Pacific Potash keeps climbing

VANCOUVER — Brazil is the fastest growing potash market in the world, and Vancouver-based Pacific Potash (PP-V) is hoping it can help the country sate some of its potash hunger domestically.

The company’s flagship project covers almost 8,000 sq. km in the Amazonas basin in north-central Brazil. The basin has seen limited potash exploration to date and Pacific Potash’s properties are early stage, but results from neighbouring projects suggest the area could hold a fair bit of the fertilizer component.

“Every project in the Amazonas basin, every exploration program in the area, has resulted in the discovery of a deposit,” says Andre Costa, newly appointed president and CEO of Pacific Potash, in an interview. “It is an area with really good potential.”

The markets seem to agree with that outlook. In recent months Pacific Potash has focused on the Amazonas project with two moves: a deal to boost its earn-in on the project to 100% from 80%, and  adding Amazon basin expert Costa to its management team. The moves sparked a 340% share price rally that saw Pacific Potash shares climb from 5¢ in February to 22¢ today.

Costa joined Pacific Potash in late May from Brazil Potash, a private company pushing to break ground on its own potash mine in the basin next year. Costa was chief geologist with Brazil Potash and spent the last five years studying the basin from historic data and new drilling.

The work positioned Brazil Potash as the most advanced operation in the basin. Brazil Potash is set to release a resource estimate based on Costa’s work in the coming months.

Pacific Potash’s project lies on a corridor between Brazil Potash’s two land packages, so Costa’s new position keeps him working in familiar territory.

Costa says that in the 1970s, potash was discovered in the Amazonas basin and the Sergipe-Alagoas basin near Brazil’s eastern coast. The Sergipe-Alagoas discovery was easier to develop so potash attention shifted to that eastern area, leaving the Amazonas untouched. It was only when potash prices increased in the early 2000s and oil and gas drillers again encountered potash in the Amazonas that interest returned to the area.

And interest there is. Brazilian energy giant Petrobras’ ground in the basin is home to two large historic resources, and privately held Cowley Mining is planning a drill program on the property next door to Pacific Potash. As for those Pacific Potash lands, Costa and his new team hope to punch the first holes into their project in August.

The holes will be paid for in part by a financing that saw a Chinese investment fund buy up a chunk of the company. Sino-Canada Natural Resources Fund is a private equity fund that invests in Canadian companies with natural resource projects around the world. Sino-Canada is managed in Hong Kong on behalf of private and institutional investors from China. The fund took out half of the recent financing, buying 10 million units at 10¢ apiece, which doubled its Pacific Potash holdings.

Sino-Canada owns 25.5 million Pacific Potash shares and a similar number of warrants, giving it a 28.6% stake in the company.

“We could not have asked for a better partner than Sino-Canada Fund,” Pacific Potash chairman Balbir Johal said in a release. “They have committed to fund Pacific Potash’s early stage drilling in Brazil and are in a position to provide mine development capital as required.”

Johal notes that a partnership with Sino-Canada could open doors to more funding groups, such as the BRICS Development Bank, a proposed $50-billion entity that would help development projects in Brazil, Russia, India, China and South Africa.

So the Sino-Canada investment could provide much more than just money in the bank. Costa thinks the buy-in is a sign that the Chinese understand the Amazon’s potential.

“The Sino-Canada investment is exciting because they are really excited with the exploration program, and we are optimistic we will find another deposit in the basin,” Costa says. “There is strong potash demand here in Brazil, but we could also have the ability to produce more than Brazil needs from this region. Hopefully in the next ten years we will have huge production from the area, comparable to Russia and Canada.”

Potash is used to designate a group of potassium-bearing minerals, dominated by potassium chloride, that help plants develop strong root systems and retain water.

Brazil uses a lot of potash, buying up 80% of supplies sent to South America, and the country’s needs are climbing. The prime culprit is sugar cane, which is used to produce ethanol. In 2007 Brazilian farmers consumed 6.8 million tonnes of potash. Today demand has climbed above 9 million tonnes, and it could keep climbing.

But the country has only one operational potash mine — the one developed years ago in the Sergipe-Alagoas basin. It produces just 700,000 tonnes of potassium chloride per year and could shut down in five years.

Pacific Potash hit a new 52-week high on June 11, reaching 22.5¢ in intraday trading before settling slightly to close at 21.5¢. In February the company traded as low as 5¢. Pacific Potash has 89 million shares outstanding.