New miner wants in on the global potash club
Potash miner Prospect Global Resources Inc. won't open its first mine until at least 2015, but the American upstart is already upsetting the multibillion-dollar fertilizer industry where a few players control a crucial ingredient in the global food chain.
China, with an insatiable appetite for fertilizer to help feed its growing population, has long been dependent on Canpotex, the Canadian sales agency that supplies a third of the world's potash.
But in December, Canpotex reluctantly agreed to a six-month supply contract with China at $400 per tonne, a $70 per tonne discount from its last contract price and a steeper cut than expected.
China got the cheaper price partly because it used as leverage a separate 10-year agreement inked last October with Prospect.
While macroeconomic and local factors — from economic growth to weather and production issues — do influence the contracts, Prospect's arrival is chipping away at Canpotex's near-monopoly. The stakes are high in a business that typically has profit margins of around 50 percent.
"We think Prospect Global is the best potash investment opportunity in North America," said Steven Sugarman of COR Capital, a private equity firm that is the company's fifth-largest shareholder. "We like the geology, we like the location and the team they've put together."
With demand for corn and other commodities booming around the world — and potash prices up roughly 150 percent in the past decade — food and fertilizer are hot commodities. Prices have cooled recently, but are still at decade-highs.
BlackRock Inc., Apollo Global Management LLC, and Ted Waitt, the co-founder of computer company Gateway, have taken note. They invested in Prospect — which went public last year — largely as a bet on a shake-up of the fertilizer industry.
Prospect is also helmed by some big names in the fertilizer industry. James Dietz, a Prospect board member, was Potash Corp's chief operating officer for more than 10 years, and Patrick Avery, Prospect's chief executive, previously ran Intrepid Potash Inc., which has mines in New Mexico.
Prospect finds itself an unwelcome new kid on the block, with rivals quick to cast doubt on its ability to hang tough amid the fertilizer industry's highs and lows.
"I don't take it seriously whatsoever," said Jim Prokopanko, chief executive of much-larger rival Mosaic Co, which owns Canada's Esterhazy, the world's largest potash mine.
"It'll be a small producer if it ever sees the light of day," he said in an interview.
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