Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

8 Billion Reasons to Invest in Potash

Commodities / Potash Dec 24, 2014 - 10:55 AM GMT

By: Metals_Report

Commodities

Potash producers have 8 billion reasons why demand for the minerals that increase food production will grow in the coming decades. Plus, a sinkhole emerging under a Russian mine is raising questions about the ability to produce enough fertilizer to feed what is projected to be an even larger and more demanding global population. The right companies could reap the benefits of exposure to the agricultural market. In this interview with The Mining Report, Paradigm Capital Analyst Spencer Churchill shares some of his favorites and talks about a unique streaming model that benefits from immediate upside.


The Mining Report: The United Nations recently raised population projections based on increased births in industrialized nations, and has said that it expects 8 billion people to be on the planet by 2050. Is this good news for agriculture and fertilizer companies?

Spencer Churchill: Population growth is a positive long-term driver for agriculture and fertilizer companies, and this has been one of the key arguments for many years in favor of investing in these stocks. That said, the market is more concerned with changes in the near-term fundamentals (grain and fertilizer prices, inventories, geo-political events, macro-economic factors etc.) and we believe the long-term argument has lost some weight in the minds of investors, partly because it is repeated so many times and referred to during periods of underperformance.

TMR: Will some types of companies in some places do better than others? What is your litmus test for picking companies?

SC: Our litmus test for picking companies is a combination of financial health (solid balance sheet, track record of profitability in different environments), strong management, positive macro trends and valuation (trading in line or at a discount to peers/historical average).

More people eating more and eating better should lift all boats in the space, but there are definitely times in the cycle when some will outperform others. A good example of this is the current situation in the agricultural equipment market. While sales of big ticket items like tractors and combines have been hit hard with the drop in grain prices and decline in farmer sentiment and spending, some companies in the equipment space have prospered. For example, Ag Growth International Inc. (AFN:TSX) sells lower-ticket equipment that is essential to farm operations and that must be replaced regularly. One of the primary drivers for the company is corn volumes in the U.S., which have reached record levels two years straight. Lower corn prices have resulted, but this is a positive for Ag Growth. Farmers are more reluctant to sell at depressed prices, which increases the need for on-farm storage capacity. Ag Growth is a player in that space as well, and will be a much larger one with the proposed acquisition of Vicwest's Westeel division.

TMR: Could reports of a giant sinkhole under a potash mine in Russia bring potash commodity prices up, at least short term?

SC: While there is still uncertainty around the final outcome of this event, Uralkali (URKA: LSE) recently indicated that the sink hole has increased in size to 50–80 meters (from 30–40 meters) and that there is a high probability the mine could be a complete loss (according to the director of the Mining Institute of the Urals Branch of the Russian Academy of Science). Given the size of the mine (~3.5% of global capacity), the increased likelihood it will be at least shut down for many months and the potential the flooding spreads to the second mine (~1.5% of global capacity), we believe the event should support potash prices in the near term.

TMR: What potash companies could be poised to take advantage of future price increases?

SC: Those with the greatest exposure to potash would benefit most: 50% of PotashCorp.'s (POT:TSX; POT:NYSE) gross margin is generated from potash, Intrepid Potash Inc. (IPI:NYSE) has 100% exposure to potash in the U.S., The Mosaic Co. (MOS:NYSE) revenue is derived from around 40% potash and Agrium Inc. (AGU: NYSE) is the lowest with around 5% potash.

TMR: IC Potash Corp. (ICP:TSX; ICPTF:OTCQX) just announced $10 million ($10M) in funding from Cartesian Capital Group. How has it said it will use that money to add value?

SC: The money raised from Cartesian will be used for general corporate purposes and, to a lesser degree, to advance the Ochoa project. The value was not so much in the amount raised (they will need $1B+ to fully fund the project), but in the nature of the investment and the implied public company valuation. Cartesian invested at the project level, marking the first time we've seen a junior in the space get financing in this manner. All the other strategic investments came at the public company level and were generally highly dilutive and, in some cases, came with warrants. The 7.8% interest Cartesian could own of the project implies a project value of $130M against the market cap at the time of ~$40M. Had IC Potash raised $10M at the public company level (priced at $0.24/share, the previous close) Cartesian would have owned ~20% of the company and project. Hence, IC Potash effectively raised $10M at the public company level priced at about $0.75/share, or a 200% premium. We believe IC Potash is Cartesian's first junior resource, non-operating company investment, which speaks to the strategic value of the project. In addition, given the relatively small size of the investment (for Cartesian), we would expect it should be a further source of funds going forward.

TMR: Funding is always a challenge for juniors. You follow Input Capital Corp. (INP:TSX.V), which is a unique agricultural streaming company. Can you explain the value proposition for investors?

SC: Input Capital is a small cap in the space, but not a junior. The company is not exploring or developing a fertilizer deposit. Input provides capital to canola farmers in Canada in exchange for a stream of canola production, which Input then sells into the market.

Like other royalty companies, the attraction is the very high earnings leverage these companies can produce (EBITDA margins of 90%+), given the relatively low headcount required and the growing recurring revenue base generated as capital is deployed. Input is unique in that it generates revenue from its contracts in year one, with no waiting for a mine to be built, concerns about capital expenditure, mineralogy etc. like with the precious metal streamers. There is much less concentration risk; the company already has 20 customers and is growing. And by reinvesting the cash flow from current contracts, Input can grow the business 25–35% a year without having to raise new capital. Input is the first company to attempt this business model in the agricultural space and the founders have a great pedigree. They founded and grew Assiniboia Farmland LP, which sold for $128M in December 2013.

The biggest risks are with the commodity price (the company does not hedge) and Input's ability to continue to deploy more capital to meet the market's expectations for growth. Input is one of our favorite names in the space.

TMR: Thank you, Spencer.

Spencer Churchill has been working in the investment industry for 15 years. Prior to joining Paradigm, Churchill worked as a sellside research analyst at CIBC and Clarus Securities, with coverage areas including agriculture, clean technology, special situations, software and wireless technology. Churchill also spent two years working as an associate portfolio manager at a hedge fund in Toronto.

Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

DISCLOSURE:
1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) Spencer Churchill: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Input Capital Corp. and Ag Growth International Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. Paradigm Capital Inc.'s disclosure policies and research distribution procedures can be found on our website at: http://www.paradigmcapinc.com/documents/show.php/10016
3) The following companies mentioned in the interview are sponsors of Streetwise Reports: IC Potash Corp. and Input Capital Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

Streetwise - The Mining Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

Participating companies provide the logos used in The Mining Report. These logos are trademarks and are the property of the individual companies.

101 Second St., Suite 110
Petaluma, CA 94952

Tel.: (707) 981-8999
Fax: (707) 981-8998


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules