.
In more modern times, potash has been found as mineral deposits left by ancient sea beds. Mines have been established to harvest potash from such deposits. Various extraction methods are used depending on the quantity of potash and the depth of the deposits. Potassium is also present in seawater but in very low concentration compared to the level of sodium.
While potassium is a very common element, it is highly reactive and is always bound with other materials forming compounds. Many of the compounds are very stable meaning that they cannot be broken down easily. Potash is water soluble which allows the potassium to be easily extracted.
All biological cells require potassium for them to function. Plant cells contain a very high concentration of potassium which they obtain from the soil. When intensive agricultural methods are used, the soil may become potassium depleted. Farmers can increase crop yields by applying potash as a fertilizer which provides a ready source of potassium.
Because potash is so effective at adding potassium to the soil, which directly increases crop yields, farmers consider use of potash fertilizer to be essential. As a result, the price of potash is supported by a lot of demand from farmers around the world. Since the production of potash is limited to a relatively small number of companies, there is a substantial amount of revenue being earned by potash producers. This has been a great investment opportunity and should continue into the future. Increasing crop yield is of value to farmers and the best way to do so is to apply potash to crop lands.
Potash prices range from $400-550 per ton as of early 2011. Prices are forecast to average $500 throughout the year. This makes potash a valuable product for producers, many of which have substantial potash deposits. Economical production is key to profitability, however. Many stock analysts have released notices to clients advising them to investigate potash producers.
Investors are warned that investing in potash is subject to market fluctuations like all resource based investing. March 2011 has seen a decrease in stock prices for some of the companies. All investments in resources must be considered part of the investor's risk portfolio. To illustrate the volatility of junior potash company stock prices, market forces pushed most all of the entities down 15-20% or more during March and April of 2011. Those willing to step invest in turbulent issues should be careful but expectant of potential future gains.
(Image courtesy of the US government and is in the public domain - http://en.wikipedia.org/wiki/File:PotashUSGOV.jpg)
Where is potash located?
Where are the investment opportunities?
While potassium is the seventh most abundant element on Earth, much of it is either locked in extremely stable forms or present in compounds that are not commercially obtainable. Potash is a relatively abundant compound that can be found in underground deposits in various locations around the world. Where sufficient potash reserves have been found, mines have been established to extract the potash. It is then sold by the ton for use in agriculture.
The major producers of potash are Canada, Russia, Belarus, Germany, Israel, China, Jordan, United States and a few other countries. The countries that produce potash, and have the best investor climate, are Canada and the United States. While the other countries may offer significant investor opportunities for potash investment, the risks are likely quite significant at present.
World potash production map courtesy of Anwar_saadat.
Potash investing opportunities
Blue chip and junior companies
Potash is now recognized as being a vital requirement for agricultural production. It is one of the key fertilizers that can be used to greatly increase crop yields. In areas where extensive agriculture has been used, potash can restore potassium depleted soils. The price of the material has risen greatly over the years. With the economic slowdown in 2008, potash prices dropped but have risen steadily since. As the compound is a major factor in crop yield and is not a byproduct of petroleum production, the potash price should continue to be significant.
Potash Corporation, Saskatchewan, Canada, the largest producer in the world. (Symbol POT.) Stock price is in excess of $60 per share making the corporation worth over $50 billion. The company instituted a 3 for 1 stock split in February, 2011. The share price was divided by 3 on that date. As well, the dividend per share was raised from 10 cents to 21 cents. A $1000 investment made 10 years ago would be worth over $11,200 in 2011. As the biggest producer of potash, Potash Corporation must be considered for inclusion in an investors portfolio. Potash Corporation is an operating entity so close attention should be paid to the potash price per ton. Investors should note that the company is not a speculative buy so spectacular gains are unlikely but not impossible.
Agrium Inc., Alberta, Canada is a diversified company that mines potash and other fertilizer components. (Symbol AGU.) They also distribute fertilizer and other agricultural products. Stock price is just under $100 in 2011 making the corporation worth over $14.5 billion. A $1000 investment made 10 years ago would be worth over $5700 in 2011. As an integrated fertilizer producer and distributor Agrium may make sense for investors. Again, the price is high. Agrium does issue a stock dividend.
The Mosaic Company, Minnesota, United States, is a diversified fertilizer producer supplying both potash and concentrated phosphates. (Symbol MOS.) The stock price is about $80 in 2011 making the corporation worth about $35.5 billion. A $1000 investment made 10 years ago would be worth over $7900 in 2011. Investors seeking diversification may consider The Mosaic Company. The price is high and the company does issue stock dividends.
The following companies are substantially smaller entities. Their stocks must be considered fairly or highly speculative.
Karnalyte Resources Inc. is a Canada-based start-up company. They have interests in potash producing regions and have completed various exploration activities. These are designed to establish the extent of potash deposits available for mining. The company plans to establish a production facility that can deliver 2 million tons of potash per year starting with 500,000 tons in the first phase beginning in 2013. The company is using an extraction method that is stated to be less costly than the traditional mining methods. The stock price is about $12.50 in 2011 making the corporation worth about $158 million. A stock investment of $1000 in late 2010 would be worth over $1600 in 2011. This junior company will likely require significant capital to accomplish their plans. This may be obtained through the use of company stock sales which may impact share prices. Investors looking for a speculative option in the potash field may consider Karnalyte Resources.
Potash One, a Canadian company, has been a junior investment option for investors seeking potash exposure. (OTC symbol KCLOF, Canada KCL.) As of January 19, 2011, the company is to be acquired by K+S AG of Germany. A stock investment of $1000 in Potash One made in 2005 would be worth over $26,000 in 2011. With the takeover by K+S, investors will need to explore other information sources for this stock.
IC Potash, a Canadian company with interests in potash deposits located in the USA, is a junior potash interest. (Pink OTC symbol ICPTF, Canada ICP.) The stock is worth about $1.60 in 2011. A $1000 investment made in early 2010 would be worth $4500 in 2011 making the corporation value over $157 million. The company has a potash reserve that contains a premium compound called Sulphate of potash, (SOP). It contains no chloride which renders soil too salty over prolonged use. The company expects to produce their fertilizer at a lower cost than other SOP producers and market the fertilizer at a premium price.
Other junior potash corporations include Western Potash Corp., Spur Ventures Inc. and Encanto Potash Corp.
Links to mentioned Potash corporations
- Potash Corporation
Potash Corporation of Saskatchewan Inc. (PCS) is an integrated fertilizer and related industrial and feed products company.
- Agrium Inc.
Agrium Inc. is a retailer of agricultural products and services in the United States, as well as Argentina, Chile and Uruguay and a global producer and wholesale marketer of nutrients for agricultural and industrial markets.
- The Mosaic Company
The Mosaic Company (Mosaic) is a producer and marketer of concentrated phosphate and potash crop nutrients.
- Karnalyte Resources Inc.
Karnalyte Resources Inc. (Karnalyte) is engaged in the business of exploration and development of agricultural and industrial potash and magnesium products.
- Potash One Inc.
Potash One Inc. (Potash One) is a Canadian-based natural resource company primarily engaged in the acquisition, exploration and development of resource properties
- IC Potash Corp.
IC Potash Corp., formerly Trigon Uranium Corp., is a junior resource exploration company engaged in the business of acquiring and exploring mineral properties.
- Encanto Potash Corp.
Encanto Potash Corp., formerly Angus Ventures Corp., is engaged in acquisition of, exploration for and development of potash mineral deposits.