Gentle potash has taken a bite out of investor pocketbooks, creating a buyer's market, not only for end users, but also for manufacturers. Koch Industries has taken advantage of the current situation by increasing its stake in Intrepid Potash (IPI) to 6.9%, making Koch the fourth largest investor in IPI.
The move comes amid unexpected turbulence in potash that sent North American stock prices tumbling. IPI stock fell 40% through the end of July 2013 and into the first few weeks of August. The attitude at that point was already negative toward greenfield projects and as new mines are tabled, consolidation will allow Koch to increase it's potash footprint and spread risk for both IPI and Koch.
BHP has announced it will drill shafts at Jansen, but will hold on any mining activity there until the market recovers. The fact that BHP continues to drill suggests they expect a recovery, but BHP's own estimates have Jansen operational in 2020 at the earliest. Uralkali is taking a similar stance, securing a 171.4 million Euro loan for the construction of two shafts just last week.
Vale SA folded their Rio Colorado project last spring saying there just wasn't enough short-term return to keep the project in the black.
Investors must surely be stinging from the unexpected losses in potash this year and retail prices have plunged leaving producers to slog ahead amid declining prices, weak end-user demand and, most importantly, low new-crop returns.
A potash recovery will require improved new-crop returns for end-users and improved prospects for investor returns. With demand weighing so heavily on potash prices and new-crop fundamentals at the low end, the outlook for potash producers is less than rosy.
Consolidation is key. No money in greenfield and a low stock price make a recipe for buy-in opportunities. Potash will recover and year-over demand increases will eventually cover the losses. But crop returns need strength to fuel demand and until corn futures recover, potash, along with all nutrient, will have to move forward with thinner production margins.
Koch's increased stake in IPI is evidence that the safe money in potash is in consolidation. The result for IPI has been a recovery of nearly half of the losses from July and August, opening today at $15.64 and crossing above $16.00 in morning action. When the news broke of Uralkali's exit from BPC and the turbulence started, IPI stock was at $19.44.
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