VANCOUVER, BC / VantageWire.com / April 24, 2014 / With the world’s arable land decreasing and the need for high quality agricultural products increasing, new sources of potash are in high demand. At the same time, new potash mines are few and far between. Enter IC Potash Corp. ($ICP:CA), ($ICPTF).
IC Potash Corp. (‘ICP’) has the inside track on new potash production in a mineral resource with exceptional geology located in a region with established infrastructure. The Ochoa Project, located in southeast New Mexico, will use polyhalite to produce sulphate of potash (or ‘SOP’), a premium potassium fertilizer used the cultivation of fruits, vegetables, nuts, tobacco, and other high value crops.
There is no doubt of the world’s interest in such a product. But can ICP make it? I can tell you they have cleared every hurdle to date. They have bankable feasibility study in hand and a favorable record of decision from the Bureau of Land Management (‘BLM’). In short, they have proven that the polyhalite mineral resource can be used to produce SOP economically and without threat to the environment.
Unlike the more common form of potash, called muriate of potash (or ‘MOP’), SOP is a non-chloride potassium fertilizer. While MOP is acceptable for use on grain crops, it is toxic to value added crops such as fruits and vegetables. SOP is ideal for use on these premium crops, which sell for higher prices in the market. SOP is the reason the apple you select at the grocery store looks so flawless, delicious, and “ready for its close-up”.
SOP is typically generated synthetically through an expensive Mannheim process that uses an MOP feedstock and creates environmentally hazardous waste in need of disposal. ICP has developed a natural way to derive SOP, without massive environmental waste, and at a cost per tonne that is half that of the Mannheim Process.
The Ochoa Project is shaping up to be the most advanced SOP project in the world. It is by far the closest to fruition and, as you can see below, has a significant edge on other projects.
THE NEW MEXICO POLYHALITE ADVANTAGE
The history of potash development in North America begins in New Mexico. Potash production started in the state long before jurisdictions such as Saskatchewan were developed. In fact, a lot of the companies that are operating out of Saskatchewan started in New Mexico, including Intrepid Potash ($IPI), the Mosaic Company ($MOS), and Potash Corporation of America, precursor to the Potash Corporation of Saskatchewan ($POT).
ICP’s polyhalite deposit was one of the state’s original discoveries, made in the 1920s during a quest to identify a domestic potash source spurred by a German embargo in WWI. ICP has since advanced the work done by the U.S. Bureau of Mines in the first half of the 20th century, completing their own pilot testing and recreating the method with higher energy efficiency (switching from coal to gas, and better recycling of electricity).
ICP has received vital support along the way from Yara International, the third largest fertilizer distributor in the world, which owns 16% of ICP and has the right to go to 20%. Yara has been essential in the buildup, financing $40 million of the $85 million it took to achieve the bankable feasibility.
“We will be the first company to produce sulphate of potash from the mineral polyhalite,” says Sidney Himmel, President and CEO of ICP. “We already have people calling weekly to inquire about buying SOP from us, so we can’t be in production soon enough.”
During production, Himmel’s group will take advantage of the low energy costs in his project’s jurisdiction to make big savings per tonne. The estimated cost per tonne of ICP’s project will be $214. That’s a nearly 40% differential to the next cheapest option, which is $350/tonne, and the more common SOP options at $475/tonne.
FROM NOW UNTIL PRODUCTION
ICP has their bankable feasibility study and BLM record of decision in hand, and they now turn their full attention to financing for the $1 billion Ochoa Project. ICP has an advantage, given that they already have a world class partner in Yara. What would need to come next would be a negotiation of what Yara’s interest will be in terms of uptake and financing.
If the rest of the financing comes from Yara, or if it comes from larger international entities is anyone’s guess. But it will be easier to stand out, if they’ve got the lowest cost of production, with one of the highest commodity prices. That’s a mix that gets cheques signed.
THE BOTTOM LINE
Right now the net present value of the Ochoa Project at 10% (a very high discount rate) is $650 million. Divided by the company’s number of shares, that’s roughly $3 a share. Even if they double the amount of shares (assuming dilution through the next financing stages), that’s still $1.50 per share. Right now, they’re hovering around $0.30.
In terms of share price being out of alignment, this would classify as a shocking example. It’s not often you can find mining projects (especially potash mines) this close to production at this low of a market valuation.
This isn’t a novice team. Himmel is not a penny stock guy, and he’s collaborated with major international financial players throughout his career. His team includes several heavyweights in the space, including Randy Foote, his COO, who has run half of the potash mines in New Mexico for the last 25 years. Other team members include some of the brightest minds that could ever be assembled for geologic exploration, mine development, and mineral processing.
How the market has missed this is beyond absurd. The Ochoa Project will cost around a third of the standard rate for a potash mine, due to its relatively shallow depth and industrial location. It’s going to have less weather issues than Saskatchewan, as New Mexico construction projects can work year round.
This isn’t just another potash project looking to get taken over at a 30-50% premium. This is a team and project built for longevity and high-profit margin production.
There are 12 reasons Ochoa stands out, and they are as follows:
1. Bottom quartile cost producer – likely the world’s lowest cost SOP producer.
2. High demand product that sells at a 30-50% premium to MOP potash.
3. High profit margins – 65%
4. Long life asset.
5. Capital costs much lower than those in Saskatchewan.
6. Support from Yara International, a top player in the fertilizer industry.
7. Strong government support, from the local community to the DC feds.
8. Great infrastructure, including established rail lines and proximity to Houston for international shipping.
9. Straight forward jurisdiction without any surprises.
10. Trained labor force nearby.
11. Very low energy costs.
12. Strong management team with financing ability and operator knowhow.
And that’s all you need to know. Financing to get this project built would take about 9 months. That’s enough time for you to do your research on this project for yourself.
G. Joel Chury
for the Bottom Line Report
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SOURCE: Bottom Line Report
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