My preferred commodity exposure is sulphate of potash (SOP) – not to be confused with the more common muriate of potash (MOP), which in is an oversupplied market. SOP makes up around 10% of the overall potash market, or ~6mtpa, (a ~US$3.6b pa market). SOP is a speciality fertiliser commodity with a strong market outlook and very limited options for supply growth. It's a market that's undersupplied, and it’s dominated by a few majors who can't increase production further. The price has gone from strength to strength the last decade. We don't actually need the price to go higher to incentivise new supply. The industry is essentially fully utilised, and there is a genuine need for new large-scale projects. The majors are now busily searching the globe for new development opportunities; it reminds me of where lithium was a year ago, however, unlike lithium, there are very few genuine emerging projects.
We’ve scoured the world for quality projects, we’ve found approximately seven or eight projects, but most of them don't work. They are either geologically challenged, hydrogeologically challenged, and/or in high-risk jurisdictions (think Ethiopia, Eritrea). However, we’ve found one in Australia that essentially has all the necessary attributes and technically works.
Agrimin (AMN) has 100% ownership of the world-class Lake Mackay SOP project in WA, which is an advanced stage brine-based development asset. Their project is one of the biggest salt lakes in the world. In fact, it compares very well to the two biggest operations in the world, like SDIC’s Luobupo in China and Compass Minerals Great Salt Lakes in the USA.
Agrimin has delineated and drilled out the world's largest drainable SOP resource. There are other resources out there, but this one has a drainable resource that will underwrite a 375ktpa SOP production operation for a 20+ year mine life.
In August of this year, Agrimin delivered an extremely positive scoping study with highly attractive economics. Using conservative macro and operating inputs, the project has a short payback, NPV substantially greater than the Capex. Lake Mackay has the lowest operating costs AND the lowest capital intensity of all the competing projects globally.
Agrimin is well advanced on delivering Lake Mackay’s pre-feasibility and environmental approvals all in the next 12 months, which should prove to be strong catalysts. This next stage of work will continue the momentum, add a lot of value and position Agrimin to take full advantage of the genuine corporate interest they are seeing from the world’s largest fertiliser companies.
Contributed by John Deniz, Managing Director of Paragon Funds Management: (VIEW LINK)
By adopting a thematic-led, fundamentally-driven high-conviction strategy that can profit from rising and falling share prices, Paragon aims to provide its clients with excellent long term returns regardless of market performance.
Thanks for sharing John, it's an interesting idea - and one I haven't heard elsewhere!
What about the Spanish project SE of Bilbao owned and being built by Highfield Resources (HFR)?? I thought that this project, designed to produce 1M tonnes pa of SOP and some hundreds of thousands of tonnes of MOP, was the lowest on the global cost curve.
HFR is looking to do 500ktpa of SOP but will be higher opex than AMN. And if you include the capex for HFR’s MOP mine it's much higher capex. In the last decade the industry has actually moved away from HFR's Mannheim production as this process actually manufactures more hydrochloric acid (a big issue) than SOP. Finally, HFR's assets are in Spain - a risky jurisdiction for permitting & development - and has a fully diluted market cap many multiples of AMN's.