By Leia Michele Toovey- Exclusive to Potash Investing News

Share Sluggish demand world-wide due to the global financial squeeze has left potash stockpiles at all-time highs as potash miners fail to adequately adjust prices.  Farmers, especially those finding it hard to get bank financing, may not be buying as much costly fertilizer as they face lower crop prices tied to the economic downturn.

Potash prices currently range from $750 to $850 per (US) tonne, according to USDA, with an average of $808. That’s more than $100 above fair value, according to Farm Futures pricing model. The latest North American data from The Fertilizer Institute shows potash stockpiles are nearly double last years level.

As industry players across North America suffer from high inventories of potash, the general manager of Potash Corporation of Saskatchewan’s Sussex mine said there is a high likelihood of more down time at its New Brunswick operations. The Sussex mine, which began an operational shutdown due to high inventories in late February, will reopen April 19. “Whether there’s going to be a second shutdown to follow is yet to be announced,” said GM Mark Fracchia. Last December, Potash Corp. announced it would cut two million tonnes from its production of potash in early 2009. On March 16, the company released a statement indicating it would reduce production this year by another 1.5 million tonnes. “Our sales have actually been very weak,” Fracchia said. “That’s largely due to the world economic situation. Fertilizers have been caught up in that, too.”

The Saskatoon-based company expects poor markets to bounce back with strong demand for potash later this year and into next. In an online statement, president and CEO Bill Doyle said farmers have been on a “buying hiatus,” but that demand will return. Potash Corp., which reported its 2008 fourth-quarter earnings on January 22, said the quarter’s potash gross margin of $744.8 million was almost three times higher than the $256.4 million generated in the same quarter for 2007, due to high prices.

Company News

The combination of Potash One Inc, and Potash North Resource Corp (PON), is officially complete. Potash One acquired all the issued and outstanding shares of PON at an exchange rate of one outstanding PON share for 0.3125 common shares of Potash One. As a result of the business combination, PON is now a wholly owned subsidiary of Potash One. The common shares of PON have been halted from trading on the TSX Venture Exchange pending de-listing; Potash One remains listed on the Toronto Stock Exchange. Potash One now has working capital in excess of the costs to complete the feasibility of its Legacy project and now controls over 500,000 acres of Potash Subsurface Exploration Permits in Saskatchewan, Canada.

MagIndustries is in the late stages of arranging the debt finance portion for its Kouilou potash project, in the Republic of Congo (ROC). The most recent estimate of all-in capital and financing costs for the 600 000-t/y operation was $1.1-billion, of which 70 per cent will likely be funded through debt. MagIndustries has another $200-million on hand, and will then seek to raise around $130-million to $180-million by selling equity. The debt negotiations are under way with a consortium of about ten development finance institutions and export credit agencies. MagIndustries has been working with financial adviser BNP Paribas on raising the debt for more than two years, and is now reaching the “tail end” of the process.

Separately, Morgan Stanley has been engaged to help with the planned equity raising, and this process is also under way. It is likely that the firm would prefer to sell a stake in the project itself, rather than shares at a company level, because it would probably get a better price if potential investors are focused on the value offered by the potash project, rather than the publicly traded share price, said CEO William Burton. Preconstruction work began at Kouilou in October 2008, but full construction of the production facility is only expected to begin once both the debt and equity financing is in place, he said. The facility is scheduled to start production by the end of 2011, with full production targeted by mid-2012. 

Despite posting a net income loss of more than $530,000 in fiscal 2008, last year was a positive one for Athabasca Potash Inc. (API), the Saskatoon Company working toward a Greenfield potash project near Burr. “We think it’s been a wonderful year,” said Dawn Zhou, the company’s president and CEO. “We have completed our geological explorations, which show a sufficient mineral resource estimate to support our pre-feasibility study and feasibility study for building a mine at the Burr project, and that’s very substantial. The Burr project, located about 110 kilometers east of Saskatoon, is adjacent to Potash Corp. of Saskatchewan Inc.’s Lanigan mine and covers about 32,000 hectares. While the company posted a net income loss last year (which compares to a 2007 net income loss of nearly $2.7 million), the company continues to gain financial strength. API ended 2008 with total assets worth $62 million, compared to $55 million in 2007, and revenues of nearly $1.6 million, up from $293,000 a year earlier.

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