There is a strategic mineral, capable of dramatically increasing crop yields, reducing the amount of water required to grow crops, and restoring overworked land to productivity. The investment community largely shares the opinion that there will be heightened global demand for this mineral for years into the future. Where might the largest markets for such a mineral be found? Logically, India and China, two of the worldâ€™s most populous nations, each having populations in excess of 1 billion, would be interested in this mineral.
Growing more food on less land with reduced dependence on irrigation is the stuff of farmerâ€™s dreams. So what is this mysterious mineral? It is potash! Potash is an excellent source of potassium, one of three nutrients essential for plant growth followed by nitrogen and phosphorus. Canada has huge deposits of potash, and we now know that the United States also has substantial deposits of this miracle mineral, particularly in the Southwestern part of the county. The U.S. State Department recognizes 194 independent countries around the world. Less than 15% have potash reserves, and of these, only twelve have active mining operations. As a result, most countries have to rely on imports to meet demand. Potash is imported by 99 countries worldwide, and 80 percent of world potash production is exported. The United States is the largest importer of fertilizer in the world, with more than half of our nitrogen and over 85 percent of our potash coming from international sources. Clearly, a producing mine here would enjoy significant domestic demand. Domestically mined potash would aid our balance of trade deficit and potentially lower food prices for the American people.
What investment vehicles are available to facilitate capitalizing on this demand? I believe the most direct way to earn from this would be at the material’s source, and that means looking at the exploration and mining sector. One early stage company is in a unique position to profit greatly from this mineral, and in the following paragraphs, Iâ€™ll explain why Passport Potash (PPRTF) could be that company.
First, I must stress that this is an early stage company with lackluster fundamentals, and therefore, an unthinkable investment for the risk averse. However, if you are more focused on the long-term, and recognize the tremendous potential many of these companies offer, then read on.
Passport Potash is high on my list because they control mining rights on 122,000 acres of Arizonaâ€™s Holbrook Basin, almost virgin territory, with reserves estimated to be in the 600 million ton range. If we assume a conservative scenario of 300 million tons at $350 per ton, the property could yield as much as $9.5 billion in gross revenue. To give you some perspective on the enormity of the potential, total 2011 U.S. potash production was 1,100 million tons. Some key factors that affect net income include transportation costs, infrastructure, and government interference. Passport Potash is in great shape with respect to these factors. The BNSF rail yard in Holbrook is less than 7 miles away and the rail line parallels Passportâ€™s land holdings. Interstate 40 runs adjacent to the property and connects California with the rest of the United States. Power is readily available from a major power generation station, the Coronado facility, which is located less 25 miles away. Reports show that the depths of the potash deposits are shallow by industry standards, occurring between 800 and 1200 feet, making the potash less costly to mine. Additionally, Arizonaâ€™s government is mining friendly and does not throw-up unnecessary or frivolous roadblocks to the industry. Passport Potash will need capital to develop its leases, and with the advantages it enjoys in terms of location and infrastructure, it should have few difficulties in attracting investors, partners and companies interested in a merger or acquisition opportunity. All this bodes well for any investor in Passport Potash.
There are certainly other domestic potash mining plays out there. Intrepid Potash (IPI) is one. Intrepid trades at around $23 per share and has market capitalization nearing $2 billion. It has a twelve month trailing price to earnings ratio of 17.36, and a price to earnings growth ratio of 0.40. It also has an excellent price to book ratio of 1.96. Return on equity is 12.11, which is not stellar. Quarterly year-over-year revenue and earnings growth come in at 9% and -27.1%, respectively. Annual year-over-year numbers look better. Intrepid has exceptional financial strength as evidenced by its debt equity and current ratios, which are reported at 0.09 and 6.32, respectively. The company has also earned a buy rating from Zackâ€™s.
Canadian miner Potash Corporation of Saskatchewan (POT), trading at around $44, may be a good pick as well. This giant has a market capitalization approaching $38 billion, and sports some decent fundamentals. Its trailing twelve month price to earnings ratio is 13.61, with a price to earnings growth ratio of 0.93. The companyâ€™s price to book ratio is 4.84, and although not a deal breaker, it makes the stock a bit less attractive for the value investor. Return on equity is a healthy 36.55%, but quarterly year-over-year revenue and earnings growth are firmly in negative territory. The companyâ€™s financial strength as reflected in the debt to equity and current ratios is in the acceptable range, reporting 56.3 and 1.05, respectively. Potash Corporation of Saskatchewan is currently involved in a lawsuit with six other companies. The lawsuit alleges price-fixing. This litigation has been off and on the docket, but was recently revived by the U.S. Court of Appeals for the Seventh Circuit in Chicago last month. Some analysts suggest this could depress the stock price by several percentage points.
Transparency/Disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research. I am a consultant to a third-party and have received one hundred fifty dollars for independent research. Always discuss investments with a licensed professional advisor before making any financial decisions. Statements made herein are often â€œforward-looking statementsâ€ as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. While I have researched this company thoroughly, my due diligence is not a substitute for your own.