The big news today in the potash arena has to be the fact that BHP Billiton (BHP- NYSE) has purchased
their joint venture partner, Anglo Potash Limited (AGP- Vancouver), at C$8.15 per share for a total of
C$284 million in cash. For those not familiar with the situation, Anglo Potash owned 25% of a joint
venture with BHP Billiton Diamonds Inc., a subsidiary of BHP Billiton. With this transaction, BHP has
placed a value on the project of roughly C$1.136 Billion for a project which may come into production in
2014 at the earliest assuming smooth sailing from here on out.
The shareholders of Anglo Potash are being cashed out and thus have no further equity involved in this
project unless they reinvest their proceeds from the sale of their shares into BHP, which does not
provide the potash exposure that Anglo Potash did. This buyout has the potential to push shares in the
junior potash firms much higher now that a firm will cease trading, is being acquired for cash, and the
purchasing company has very little exposure to the overall potash market.
Usually mergers in evolving industries with few publicly traded firms tend to push all share prices higher,
but with gap in producers and explorers so large, the most upside exposure probably exists in the junior
explorers such as Potash One Inc. (KCL- Vancouver), Athabasca Potash Inc. (API- Toronto), Western
Potash Corp. (WPX- Vancouver), and Raytec Metals Corp. (RAY- Vancouver). There are some other
smaller players with prospective potash lands, but most of these properties are nothing more than
moose pasture at this time.
Below is a table of the junior potash explorers:
As you can see, there is much room for the smaller companies to increase their market capitalizations to
those of their larger peers. For an industry attracting so much attention due to the world's current food
crisis, rising prices for the underlying commodity, and future projections for a tight supply/demand ratio
of mined potash and potash demanded by the world's farmers.
We are told that of the above companies listed, two should beat the AGP-BHP joint venture to
production. Both Athabasca Potash and Potash One are projected by analysts to open their planned
mines in 2013, thus beating the AGP-BHP JV by a year. Mag Industries (MAA- Vancouver), another
Canadian listed company with potash claims should open a mine before 2014, although it will be in
Democratic Republic of Congo. Mag Inudstries also has plans to spin off its potash subsidiary in a
complex financing deal which has already begun. This mine is tentatively scheduled for 2011 according
to analysts and will reach full production by 2014.
Western Potash is an interesting play here which just finished its IPO this past Thursday where it raised
C$20 million. The company's potash properties are located in Manitoba, which is on the Eastern edge of
the potash industry's prolific basin. The company's lands are adjacent to potash holdings of BHP and
Agrium and near Potash Corporation of Saskatchewan's Rocanville Mine.
Raytec Metals is the speculative play here with prospective lands for potash exploration and an NI
43-101 Report due out "by the end of May" according to the company. The company has a 'kicker' in
uranium claims and a position in iron ore properties. Iron ore is hot money right now, and the uranium
industry seems to be rebounding in recent trading. The stock trades below C$1.00 however the stock is
liquid and trades between 200,000 to 1,000,000 shares routinely.
Many analysts and experts have predicted great things to come for this industry, and yesterday's BHP
acquisition indicates that one of the world's largest miners believes that this is the case. One should
watch the junior explorers to see where this new cash injection to the industry eventually flows because
as the table in this article shows, it is not a drop in the bucket but a tsunami of funds to the smaller
players in this industry.
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Archives
Potash Arena Shrinking After BHP's Acquisition of Anglo Potash
Tuesday, May 13, 2008
Company
|
Ticker
|
Shares Outstanding
|
Market Capitalization
|
Anglo Potash Limited*
|
AGP
|
31,665,925
|
255,227,356
|
Athabasca Potash Inc.
|
API
|
36,573,031
|
322,939,864
|
Potash One Inc.
|
KCL
|
42,582,635
|
151,168,354
|
Raytec Metals Corp.
|
RAY
|
44,601,721
|
41,479,601
|
Western Potash Corp.
|
WPX
|
77,263,050
|
81,126,203
|
Data Supplied by the Toronto Stock Exchange
*AGP is target of BHP takeover.
Potash One is a company which resembles Anglo Potash as
they have prospective lands which are very favorable to potash
exploration as well as potash resources (Measured and
Indicated plus Inferred) which in total roughly equal AGP's 25%
equity stake in the BHP joint venture. The stock has
experienced much support at the C$3/share level since the
end of 2007, and the stock could be poised to move higher
given recent industry events and expectations for the future.
Athabasca Potash arguably has a larger following among
institutional investors as it is traded on the Toronto Stock
Exchange and not the Vancouver/Venture. The stock has
been volatile since its IPO, but like AGP and KCL, it has
resources and prospective lands highly prospective for potash.
This stock has probably moved higher due to its Toronto
listing and funds' willingness to invest in those equities over the
sometimes wild venture stocks.
