Feb 202013

By Nick Worth
Prospect Global Resources, Inc., through its wholly owned subsidiary American West Potash LLC, has submitted applications for two key permits with the State of Arizona.
The company filed its draft mineral development report with the Arizona State Land Department as part of an application to convert some of its state exploration permits into mineral leases.
The mineral development report discusses the mining, geology, processing, environmental impact and economics of the company’s proposed annual production of 2 million metric tons of potash.
In the report, Prospect Global cites expert analysis indicating that the project will have minimal environmental effects on the surrounding area in terms of water use, air quality and visual impact, while providing significant socioeconomic benefits to Apache and Navajo counties’ municipalities and the state.
“Experts anticipate that our Holbrook Project will create up to 4,500 direct, indirect and induced jobs during construction, and more than 1,200 direct, indirect and induced jobs during the productive life of the mine,” Brian Wallace, chief operating officer of Prospect Global, noted in a Feb. 13 press release.
“We anticipate generating tax revenue in excess of $1.5 billion for Arizona at the state, county and local levels,” said Wallace. “In all, we estimate that the Holbrook Project will generate nearly $1.9 billion in wages and nearly $5.5 billion in total economic output.”
The company also submitted an application for its air quality control permit to the Arizona Department of Environmental Quality (ADEQ) for administrative review and is finalizing its application for the aquifer protection permit with the ADEQ, which it plans to submit in the second quarter of 2013.
On top of the positive news from Prospect Global came a Jan. 3 report in the Wall Street Journal titled “Weak Demand Turns Tables on Potash Firms,” by Ben Dummett.
In the article, Dummett writes that for a decade, through 2009, the price of potash increased by approximately five times. The price increases were based on the expectation that demand for the fertilizer would go up as world populations grew and diets improved in emerging markets such as China and India.
Because of the price increases, smaller farmers in those countries have begun switching to urea, which is far cheaper, as a fertilizer. So, while global potash production increased by 30 percent since 2003, demand peaked in 2007 and 2013 demand is expected to be nine percent lower than that high point.
The article goes on to state that falling demand “has saddled the industry with massive overcapacity. BMO Capital Markets predicts that even if no new mines get built or expanded, capacity will be about a fifth greater than demand in just three years.”
A Scotiabank analyst is quoted as saying a lot of production capacity is coming on that is not needed and there is no growth in the demand for potash.
On the other hand, the article also states that executives at the major potash producers remain optimistic about the long-term growth of their industry.
Studies have shown that using only urea over several years will cause a chemical imbalance in the soil, which will lead to the renewed need for potash.
Ken Bond, director of Corporate Development for Passport Potash, agrees.
“That’s absolutely true,” he said.
Bond said there are many factors that make potash a necessary ingredient in agriculture.
“Potash is a regulator in the plant’s growing cycle,” said Bond. “It is essentially an electrolyte. It regulates how the nutrients are absorbed and utilized.”
He said when used in yearly applications potash builds up a residual in the soil and farmers can then switch away from it for a while and go to other fertilizers, like urea, but eventually they will want to come back to using potash.
“If you look at the fundamental demands, you will see short-term fluctuations,” Bond said of the potash market. “In 2009 you had a major pullback in the price of potash and the amount shipped was significantly less than previously. Farmers’ demand changed and that did affect the demand for that year.”
Other factors, such as weather, can affect the global market. Some industry executives cite the fact that there was a devastating worldwide drought last year, leading to less grain on the open market. Worldwide grain reserves are at their lowest since World War II.
Consequently, potash and other fertilizer producers ended up with a surplus of product.
With less grain on the market, prices are up for all types of food crops. So, industry thinking goes, farmers will want to fertilize and get good crops, which is good news for the potash producers.
“We believe that demand will stay fairly organized and will probably stabilize,” said Bond. “The market price won’t go much lower. If the price will mitigate a little bit, the demand will grow.”
Bond also noted world populations are still growing.
“In talking with an executive in a firm in India, he told me, ‘India grows a new Canada every year,’” Bond related.
He said Passport is still doing exploratory drilling on Hopi tribal lands and that the company’s preliminary economic assessment (PEA) is due out at the beginning of next month.
According to the Prospect Global’s press release, with the filing of the two permit applications, Prospect Global is on track to be first to market with potash from the Holbrook Basin, “one of the most promising potash fields in the United States.”