Need to feed means need to fertilise, which means opportunity for potash investors

And again its juniors like Kalium and Trigg which offer the leverage. Plus, African Energy positions for big Queensland copper play and Argonaut sees much upside at WA gold developer Bardoc.
19th August 2021
Barry FitzGerald

The need to “feed-the-world” thematic was on full display this week when BHP finally got around to approving a $US5.7 billion stage 1 development of its Jansen potash project in Canada.

BHP reckons its got a 100-year business in the making as potash demand grows in response to global  population growth.

The notion is that fertilisers like potash are needed in increasing amounts because crop yields have to rise to offset the pressure on food supplies from the dwindling availability of arable land, and because water is becoming a scare commodity.

While it was a 100-year decision by BHP, it was all that much easier to make now because fertiliser prices have been on the tear as the feed-the-world thematic takes shape.

That’s great for BHP but today’s interest is in the much smaller sulphate of potash (SOP) market.

SOP is a 7 million tonne annual market compared with the 60mt muriate of potash (MOP) market that has got BHP’s interest up.

But SOP is the fertiliser of choice in the high-value cultivation of fruit, vegetables, berries, potatoes, beans, cocoa, and tobacco because it does not contain chloride.

So it trades at a premium to MOP. And when SOP can be produced from salt lake brines in WA’s outback, it is an environmentally friendly source of SOP compared with the traditional energy intensive production route.

All that has given rise to a SOP industry in WA.

It hasn’t started out well, with one of the lead developers, Salt Lake Potash (SO4), running into commissioning problems at its Lake Way project. It is currently in voluntary suspension while it sorts out a revised ramp-up schedule and gets its hands on additional funding.

But there is good news in the bad from SO4 in that the market value of the other SOP players on the ASX have suffered for no good reason.

It’s why the recent strength in SOP and MOP prices are encouraging investors to dip back into the ASX SOP players. It is a value argument, remembering that done right, these SOP projects have the promise of becoming long-lived and high-margin businesses.

Kalium Lakes (KLL, trading at 17.5c for a market cap of $155m) is one of advanced developers that can be expected to benefit from the spike in fertiliser prices, and as SO4 sorts itself out.

In the absence of SO4’s woes – none of which are Kalium’s- Kalium would be at a multiple of its current share price.

As always, leverage to these things rests with the juniors. In the junior end of the SOP space, Trigg Mining (TMG, trading at 9.2c for a market cap of $10m) attracted interest during the week in response to a commissioned but nevertheless quality research report by Corporate Connect.

The thing is a tome, and well worth a read. But most interest will be in the report’s NPV assessment for Trigg of 40c a share, based on assumptions derived from more progressed peer projects, the large scale of Trigg’s currently defined resource, and potential for it to have a multi-decade SOP project in the works.

Canterbury Resources – African Energy:

The copper price has come off its May highs but at $US4.10/lb it remains at a level that provides plenty of incentive for the juniors with a red metal focus to get cracking.

The current price remains massively ahead of last year’s calendar average of $US2.80/lb and besides, stimulus packages like Joe Biden’s green-heavy $US3.5 billion spend, and what is being rolled out elsewhere around the world, will soak up copper like there’s no tomorrow.

New mines coming on stream in the next couple of years means copper won’t roar ahead from its current levels but it will be game on come the back half of the 2020s as the industry struggles to keep up with demand.

It is against that backdrop that large-scale but low grade projects have come into their own, particularly when they come with an Australian address.

Back in October last year, Caravel Minerals (CVV) was mentioned here on the strength of its namesake project, all of 120km north-east of Perth in WA’s wheatbelt.

It is a 662 million tonne resource grading 0.28% copper (1.86mt contained) and is the subject of a PFS expected in the first quarter of 2022. Caravel has moved from 10.5c from last October up to 32c for a market cap of $130m.

Previous study work pointed to the potential for a robust 23-year project producing up to 65,000tpa of copper. Importantly, its robustness was assessed on an assumed copper price much lower than the current price.

At the current price, the project sings.

It is interesting then to notice that some of the key guys at Caravel are also involved with African Energy (AFR, trading at 2.7c for a market cap of $16m).

It’s interesting because AFR – its main focus in the past has been growing an independent power provider business in southern Africa – has just added a big and low-grade project to its portfolio in a deal with Canterbury (CBY, trading at 11c for a market cap of $13m).

The deal is over Canterbury’s Briggs copper porphyry project inland from Gladstone in Queensland. Think of it as having Caravel Mark II potential.

Under option and earn-in arrangements, AFR will have the right to earn up to a 70% joint venture interest in Briggs by sole-funding staged exploration expenditure of up to $16 million.

The resource at Briggs is not as big as big as Caravel, but with 143Mt tonnes grading 0.29% copper already defined, and with plenty of exploration upside, it will no doubt grow over time. To that end, a drilling program is due to start in September.

To cement the transaction, AFR is injecting $1m into Canterbury from a share placement at 12c a share . Canterbury meanwhile continues to focus on the big-time potential of its copper-gold projects up in PNG.

Bardoc Gold:

Value has returned to gold equities. There is nothing complex about it either. It simply reflects gold equity values having yet to recover the ground lost during the recent gold sell-off.

The metal fell as low as $US1,728/oz from $US1,829/oz before grinding its way back to the $US1,780/oz.

With the flash crash seemingly out of the way, despite US dollar strength, the gold stocks should be on the mend.

That is particularly so for the developers where the impact of the flash crash was particularly harsh. It helps when the developer has a new value-add to its story.

That’s just what Bardoc Gold (BDC, trading at 6.5c for a market cap of $112m) has done with the release of an enhanced mine-sequencing study for the development of its 3moz (resource) gold project of the same name up the road from Kalgoorlie.

The enhancement comes from bringing forward gold concentrate production from the refractory Aphrodite deposit to deliver increased production in the earlier years.

On Argonaut’s assessment, production could be as much as 166,000oz in year three of the project. As a result, Argonaut increased its valuation of Bardoc from 12c to 14c a share.

Separately, exploration at the Zoroastrian deposit could well add to the story before long.

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