Fertilizer Feeding Investors Amidst Fizzling Financials
By Michael J. DesLauriers
27 Mar 2008 at 11:45 AM GMT-04:00
TORONTO (ResourceInvestor.com) -- The latest big story, in terms of serious overriding trends in the resource side of the equity markets, is the facilitation of the feeding of the worlds major emerging economies, as their collective standard of living leaps smartly ahead, along with their GDP numbers. The impact of this seemingly obvious (in hindsight) evolution is a massive surge in food prices to the end user, and in the soft commodities, as ten’s of millions of Chinese and Indians move up the ‘food’ chain, well on their way to western habits of consumption.
Given how long this eastern story has been on our radar screens, it’s rather surprising how few commentators on the resource space have really paid attention to this obvious, eventual part of the equation until very recently - and how much has been left on the table as a result. That having been said, this game is still new, and opportunity abounds.
This fact can be witnessed in the recent upgrade of a C$50 billion dollar company, Potash Corp of Saskatchewan [TSX:POT]. While it is not uncommon for a major bank to upgrade a senior story, it is extremely uncommon for a major bank to upgrade one (with a C$50 billion market capitalization already), to a target price which is a whopping 60% higher than the story’s latest close – in this case a C$250/share target on a company trading at C$150 and with a 52-week low of just C$60.
In view of this meaningful upward realignment on the biggest name in the sector, the clear opportunity for the smaller, more nimble and levered players, is massive. This is true not only because of rising prices, but because of the an insatiable global appetite, a seven plus year lead time to new supply (if one were to start today), but particularly because of a critical dearth of equity product to feed ‘hungry’ investors, at a time when a hot space is nearly impossible to find and levels of confidence in even the so-called safest of sectors is running scarily short.
Further, when one looks at the recent auction of a Russian potash mine on the order of 600 million tonnes yet to be developed which sold for about US$1.20 per tonne according to Bloomberg and analyst sources, it is clear that the smaller listed Canadian potash plays are heavily undervalued still as plays like Anglo Potash [TSX-V:AGP] are trading at less than 50 cents per tonne of potash in the ground.
The recent marketing of Western Potash, a newcomer in Manitoba that should list in the coming days, we are told was very positive especially given general market conditions. The issue was oversubscribed and flew out the door at the top of the range suggesting a valuation in the area of almost C$200 million post IPO finance.
Mag Industries [TSX-V:MAA] spinout of its potash assets in the French Congo was also very bullish for potash as the suggested valuation approaching US$500 million for a large potash deposit in an African country tells us that investors both institutional and retail are not yet sated and continue to look longingly and ravenously at potash plays.
This market has room to move substantially higher because it will be years before the supply/demand imbalances repair themselves.
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