North American Potash Producers Get Sucker-Punched By Russian Fertilizer Giant (POT, MOS, AGU)

big gains.

“This sell-off in potash companies is an overreaction,” Salisbury told me. He says producers look cheap at these levels. And he thinks his company, as a project developer, looks even cheaper.

Salisbury believes the price of potash could stabilize around $350 a tonne, but it’s too early to tell.

“You never know if this is the final deal or if they’ll renegotiate,” Salisbury said.

Either way, he says, the price haircut that potash companies have suffered “offers a great opportunity for investors to come in at a low price.”

A Passport to Profits?

Passport is a bargain. “I think our project in particular looks good,” Salisbury said, “because early economic analysis shows we have a viable project down to a potash price of $300 per tonne. A lot of producers don’t.”

He adds that Passport will be the lowest-cost greenfield (new) potash mine in North America when it comes on line. And it will be cheaper than a lot of brownfield mines, too.

They’re still in the early stage of estimates, but Passport is using $117 per tonne as its cost estimate. The industry average is $240 a tonne.

Passport has a long way to go to bring its mine on line. Mine construction will take 30 to 36 months, so 2018 would be the earliest we could see production.

“We expect the market to consume 70 million to 75 million tonnes globally by 2020,” Salisbury said. “We’re well-timed for that market.”

The company certainly has the potash. A recent report puts Passport’s measured and indicated resources in the Holbrook Basin at 314.11 million metric tonnes. There’s an inferred resource of 638 million tonnes beyond that.

At full production, the company says it could put 2.5 million tonnes per year on the global market for 26 years.

“We are in the US, and our project is right next to fantastic infrastructure,” Salisbury says. “For Passport, India, the U.S. or South America are natural markets to sell to. And our project still works at $300.”

Passport has a market cap of $23.9 million and 171 million shares outstanding. Its plans are ambitious, so anyone buying Passport would be wise to have at least a five-term time frame and do their own due diligence.

But if the market did overreact to the news out of Russia, then potash companies as a group – like Potash Corp./Saskatchewan (USA)(NYSE:POT), Mosaic Co(NYSE:MOS) and Agrium Inc. (USA)(NYSE:AGU) are trading at fire-sale prices.

Good Investing,

by Sean Brodrick, Resource Strategist, The Oxford Club

Related: PowerShares Global Agriculture Port(ETF) (NASDAQ:PAGG), Market Vectors Agribusiness (ETF)(NYSEARCA:MOO), SPDR S&P Global Natural Resources (NYSEARCA:GNR)

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