Sulphate of Potash (SOP) is indeed an agricultural phenomenon within the mining industry and probably should not be treated as a commodity. I don’t think the retail investing community fully appreciate the sector or is probably too impatient. Like all things in life, we pigeon hole our thoughts. I feel that SOP should be treated as an agricultural product. A product that should not have any connection to the typical mineral commodity community.
The whole SOP industry is now pretty mature with several companies already way down the road on feasibility and mining studies. Technology is now pretty off the shelf, and new players will need to be innovative in how they approach the market.
My optimism for the Sector
I think we are seeing signs that we may be fast approaching a period where we cannot seem to grow enough food to feed the increasing population on this planet. The only way we can sustain our needs is to increase yield without knocking down more acreage. It is this thinking that I got interested in this topic of the whole potash fertiliser thing and how it will improve the quality of food being grown and also increase yield. In terms of an investment opportunity, I have read many stories on how deserts are being transformed into an oasis. Now that is a great concept, but I know they must be putting something in that soil other than water to make that happen.
Hence unless we get the big evil Thanos (for those that don’t know, Watch The Avengers: Endgame) to come and click his fingers and wipe out half of the human population, we better find a better way to feed ourselves without poisoning each other. On the way, it would be nice to be able to latch on a sector that has no limits, like aged care and childcare.
Is there room for New Players?
SOP is a premium potassium fertiliser required for healthy plant growth, plant metabolism, optimisation of crop yields and quality of produce. It is a necessary fertiliser for high value, chloride sensitive crops such as avocados, cocoa, coffee beans, grapes, berries and tree nuts, as well as arid and acidic soils. Potassium is also of vital importance for human health where it is required for normal cell function, maintenance of cardiovascular health and prevention of stroke and coronary heart disease.
Companies that are new to the market have one great advantage, and that is the ability to pick a strategy that works and one that will give them a competitive edge. Assuming that they have got an acreage with SOP and the tenements can be granted.
SOP projects will need 100s of square kilometres of salt lake playa and interpreted paleochannels (ancient underground rivers). It would be ideal to have early exploration that has established a JORC Compliant Exploration resource/target as a minimum. You would also want to be close to infrastructure.
In the above Figure 1 and Figure 2, an example of a live SOP IPO project, (Trigg Mining Limited), it appears that their projects are well-connected to transport and energy infrastructure. Many roads and tracks access the projects and two gas pipelines passing directly through the area. Nearby airstrips are located at the nearby working mines, as well as the commercial airport at a nearby town. These kinds of infrastructure are almost mandatory for bulk commodity projects to reach the market.
So What is Sulfate of Potash (SOP) and Muriate of Potash (MOP)
(Source: Agrimin, Investingnews, Salt Lake Potash)
According to my google search, Sulfate of Potash contains 50% potash and 17% sulfur to crops. This potassium sulfate fertiliser is chloride-free and has a low salt index, less than half that of muriate of potash. Crops that are sensitive to chloride require SOP.
SOP demand is driven by high-value crops, where the cost of fertiliser has less of an impact on crop profitability. The negative part of SOP is the high cost of production. The Mannheim Process is costly, and it also produces an unwanted hydrochloric acid by-product. MOP is the primary input in the process and represents approximately 75% of the production cost.
Some other SOP Facts
SOP currently sells for approximately AUD$900+/t (2019)
The global market for SOP is ~7Mtpa, and ~70,000tpa is consumed in Australia annually (100% is imported)
Market grade specifications for SOP are deemed to be >50% potassium oxide (K2O), > 17.5% sulphur (S) and <1.5% chloride (Cl)
50% of the SOP used globally is manufactured via the Mannheim Process, and the balance is extracted from ancient salt lakes
What is The Mannheim Process (source: Wikipedia)
The Mannheim process is an industrial process for the production of hydrogen chloride and sodium sulfate from sulfuric acid and sodium chloride. The Mannheim furnace is also used to produce potassium sulfate from potassium chloride. The Mannheim process is a stage in the Leblanc process for the production of sodium carbonate.
MOP or Muriate of Potash or Potassium Chloride is the most common of potash fertiliser. The form of fertiliser is only for crops that love chloride and for soils that are chloride deficient. The negatives are the chloride can be toxic to the crops and the soil. The needs have primarily driven the demand for MOP for food. The decreasing yield is ignored as the demand has exceeded that ratio.
I think some of this demand is also coming from an Increase in wheat farming. I read in one research that there is a rise in carbohydrate form of food as the “third world” is getting self-sufficient in that form of food. It is a cost-effective way of allowing them to get into a self-sustaining cycle.
As for what I call those in the “first-world” problems, they are acknowledging that there is a need to “clean-up”, I do feel that if companies can produce SOPs and make money, they will prevail. This is like what the iron-ore industry is witnessing with the high-grade ores being favoured as China comes to grips with cleaning up the pollution that is generated with lower grade ore being used in steel mills.
What a typical SOP Project has to deal with?
The SOP is dissolved in brine contained in sediments below and around the salt lakes, which is affected by:
• The capacity of the sediments to retain brine.
