₪ David Pescod's Late Edition June 28, 2007
AN INTERVIEW WITH TODD MONTGOMERY
PRESIDENT AND CEO OF ANGLO MINERALS LTD.
It was Scott Koyich, the investor relations “Artist to the Stars” that first introduced us to the Anglo Minerals story more than half a year ago, when this stock was trading at $1.00. When we talked with Scott the other day, he gives credit for the recent pop-up in Anglo’s stock to recent writings by analyst Don Coxe, suggesting that one of the places one must be these days is in agricultural-related products and there’s not a lot of potash plays out there.
We had done this interview with the Anglo people many months ago, but only recently has it cleared approvals of Anglo’s partners and legal council. So while it might be a little late, it’s better late than ever.
David Pescod: We are here with Todd Montgomery, President and CEO of Anglo Minerals. Todd, with such a boom happening in commodities – one commodity that hasn't been getting a lot of attention is potash! Your thoughts Todd, on the potash market?
Todd Montgomery: You're right Dave, potash hasn't yet received a lot of attention, but I think it’s a very interesting commodity. The outlook for potash demand is strong. Over 90% of potash production is used as agricultural fertilizer, which is closely tied to the production of food. The prevailing view is that potash consumption will continue to increase as the world’s population and economies grow. In developing countries, such as China, India and Brazil, which have a third of the world’s population, not only is the population increasing, but as affluence grows there is significant movement towards the consumption of higher quality, protein rich foods such as meat and poultry. As the "middle class" in developing countries expands and additional disposable income becomes available, consumption patterns change – the dietary practices and preferences evolve such that instead of consuming just grains the population increasingly consumes more protein rich foods.
D.P: Instead of rice, they suddenly want meat and poultry?
T.M: You got it. Instead of rice or millet or lentils, they want meat. To produce meat you have to feed these animals with grains, lots of grains. This is significant for the potash industry, because it takes several kilograms of grains to produce just one kilogram of meat. As such, more grains will need to be grown on the world’s limited arable land, which is declining on a per capita basis as the global population increases. Basically, every acre of arable land will need to become more productive, and to do this, farmers will have to fertilize at recommended levels, which is currently not being done in the developing world.
In addition, demand is growing in the developed world as biofuel production increases. According to PotashCorp, potash demand in the United States, the world’s largest importer of potash, is expected to increase 20-25% this year as its ethanol production rapidly grows. Corn is a very important crop in the US as it is one of the major crops used for food and animal feed production, and it is also the main feedstock for ethanol production. As more corn is used for ethanol production, less will be available for food and animal feed. The picture is clear, every acre of agricultural land will need to be as productive as possible, and therefore the increased use of potash, for which there is no substitute, will be needed to feed and fuel the population.
D.P: I guess a person could use the comparison that Saskatchewan (the big player in uranium with Cameco) is also the big player in potash with PotashCorp?
T.M: Saskatchewan is the world’s largest producer of potash. It is generally considered to be the best basin in the world for potash. The Anglo Minerals/BHP Billiton joint venture has assembled quite a large land position around PotashCorp and the other producers operating in the Saskatchewan basin. We have assembled permits covering somewhere close to 1.5 million acres, which we believe is the world's largest holding of lands prospective for potash.
D.P: Now, exactly how big is that? Because we notice that the BHP Billiton joint venture you’ve done is only for something like 8% of your land holdings?
T.M: No, the joint venture with BHP Billiton generally covers all of the potash lands held or acquired by either Anglo or BHP Billiton in Saskatchewan. Our deal is that BHP Billiton will spend up to $40 million (US) over 5 years on behalf of the joint venture in order to get the project to feasibility, so Anglo Minerals is "carried" for the next $40 million (US) of expenses. BHP Billiton is the operator of the joint venture and, at the moment, they are actively working to try to find the best spot to put a potential mine.
We have about five or six study areas and we are trying to determine where that best spot is.
D.P: Now how deep is this and how hard to find out how much you might have?
T.M: We are dealing with very similar signatures to those of the existing mines. If it was 40 years ago or so, the engineering we have on some of these study sites with the seismic we’ve got and the past test holes, we probably would have twinned a few holes, drilled a few more holes and then made the decision whether or not to sink a shaft. However, engineering and other standards for proceeding with a mining project have tightened up a lot since the 1960s and 1970s, so what we have to do now is quite a bit more complicated. There is a lot more engineering required now. We have a 256 drill hole data base and everything that we see looks very similar to the existing mine operations in central Saskatchewan. Of course we have to follow up with more 2D and 3D seismic and drilling, but the intercepts are right up at the same level as where they are mining at right now, and we're very encouraged.
D.P: At this point you can’t even dream of what kind of reserves or inferred numbers you might have. Is that correct?
T.M: It’s a big number. We have two 43-101 technical reports completed and filed on SEDAR, which cover only a small portion of our land holdings, so ultimately the numbers could be quite large. To recreate this situation would be very difficult or impossible. What we’ve tried to do is tie up the best of the potential underground mineable resource not under existing lease. Where the existing mines are right now around Saskatoon, they have what’s called insolubles (clay material) and small but variable amounts of carnallite, but they don’t have the big water problems that they have at the eastern Saskatchewan mines. I don’t know if you’ve read the news recently, but Mosaic’s Esterhazy mine, which has had water inflow issues, began to see increase volume of inflow in late 2006. Water is an issue with all Saskatchewan conventional potash mines. As you go farther east towards the Manitoba border, you get closer to the outcrop of all these formations, and this is where they get charged with water. The water flows down-hill quite a ways from this belt and so the eastern mines have a heck of a time dealing with the water. So what we tried to do was to pick up what we thought was the best remaining underground mineable resource that was available and in the best basin in the world, what our consultants call the “Saudi Arabia” of potash. We're pretty happy with how it worked out, and are confident that we've got some good land.
D.P: What is the next step over the next while because the agreement goes for five years with BHP Billiton?
T.M: It actually goes for 66 months from June 2006. I don’t believe that they are going to take the full amount of time allotted to determine feasibility – their mandate is to proceed as quickly as possible. They are working on it very diligently – BHP Billiton has 8 to 10 people working on this thing full time. They are taking this very seriously.
We have announced that the joint venture is shooting an extensive 1,400 kilometer 2-D seismic survey this summer, and then I believe in the early winter of January/February of 2008, will be following up with drilling.
BHP Billiton is a very thorough group. With the carried interest until BHP Billiton has spent $40 million (US) on the project or until we get to feasibility, we are hopeful that we will be able to minimize dilution for the Anglo shareholders going forward.
D.P: For a new investor to this story, could you put 25% of this interest into perspective?
T.M: It’s hard to say what it is worth. Obviously, the further we go down the road and the closer we get to feasibility, the more the project is worth. In my view, it’s hard to put a value to this because there are no comparables in the industry – we are really the only junior out there who has a partner capable of actually bringing a project of this magnitude into production – the only one. The key to this play was not so much going and getting the potash permits (there’s other companies out there that have potash permits), but having the legitimate ability either through a partner or otherwise to advance the project.BHP Billiton is the largest mining company in the world.
Without that sort of backing, I believe it would be nearly impossible to get a project of this sort across the finish line. We believe that we're sitting on a massive resource in the best potash producing region in the world, we have the world's largest integrated mining company as a partner, we're carried for $40 million (US) which will likely get us to feasibility, and we believe that demand for the product is going to be strong and growing for the foreseeable future. I believe that our stock is significantly undervalued – obviously it still needs to be considered an exploration play and is a speculative investment, but there is sure a lot of value in the ground.
D.P: Which brings us to a pretty stupid question, but someone has to ask it, so why not us? For someone who doesn’t know potash at all, we know that oil is so much a barrel and silver is so much an ounce, how do you sell potash? What’s the unit and how much does it go for?
T.M: Well, most of the potash fertilizer sold is potassium chloride (KCl), which is sold on a per tonne basis. In North America, potash is sold on the spot market and it is transported by rail. Rail is also used to get product to the international market, where it is loaded on ships. The Chinese purchase potash on yearly contract FOB basis, which means they pay the ocean freight. Other countries like India and Brazil purchase their potash on semi-annual CFR contract basis, where the seller is responsible for the freight. One price that we pay close attention to is the Vancouver FOB potash spot price, which is currently around $190 per tonne.
D.P: Now for the question that we ask everyone we interview, and I hope you’re ready for it, but let’s pretend you had to buy a stock other than your own, and it had to be one that would place you with no conflicts of interest in suggesting it, i.e. you can’t be a director or in anyway involved with it, but is there another junior mining or oil and gas story out there that you would buy right now? Of course, we would prefer if this doubled.
T.M: Honestly Dave, I’m so involved with my own company that I don’t play the market that much. I mean, that may sound strange, but generally, I really don’t get into the junior markets other than riding my own horses.
Thank you very much Todd!
As we’ve mentioned frequently, investor relations people (at least the good ones) spend a lot of time on the road seeing a lot of other interesting stories in the investing/speculating business and some folks are pretty good at picking out stock. Koyich is one of the best, witness the Anglo Minerals success. So when we ask him what his favorite stories are today, he suggests, March Resources (MCF) and Ucore Uranium (UCU). Details coming in a few days!
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