Stokes growing potash stakes

Perth-based media and industrial equipment billionaire Kerry Stokes is emerging as the key man in Western Australia’s potash industry.

Already the major shareholder in BCI Minerals, Mr Stokes has quietly acquired substantial positions in two other emerging potash stocks: Agrimin and Highfield Resources.

All three are well placed to benefit from a growing global food crisis flowing from the war in Ukraine, one of the world’s biggest wheat producers.

Fear of a wheat shortage has already lifted its price by 60 per cent since Russia launched its invasion late last month.

From $US7.90 a bushel in late February, wheat is now selling for around $US12.50/bu on the international market, largely because of the war-caused loss of Ukraine material and trade sanctions on Russian wheat exports.

The price of potash, a fertiliser essential for crop growth, was already moving higher before the war started, largely because of sanctions on Belarus, a close ally of Russia and a big potash producer.

From around $US500 a tonne in the middle of last year, sulphate of potash (one of its commonly traded forms) has risen to more than $US800/t, delivering a big win to producers such as Canada-based Nutrien, shares in which have risen 65 per cent to $C127 during the past six months.

BHP is pushing ahead with its giant Jansen potash project in the Canadian province of Saskatchewan, which is targeting beds of potash located up to a kilometre underground.

Meanwhile, mining rival Anglo America is developing the Woodsmith project in the north of Britain.

WA’s potash industry is yet to move beyond the project development phase but there are at least seven runners in the field, all planning to produce the fertiliser from sun-dried brine (salt water), either at remote dry lakes in the state’s interior or in existing solar-dried ponds on the coast.

Other countries have solar potash industries, including Israel, which has a century-old business centred on the Dead Sea.

In theory, WA is a perfect place to produce sun-dried potash, with potassium rich salts found in most of its inland dry lakes (also known as playas) and the waterways leading into the lakes.

As well as skimming off the top layer of encrusted salts, there are plans to pump brine to the surface where it can be dried in a series of ponds before harvesting.

However, that theory is proving difficult to execute for some of the small potash hopefuls.

Salt Lake Potash, an early mover in the sector, collapsed last year when processing equipment failed to perform as promised at its Lake Way project.

The business is now for sale through KordaMentha.

Kalium Lakes, which is also well advanced with its project at Beyondie near the iron ore mining centre of Newman, was forced earlier this month to declare a funding shortfall after a slower ramp up to production, with first sales delayed for three months to July.

BCI, the company in which Mr Stokes has a 39.5 per cent interest, is the biggest of the WA potash companies, aiming to produce a combination of fertiliser and conventional salt (sodium chloride) from ponds at Mardie, close to the north-west coast between Onslow and Karratha.

Construction of the Mardie Salt & Potash project started last month and will eventually consist of nine evaporation ponds, processing equipment and a 2.4-kilometre jetty, which will be the load-out point to transhipment vessels that will take the finished product to ships anchored 28km offshore.

With an estimated capital cost of $1.2 billion, the Mardie project is easily Australia’s biggest potash development, attracting strong support from the Australian government’s Northern Australia Infrastructure Facility, which has provided a $490 million loan facility, as well as funding from major commercial banks such as Westpac, and the Industrial and Commercial Bank of China.

Mr Stokes invested up to $110 million in the latest BCI fundraising to retain his top position on the company’s share register, ahead of Australian Super, which has a 14 per cent interest.

Significantly, as it highlights Mr Stokes’ enthusiasm for potash, he has also acquired a 14.76 per cent interest in Agrimin, which has two inland potash projects: Lake Mackay on the Northern Territory border and Lake Auld in the Great Sandy Desert, as well as a 7.23 per cent stake in Highfield, which is developing the Muga potash project in Spain.

The three publicly disclosed investments in potash are modest alongside the $8 billion stock market value of Seven Group, the primary listed vehicle of the Stokes family, or his personal wealth (estimated by Forbes magazine at $5.9 billion).

BCI Minerals has a market value of $446 million, Agrimin is worth $90 million, and Highfield has a market value of $300 million.

But the key to Mr Stokes’ potash portfolio is future demand for fertiliser at time when traditional sources of supply are being restricted amid rising global demand for food.

All that’s needed now is for the WA version of solar-dried potash to prove that it can compete with the deep mines of Canada and Europe, with the collapse of Salt Lake Potash and the funding shortfall of Kalium Lakes a pointer to potash production perhaps being more difficult than meets the eye.

Watch palladium

War in Ukraine is doing a lot more than drive the potash price higher; it is also propelling a once-small WA explorer towards a spot in the Australian stock market’s top 150.

Chalice Mining, which discovered the Gonneville nickel, palladium and platinum orebody on the northern outskirts of Perth, has raced up from penny dreadful status at 17 cents less than two years ago to latest trades at $7.45, with one stockbroking firm tipping a future price of $12.02.

If that forecast price from Bell Potter is correct, Chalice will grow from being a business valued at $2.67 billion today into one valued at $4.26 billion, which would rank it 107th on the ASX; a remarkable achievement for a business that once struggled to hold a spot in the top 1,000.

The key to Chalice is the mix of metals in the Gonneville discovery, topped by nickel, which has enjoyed a price explosion thanks to soaring demand from battery markers and crimped supply of first-grade metal, a Russian speciality from its giant Norilsk complex in Siberia.

But the metal of greatest interest is palladium, a material needed as a noxious fumes catalyst in petrol-powered vehicles.

Palladium’s price has rocketed up by 50 per cent since last month to a high of $US3,339 an ounce.