Potash can ride the economic peaks and troughs better than many other commodities. Picture: Bloomberg.
Goldphyre Resources (GPH)
Few commodities have the luxury of being able to conveniently switch from one investment classification to another like potash.
When the resources sector is booming, this mineral is promoted as being unquestionably a member of the mining industry.
After all, it comes from underground and it is measured using the industry’s conventional benchmarks, such as tonnes, grade, resources and reserves.
But when the resources sector is not so hot, as in recent times, potash hopefuls deftly rebrand themselves as fertiliser manufacturers and, therefore, suppliers to the agriculture industry.
The switcheroo capability makes for an attractive marketing proposition in the current climate given the contrasting fortunes of the out-of-favour resources industry and food-related stocks, where investors have gone on a feeding frenzy.
The truth, of course, is that potash producers have a foot in both camps, in the same way that iron ore companies are miners whose prospects are inextricably linked to the demand for steel.
Potash projects historically share a couple of other key characteristics with the mining industry: they come with high capital costs and depend on export markets for their future.
That said, those which can establish the investment bona fides of their projects and attract funding stand to cash in on the forecast long-term growth in demand for the essential fertiliser as the world seeks to feed its ever-growing population.
The market’s appetite for those who feed the crops which feed the world is demonstrated by the ASX-listed Spanish potash developer Highfield Resources (HFR) which has come from 40c two years ago to $1.83 yesterday, valuing the company at a cool $568 million.
One of those looking to emulate Highfield’s success, without leaving its back yard of Western Australia, is Goldphyre Resources (GPH).
Based on previous indications form the company, it is about to release its “exploration target’’ for its Lake Wells potash project, 500km northeast of Kalgoorlie.
Previous work by Goldphyre established the presence of good potash grades, while more recent and seismic surveys have outlined the buried ancient valley system in which the brine-hosted potash is hosted to more than 20km.
The seismic work also extended the valley system over Goldphyre’s tenement fence and into the neighbouring land held by legendary prospector Mark Creasy.
Under a recent deal between the two, Goldphyre has secured the potash rights on this adjacent ground in return for giving Creasy a 19.9 per cent stake in the company.
Goldphyre will use the old valley dimensions outlined by the seismic survey to calculate the exploration target.
The market is looking for signs of a resource big enough to underpin annual production of about 100,000 tonnes of sulfate of potash for at least 15 years.
Drilling is scheduled to start this month as part of Goldphyre’s plan to deliver a maiden resource by June.
While this approach is in keeping with that of a conventional mining company, Goldphyre says it has a couple of key points of difference: Lake Wells’s capital cost is expected to be less than $100m — well under half that of most potash projects — and it will supply the Australian agricultural sector, including the WA wheatbelt, rather than targeting the export markets sought after by its peers.
The low cost reflects the simple production method, which essentially involves drilling bores into the valley channel and pumping the brine containing the potash to the surface.
The potash is then extracted using a basic evaporation process, which would seem ideal given the project’s location on the edge of the Great Victoria Desert.
It’s early days yet, as Goldphyre’s 6.5c share price for a market capitalisation of $6.5m suggests.
One thing that is more certain, is that the feed-the-world imperative is growing by the day.
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