Potash Industry Overview

The term "potash" refers to a group of potassium (K) bearing minerals and chemicals. The chemical symbol, K, comes from the Latin kalium which in turn, is derived from the Arabic word for alkali. Potassium is too reactive to occur naturally and is always found in compounds.

The dominant potash in the market is the compound, potassium chloride or KCl, a naturally occurring pink, salty mineral for which Canada is the world's leading producer and exporter.

Ninety five percent of all potash production goes into the agricultural sector where it is used as a plant nutrient. Typically as a component of N-P-K fertilizers or compound fertilizers which combine Potash with N (nitrogen) and P (Phosphate). Potash plays a critical role in the regulation of plant physiological functions: It strengthens cell walls, aids in water retention, improves disease resistance and boost nitrogen and phosphate absorption. Enhancing these functions results in improved plant quality and increased yields. The role of potassium cannot be substituted by any other nutrient and potash has no commercial substitute as a potassium fertilizer source. Manure and Glauconite are low potassium sources that can be transported short distances to crop fields.

The fundamentals for potash are unique in the fertilizer marketplace.

Nitrogen (N) and phosphate (P) are the other essential ingredients for plant growth, but both are produced using natural gas (Natural gas is a critical feedstock for nitrogen fertilizer production through the Haber-Bosch process, and accounts for 70 – 80 percent of the cost of fertilizer) are abundant in supply; and because they depend on rising gas prices, profit margins are being squeezed. Potash is simply the most profitable of the high volume nutrients.

The leading drivers for fertilizer sales are the demand for food, economic growth and biofuels.

The U.N. expects world population to rise 40% to 9.2 billion by 2050. Such population growth means there will be an increasing need for crops used in food, animal feed, fibre and bio-fuels which will cause significant changes in agricultural production. Demand for a grain intensive diet (meat and dairy) will further stress global grain inventories as GDP incomes rise across the Asian continent. In addition, fertilizer prices will rise as both the biofuel industry expands its use of grains and oilseeds and global grain stocks decline.

All the above demand drivers exert extreme pressure on grain prices while Arable land continues to decline globally at an average of –1%.

After years of relative stability potash prices have undergone a 200% increase beginning in the middle of July 2003.

As farmers become biofuel miners, the demand for fertilizer has skyrocketed. In 2006, the price of potash jumped 55% in both Brazil and India. In 2008, the pricing momentum will continue as Asian spot prices in China will exceed $525.00/tonne. That is double the 2007 China landed price.

Higher grain prices support a renewed emphasis on intensive crop production and increased fertilizer demand, for years to come, as farmers look to increase their yields and farm incomes.

The International Fertilizer Association predicts the world's appetite for potash to grow at 3.7 % per annum based on current consumption patterns. That equates to almost 2 million tonnes of potash required each and every year. The world's consumption rates can only be satisfied by adding the equivalent of a new potash mine every year.

If the world adopts a balanced approach to nutrient/fertilizer application and uses the appropriate recommended scientific levels, the “BRIC” economies (Brazil, Russia, India, China) alone will require an additional 28 million tonnes of potash annually. Of the three nutrients Potash poised for the largest growth increase. This is due to shortage of potash itself and the limited farm credits that farmers all over the world have experienced. Potash has for one reason or another been underapplied in most countries. As potash is added back into a “balanced" approach to crop application (in order to improve yields) the demand for potash will increase. More countries are recognizing that this approach is the surest route to crop improvement.

It is not without reason that we believe the current demand for potash will continue to exceed the sectors ability to add and expand their supply capacity.