Feeding Your Portfolio: Big Opportunity in U.S. Potash

Feeding Your Portfolio: Big Opportunity in U.S. Potash
There is a growing consensus that the global economy has moved into a new “commodity supercycle”.

Decades of underinvestment in new supply sources for commodities has combined with new and/or increasing sources of demand for many commodities. The result is that inventories are stretched for many commodity markets, with numerous commodity prices hitting multi-year, or even all-time highs.

Pushing in the opposite direction, the IMF recently pointed toward a “weak global economy, high inflation, and rising fragmentation” as requiring “strong G20 action”.

Along with this economic uncertainty, markets have been delivering extremely mixed returns between different asset classes. This creates a dilemma for investors. How to capitalize on this commodity supercycle while minimizing exposure to market turbulence?

Many prudent investors will see potash as an ideal investment vehicle for this stage of the commodity supercycle. American Potash Corp (CSE:KCL / OTC:APCOF) is an emerging player in Utah’s growing potash industry that offers explosive investment potential, plus an exciting bonus for investors. More on this later.

Potash: a commodities bellwether

While future industrial activity may be hard to predict at the moment people still have to eat.

Investors can seek to invest in (food) commodity futures directly. However, for the typical retail investor it can be difficult to access these futures markets .

Then there is volatility. It’s not uncommon to see the price of some food commodity soar to a record-high – only to immediately crash shortly afterward.

Investing in potash is a solution to this quandary. As the primary global fertilizer, potash is a cornerstone for much of the global agricultural industry.

Currently, the price of sugar has been pushing new record highs. Meanwhile, prices for wheat and cotton have plunged after recently hitting new highs. A challenging investment environment – even for experienced commodities investors.

Potash is like an agriculture ETF. You’re investing in the food commodities space collectively rather than being exposed to individual (and highly volatile) commodity markets. And the potash sector provides the opportunity to invest directly in producers.

True, even potash prices have not been immune to volatility during recent market turmoil. The price of potash soared to a new high in 2022 (on supply concerns due to the war in Ukraine), only to drop significantly as we moved into 2023.

The spot price for potash (MOP) exploded above USD$1,000 per metric tonne last year. The price has since slipped all the way back to ~$330/tonne. However, this is still roughly 50% higher than potash prices before this spike.

Prior to this sudden volatility, the price of potash has generally traded in a relatively tight range between USD$215 and $265/tonne. But are those previous moderate price levels for potash now a thing of the past?

U.S. vulnerability to potash supply

Overall, the United States has the world’s 2nd largest agriculture industry. However, the U.S. only domestically produces approximately 5% of the potash required to fertilize this gigantic agriculture industry.

The U.S.’s northern neighbor, Canada, is the world’s largest potash exporter and largest U.S. supplier. The world’s three next-largest potash producers are (in order) China, Russia, and Belarus.

The United States is already blocking Russian imports via sanctions. The U.S. is rapidly escalating a “trade war” with China. And Belarus, Russia’s closest ally, could choose to restrict its potash exports to the U.S. at any time.

To say that the U.S. agriculture industry is “vulnerable” to potash supply disruptions is certainly an understatement. Should U.S. relations with China (or Belarus) deteriorate further, the prices paid by U.S.-based potash end-users in 2022 could be dwarfed by an even more devastating spike in prices.

When new technology opened up the U.S. shale oil industry, the U.S. government was quick to embrace the idea of “energy independence” as it supported development of the shale oil patch.

Strangely, however, this same government seems to have given no thought at all to agricultural independence. According to Statista, in 2022 U.S. potash imports rose to nearly 95% of total demand.

This strategic omission is not because of an absence of domestic sources for potash. Utah, New Mexico and Michiganare among the U.S. states known to host significant potash resources.

The combination of unique geology and emerging high efficiency/low-cost extraction technology positions Utah as perhaps the most-prospective potash opportunity in the United States today.

Utah’s new potash potential

Like much of the world’s potash-bearing geology, Utah’s substantial potash resources are hosted in more arid geographical regions of the state. This has been a limiting factor in unlocking Utah’s potash potential as water resources are a critical factor in the state, and conventional methods for potash extraction employ significant volumes of water.

Even so, one Utah-based potash producer, Intrepid Potash Inc (US:IPI) is already producing potash in Utah (using conventional extraction technology) at its Moab Solar Solution Mine. The Moab Mine, alone, accounted for nearly one-quarter of all U.S. domestic potash production in 2022.

Two important factors in the underlying geological formation around the Moab Potash Mine will be of particular interest to investors.
  1.       This geological formation boasts very high grades of potash.
  2.       Beneath the robust layers of potash are large/rich lithium-bearing brines.

Known as the Paradox Basin, this large formation stretches across much of southern Utah and also extends into Colorado and New Mexico.This region is known for its high grades of potash, with KCl of 39% purity currently being extracted from this geology.

As an established producer with a market cap above USD$300 million, more conservative investors may be interested in acquiring a position in Intrepid Potash. However, for more-aggressive investors seeking much greater potential returns, American Potash Corp (CSEKCL / OTC:APCOF) is worthy of close scrutiny.

While IPI has a market above USD$300 million, American Potash has a pre-discovery market cap of only ~USD$5 million. Investors doing their due diligence on the Company will want to attach an asterisk to the label “pre-discovery”.

In fact, historical drilling on American Potash’s flagship Paradox Basin Lithium and Brine Project identified a (non-NI 43-101 compliant) potash resource of nearly 1 billion pounds. This is part of the same geological formation that hosts the Moab Mine, roughly 10 miles southeast of American Potash’s land package.

The Paradox Basin Project is comprised of 11 state potash leases (2,853 hectares) and 25 federal potash prospecting permit applications (PPA), covering an additional 17,767 hectares. Another 1,295 hectares of federal placer claims on adjoining land has been acquired through staking.

Historically, mining exploration on this land package (going back well over half a century) has focused on oil exploration, for which Utah is also prospective. However, while exploring for oil, previous operators uncovered substantial potash resources, which included lithium-rich brines that (at the time) were of little interest.

In the 1950s, the Delhi-Taylor Oil Company drilled two holes expressly to measure potash mineralization. Based on that historical work, geologists estimated “a conservative grade of 15% K2O”, with a potash resource “equivalent to 711 Mt of K2O”.

As noted, this is not a NI 43-101 compliant resource. This is why the market is not crediting American Potash with any potash resource – and the Company sits with a pre-discovery market cap of only USD$5 million.

However, with 1/60th of the market cap of Intrepid Potash (and sitting on a large land package with the same geology), many experienced mining investors will find American Potash’s risk/reward proposition very enticing at its present valuation.

What’s next for the Company?

American Potash is nearing the finish line in the long road for permitting Paradox Basin for exploration. Final approval for potash exploration (subject to public consultation) could be only days away.

After that, American Potash will line up financing to drill two drillholes of its own into Paradox Basin, with the goal of producing a NI 43-101 compliant potash resource. Those drillholes will also sample the liquid lithium-bearing brine beneath this potash mineralization.

This isn’t like hard-rock mining where dozens of drillholes are required to supply enough data for a resource estimate.

Because of the uniformity of mineralization, American Potash will have sufficient resource data from just these two holes to compile a resource estimate (once the drillholes are completed) for both its potash and lithium resource. Indeed, with respect to both the potash mineralization and the liquid lithium-bearing brine underneath, sampling would be valid for up to a 3-kilometer radius.

Exciting value proposition

With its present valuation, any success by the Company in confirming historical potash (or lithium) numbers for Paradox Basin should result in a substantial upward revaluation for American Potash.

At the same time, the “vulnerability” of the U.S. supply of potash is an opportunity for any investor holding U.S.-based potash assets. A spike in the price of potash (either globally or restricted to U.S. end-users) also increases the value for any domestic resources of potash.

American Potash’s internal timeline for development of Paradox Basin is perfectly timed to capitalize on trends in both the global and U.S. market for potash. Parallel to this is the potential for a substantial lithium resource, in a world with an enormous long-term hunger for lithium.

For investors looking for more information on American Potash Corp, Dynamic Wealth Research is already working on a full-length feature article on this Company that will:
a)      Explain how emerging potash extraction technology can dramatically enhance the value proposition for American Potash Corp and significantly improve the (potential) ROI for Paradox Basin.
b)      Provide more details on the liquid lithium-bearing brine resource, that (according to historical data) offers not only robust grades of lithium but also a unique opportunity for lithium extraction.

Commodities offer stellar potential for investors going forward. The S&P 500 is currently priced at an all-time high versus commodities.

Put in opposite terms, with a new commodity super-cycle underway, commodities have never been so cheap relative to stocks. Will potash companies be among the first in the commodities space to be revalued much higher?


DISCLOSURE: American Potash Corp is a paid client of Dynamic Wealth Research.


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