Junior potash miners now a tougher sell to investors

Wed Jul 31, 2013 5:13pm EDT
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By Rod Nickel

WINNIPEG, Manitoba, July 31 (Reuters) - Changes to how big producers sell potash will likely force a shakeout among junior miners of the key crop nutrient, and even the strongest of them may face delayed investment plans or more expensive fund-raising.

Russian fertilizer giant Uralkali OAO pulled out of its trading partnership with Belarus potash producer Belaruskali on Tuesday and said it will seek to maximize its sales volumes, which it said would result in a 25 percent drop in potash prices to around $300 per tonne.

The partnership, the Belarusian Potash Company, was one of two big trading consortiums that managed potash supply to support prices, and the talk of lower commodity prices hit the shares of some small exploration and development companies harder than it did those of the bigger producers.

"There's still margin to be made, it's just ... only those juniors that can come up with a business model that shows low (expenditures) will be successful," said Evan Shoforost, Saskatchewan mining leader at Ernst & Young, which advises junior miners on issues such as financing and taxation.

He said the change in global market conditions will "filter out" some mine projects. "Some aren't going to survive, I think that's clear."

With Uralkali raising production, and its competitors possibly doing the same, there will likely be less need for the additional potash supplies the juniors seek to bring to market.

Among the juniors, Allana Resources Chief Executive Farhad Abasov said the relatively low cost structure of his company's flagship project in Ethiopia will keep it economical even if potash prices dive, although he acknowledged investors had called, or sold, as they heard the Uralkali news.

Allana stock fell 20 percent on Tuesday, and eased slightly on Wednesday.   Continued...