Potash: Setting Up for a Rally?
Monday, June 2, 2008
Over the past few weeks it seems that volume has slowed on
the potash stocks we follow as the share prices have taken a breather. Interest
has waned yet share prices have found themselves in a bit of a trading range,
especially when one consults a chart of Potash Corporation of Saskatchewan
(POT), The Mosaic Company (MOS) and Agrium Incorporated (AGU). Not much has
changed in the past few weeks, and investors understand that the fertilizer
stocks will be around for a while. Right now we have some sideways movement,
which could soon end.
The Wall Street Journal wrote this past week a somewhat
negative story of the “cartels” which control the world's potash market. They
noted that they are legalized entities in both Canada and the United States, and
we all know from experience and past history that the Russians will let you do
just about anything as long as you play by their rules and scratch their back at
the end of the day. Farmers across the world are getting angry with prices for
potash and other fertilizers, but truth be told they could not achieve anywhere
close to the yields they do without it so it all falls under the category of
“you gotta spend money to make money” in our book. We highly doubt that either
the Canadian or United States' governments will seriously consider, let alone
implement, any price caps on fertilizers. Their tunnel vision in the states is
focused on oil prices and the oil majors and shall remain there as prices around
the country cross the US$4.00 a gallon mark.
Something interesting we have been watching over the past
week to see if it would hold is the support of Potash Corporation of
Saskatchewan at around US$190. It held this week, so we feel compelled to share
this chart with you along with our insight.
Every fifty point move by the stock is met with it rising
above the benchmark number, then falling back towards the benchmark for a
roughly two month span before beginning a march upwards again. We have
highlighted this chart going back two years which we believe gets the point
across pretty well. It has been a little over a month and a half of our current
sideways movement and choppy trading, so we would expect a movement one way or
another in the next week or two to give us an indication of where the stock will
The potash juniors have moved lower in recent trading, as
is to be expected due to the leverage they afford investors. You can achieve
larger percentage returns higher in good times, and larger returns to the
downside in just normal and bad times. With interest waning, it is only natural
that shares are falling as investors sell and move their money to “hot” sectors
like the solar dry bulk shippers (as has been the case recently). Also dragging
the juniors down is the fact that they are getting competition for investors'
capital with new entrants into the industry over the past 2 months.
Universal Uranium (UULFF- Pink Sheets) and Utah Uranium
have both moved into the potash arena in varying degrees, with Universal selling
its Two Time Zone resource to Crosshair Exploration (CXZ) for 10 million shares
to finance its new activities in the potash industry. Utah Uranium has staked a
large block of land near Intrepid Potash's mine. Both are blue sky projects
where drilling will probably not take place for at least two quarters. Also,
Western Potash came public listing shares on the Toronto Venture and another
private company, Intercontinental Potash Corp., sold a 50% stake to Trigon
Uranium. Intercontinental Potash Corp. owns a 100% stake in U.S. Potash Corp.
which holds nearly 86,000 acres in the U.S. This is another blue sky company
hoping their prospecting lands pan out, but only time will tell.
We would stay focused on the major players in the industry
who are producers and then those companies with historical resources or very
near the prolific Saskatchewan mines. We have listed companies producing potash
now, as well as some juniors with land positions around them:
Potash Corporation of Saskatchewan (POT)
The Mosaic Company (MOS)
Agrium Inc. (AGU)
Intrepid Potash (IPI)
Saskatchewan and Western Manitoba Juniors:
Athabasca Potash (API.TO)
Anglo Potash (AGU.V) * Agreed to be bought by BHP Billiton
Potash One (KCL.V)
Raytec Metals (RAY.V)
Western Potash (WPX.V)
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