Prospect Global Resources, Inc. reported today that they have inked what is thought to be the largest potash contract in U.S. history with China's Sichuan Chemical Indusrty Holding Group. Sichuan has agreed to purchase 500,000 metric tons of potash per year for ten years.
The American West Potash field is located in the Holbrook Basin of eastern Arizona. Prospect Global's next major developmental step is a bankable feasibility study, scheduled for the first half of 2013. Production is expected to begin sometime in 2015, and the new deal with Sichuan Chemical will account for 25% of the operation's output.
Getting to the potash may be much easier and less expensive at the Arizona location than in Canada or Belarus. The potash in the American West Potash Field lies in the 1000 - 2000 foot range beneath the surface. This is substantially more shallow than competing operations which typically have to dig to the neighborhood of 4000 feet below the surface to strike the nutrient. This may be how Prospect expects to be able to meet China's low pricing expectations.
Devon Archer, a Prospect Global director who acted as Prospect Global's lead negotiator, commented, "As we look forward to a long relationship with Sichuan Chemical, we are proud of the role that Prospect Global can play in helping to bring food security to China while meaningfully impacting the US/China trade balance over the next decade."
China consumes more than 9 million tons of potash each year. Reports have surfaced that Belarus has agreed to supply up to 500,000 metric tons of its own potash by rail leaving Canadian-based Canpotex with a lot of potash to move. China had been negotiating with Canpotex for a lower price and eventually joined India in passing on Canadian potash this fall. As a result, Canpotex's PotashCorp has scheduled 16 weeks of production shutdowns beginning in November of this year.
Prospect Global Resources is expected to begin its 2 million ton-per-year potash operation in 2015 when it will employ 700 people. As long as the potash is as easy to get to as the geologists say, the new source will have a dramatic effect on potash pricing in the world market and, with Canada sitting on a major surplus, potash prices should soften in the coming months.