Goldman Sachs sees potash as the commodity for the next decade. In its latest report, Evolution of the super cycle: what’s changed and what may, Goldman places potash among the top 10 future themes in commodities.
They say what we’ve been saying since Potashblog.com — one of the forerunners of ProEdgeWire — was started. As the Goldman analysts put it, “growing population, an increasing middle class and decreasing arable land, all lend themselves o increasing demand for potash”. That’s it. In a nutshell. They equate potash with iron ore: like iron ore several years ago, there is in potash now an over-supplied market with significant identifiable supply about to add to what is now readily available, but potash also shares with iron ore back then the factors that led to a five-fold increase in the latter’s price; that is, high barriers to entry, concentrated market and high capital-intensity of projects.
Goldman sees potash as what it calls a second-cycle. It will be led by the increasing wealth after the first cycle, the economic take-off of countries like China which propelled the initial commodities boom in all the base metals and iron ore needed for the huge construction wave. Now we are heading into a scenario where China will soon have an average per capita of US$10,000 and people will be seeking better living standards, including foods with high protein.
Meanwhile, there’s a race among a number of companies to position themselves for the next cycle in the potash story.
This week one of those took a big step forward. Potash Minerals (ASX:POK) has released a maiden resource for the Hatch Point potash project in the Utah section of the Paradox Basin. The company has 902 million tonnes at 20% KCI and, tellingly, that’s done at a quite high cut-off point of 15.9%. The resource is based on 20% of the project area and only on potash beds at least 2 metres thick.
It has to be added that Potash Minerals so far has access to only about 50% of the project area, with the balance yet to be permitted. But the company has high hopes that the maiden resource is of such size and quality that they can now set about raising money to undertake the next stage of drilling, which will include putting holes into parts which have not yet been drilled on the 22 Federal prospecting permits already granted, so expanding the known resource.
Potash Minerals has an exploration target of between 3.4 billion and 5.2 billion tonnes.
Longer term, the company acknowledges that some bigger outfits will have to come aboard to finance the massive cost. CEO Ben Binninger, talking this week in Sydney, put it this way: “We’re sure not going to be writing a cheque for $2 billion”.
He sees the company having a big advantage in being in the United States. The market is on the door-step, and the miner will not have to worry about the vagaries of the international potash market. The U.S. imports about 85% of its potash requirements, so a domestic producer would have a market at hand.
Operating costs are projected at about $100/tonne