Potash One Target Price of $8.80 Issued by GMP Securities
By James West
Wednesday, June 11, 2008
GMP Securities, one of Canada's most widely respected investment banks issued a 31 page buy recommendation on Potash One (TSX.V:KCL) yesterday, suggesting a target price of $8.80 per share, a premium of 125% to yesterday's close of $3.90.
The report is a rather spectacular endorsement from a major investment bank of the leadership and prospects of the company, which has piled on value for its shareholders already since changing its focus from oil and gas to potash in 2006.
The report highlights the fact that Potash One will develop a 2 million tonne per year solution potash mine at its Legacy project in Saskatchewan, where it controls 336,340 acres of permits.
It says construction will begin in mid-2010 after a pre-feasibility study is completed next year. Production will likely begin in 2012, it says.
With spot potash prices holding fast at over US$1,000 per tonne (including freight), it is widely predicted that potash supplies will remain tight until at least 2011, according to a report by fertilizer consulting firm Fertecon Limited.
For example, the Food and Agriculture Organization (FAO) expects the global population to grow 1.12% per year over the next 20 years, which represents an additional 1.4 billion people that will require food over this timeframe. In addition, global income levels are rising, which means an increasing number of people will be able to afford more protein-based food, such as meats, in their diets. A rise in demand for meat increases demand for grain and other animal feeds, which
increases demand for fertilizer.
The company has secured large mining block in south-central Saskatchewan, the region known for significant potash deposits. The Legacy Potash project is located about 80 kilometers northwest of Regina and immediately adjacent to the north from the Mosaic Belle Plaine potash solution mine. The project currently holds some 97,240 acres of Crown mineral lands held by Subsurface Mineral Permit KP 289.
Potash One has completed a National Instrument 43-101 Technical Report on the Legacy Project on February 8, 2007. The full text of the Technical Report is available on the Company's website at www.potashone.com
The Technical Report has estimated that the Indicated and Inferred Mineral Resource for Patience Lake and Belle Plaine potential solution mining intervals are:
Indicated Mineral Resource: 36.8 million tonnes of K2O
Inferred Mineral Resource: 360.4 million tonnes of K2O
If solution mining recovered the potash between the beds, the additional resource would be:
Indicated Mineral Resource: 4 million tonnes of K2O
Inferred Mineral Resource: 31.1 million tonnes of K2O.
Potash One expects to add to the 43-101 compliant resource through continued drilling throughout this year and next.
Potassium, nitrogen and phosphate are the three essential nutrients for plant growth, and potash is the main source of potassium (K). Nearly every aspect of plant growth, including yield and quality, depends on an adequate supply of potash, which strengthens cell walls, aids in water retention and improves disease resistance. Given its nutrient characteristics and role in plant growth, there are no substitutes for potash and it cannot be synthetically replicated. Large potash-bearing rock deposits occur in select regions of the world as a result of minerals in prehistoric seas that evaporated millions of years ago.
Potash is mainly derived from this potash rock and requires only separation from the salt and other minerals and processing it into a form suitable for fertilizer. Potash is mined from ore deep underground or extracted from brine by means of solution mining and is milled on the surface.
Canadian producers sell potash to the export market through Canpotex Limited, which is
jointly owned by Potash Corp. (56%), Mosaic (35%) and Agrium (9%). In 2007, Canpotex
delivered approximately 5.7 million tonnes of K2O, with sales primarily directed to China
(26%), Brazil (26%) and India (10%).
To facilitate international sales, Canpotex owns and/or leases a fleet of dedicated rail cars and operates export terminals in Vancouver, British Columbia, and Portland, Oregon. Other global marketing agencies include Belarusian Potash Company, which trades for JSC Uralkali (Russia) and Belaruskali (Belarus), and International Potash Company, which trades for JSC Silvinit (Russia). These organizations compete in the key offshore markets of China, India, Brazil and Southeast Asia.
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