New miner wants in on the global potash club
Canpotex and Russian rivals operate primarily in colder climates and have potash reserves about 3,700 feet deep. Mosaic had to freeze an underground lake just to reach Saskatchewan's Esterhazy mine.
Prospect's Arizona potash deposit, by contrast, is roughly 1,000 feet deep in a year-round warm climate and closer to key West Coast ports than Canpotex facilities in Canada.
"A lot of these positive issues offset the lower grade reports," said Steven Rauzi of the Arizona Oil & Gas Conservation Commission, which oversees potash drilling in the state.
Prospect expects it will only cost about $112 per tonne to produce potash at its Arizona mine. The industry average is roughly $135 per tonne. That makes profit margins especially high, with market prices for potash above $400 per tonne.
China is taking 25 percent of Prospect's forecast 2 million tonnes of annual potash production, or 500,000 tonnes a year, an amount that will still make China the largest importer of American potash. The rest, if sold abroad, will only further roil Prospect's rivals when it hits the global market as competition intensifies to feed a growing population.
Canpotex will supply 1 million tonnes to China under a six-month supply contract that expires in June. But the fact that China was able to cut part of its dependence on Canadian potash showed that the world's second-largest economy is getting creative to feed its people.
For every $10 per tonne drop in the price of potash, Potash Corp's earnings slip by 7 cents per share, according to Credit Agricole.
That's not lost on Potash Corp analysts and investors, who peppered CEO Bill Doyle about Prospect in an earnings call last fall. Doyle played down the threat.
"If you look at the economics of the business today, there is no return on that investment," Doyle said of Prospect Global. "We don't pay much attention to it."
Prospect CEO Avery, however, points to the world's growing need for food, and adds that he is bullish on his company's potential — if for no other reason than the land on which it sits. "It is amazing," he said, "how well situated our plot of land is."