• Variability of the brine chemistry throughout the aquifer system.
• The ability of the sediments to release brine during abstraction.
• Viability of abstracting the brine at the required rates
• Effect of brine abstraction on the regional hydrogeology and environment.
The new thinking in SOP manufacturing is a non-Mannheim process such as that described in the diagram below. Several companies are now entertaining this process. Effectively you could say that this process is similar if not identical to that used in Dampier to process their salt.
Are there any other players in the SOP sector.
The whole potash industry has been around for many years. As I mentioned, it started with the phosphate flavour, and I remember this was off the back of the uranium rush back in 2006 or even earlier. It kind of went for a six month hard run on uranium and then it was phosphate. The Potash rush came later, and of late it has been quiet, for me anyway.
Researching this article, I noticed that some of these companies have been established and are travelling pretty good. I did see some news in this sector about 12 months ago, but as I mentioned, I never ventured into any research.
I have listed some of the better-known companies to me below from my research. However, there are probably more advanced or better-known companies not listed here.
What is the positive aspect of New Entrants?
One advantage for a late player coming into this sector is that they will be able to get the best practice that is being developed without needing to go through the hard yards of trial and error.
For example, to negate the high manufacturing cost, many current companies are talking about doing what I call the “Dampier Way”. Evaporating the brine and then shipping what is left as “concentrates”. I believe that it is a more straightforward process, and it has worked a charm for the salt sector.
A couple of years ago, I stumbled onto a group wanting to mine salt in Somaliland. The concept was pretty easy. In Somaliland, the evaporation rates are apparently the best. The proposal was to evaporate the seawater and capture the moisture to be stored for agriculture.
I showed this project some of my contacts in Asia, and there was some interest. The timing was not the best for the participants, and they stopped the negotiations due to internal issues back in China. However, the business proposition was perfect. Mine the salt, use the evaporated moisture for agriculture and create a sparse land of no agricultural use into an oasis of farms.
What are the negatives for New Entrants?
Here are some of the challenges that I see, and they are common issues such as,
– Define a resource
– Feasibility Studies
– Funding for ongoing work.
Funding is always an issue. However, if you can make the money want you, it is all smooth sailing from that moment. How do you do that? In the normal metal space, and I guess in oil and gas too, you need to show that your project is robust and have all the development ROI sorted. SOP has one other factor. As a product, SOP is described as having an inelastic demand. This means that the demand for the product is not subject to price movements, or instead not at the mercy of price movement. Hence, they have the market on their side.
Require A Resource
Of course, it is a given that resources will need to be established and then it needs to show the economics. But at least if they get to define a useful resource, funding will be easier to target with a good marketable product.
Defining the resource will have its challenges in that the product is in solution, and they can move, literally. My experience with the salt lake hosted uranium projects have taught me that defining a resource could be tricky. As the commodity is in solution, an influx of groundwater and groundwater movement will affect the potential resource for the better or the worse.
This will lead to issues in your feasibility studies. Probably not a big problem but I think that it will probably cost more?
The upside to this is that new entrants to this market will get all the upside from work related to brine hosted lithium and potash deposits in the last five years. In discussion with associates, we spoke about how the “Americans and the Russians” love brine hosted lithium and think hard rock lithium is a waste of time. Hence, in my opinion, drawing on that expertise to understand brine hosted deposits will be important if not critical. The good news is that the skills are there and not in the development phase. You could almost measure it as an item that you could buy off the shelf.
In Conclusion
I like things that are simple. Sometimes when you are too early into the market, you don’t get any love and similarly when you are too late. How many people invest at the right time? Well, that is the million dollar question. There were many winners in the early part of the Potash run, but I think it is not too late to look at this market now. As for new players, again, this could be the second wave.
Investment in the resource market, in general, is not short term. There have been very few companies that have started and was in production within five years. I see any new entrants, either as an RTO or an IPO, as a way of getting into a sector at a reasonably lower valuation compared to what is already out there. Companies will take advantage of best practice in developing the projects as all the hard work have already been done. In some way, the dust has settled and it is now clear to see what works and what does not. Sometimes a rebuild is cheaper and faster than a renovation.
—Clean China Policy—
As for the pricing, management needs to take care of market perception. I have this view because the demand for this commodity is going to surface and surface quickly soon. China is now in a clean-up phase, and the environment is the number one priority. You only have to look at the iron ore market where higher grade ores are getting premium as they are allowing the steel mill to meet environmental requirements.
This thinking is consistent with my thoughts on uranium coming into the picture as it is by far without out any competitor the cleanest fuel in the market. It has less carbon footprint than any other so-called renewable energy source. It will be the cheapest clean energy alternative. This cleaner way of doing business is a factor that is mostly missed by out investing circles.
Food source and the simple fact of high yield and low environmental damage will be in the front of China policy, not saying that it is not already. For an investor, I feel this sector is going to be like the base-metal sector, you cannot live without it, but you can live without lithium and cobalt. It is absolutely a risk, but what is not?
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