With the world’s population estimated to grow by 30 per cent by 2050, further decreasing the availability of arable land, the demand for potash to maintain soil productivity and thriving food supply is nothing short of vital.
Potash refers to the potassium-rich minerals commonly found in agricultural fertiliser.
When paired with nitrogen and phosphorous, it facilitates optimum water use, carbon dioxide uptake, as well as pest and drought resistance, resulting in better crop yields in terms of size, shape, colour and taste.
How big is the Potash market?
The global potash market is led by four major players – Canada, Russia, Belarus and China – which accounted for 31, 18, 17, and 14 per cent of global production in 2020, respectively.
Canada, Russia and Belarus are the top suppliers of muriate of potash (MOP), or potassium chloride (60 per cent potassium oxide equivalent), which applies to a wide range of essential crops, including rice and wheat, and represents a global market of 70 million tonnes (Mt) per year.
China is the top provider of sulphate of potash, or potassium sulphate (52 per cent potassium oxide equivalent), which serves more niche crops like tobacco and avocado and represents a global market of 7Mt per year.
Russia and Belarus are currently under indirect and direct international sanctions due to their involvement in the invasion of Ukraine.
This includes the European Union’s (EU) outright ban on Belarusian potassium chloride, effective March 2, 2022, cutting off the equivalent of 20 per cent of the bloc’s potash imports in 2020.
The ban has contributed to an over 100 per cent rise in the contractual price of potassium chloride from US$221 per tonne in January 2022 to US$562.50 per tonne in July 2022 and with spot prices exceeding US$1000 per tonne.
As a result, the price jump has put strain on farmers, already reeling from skyrocketing energy prices, and exacerbated COVID-related inflationary pressures from crops to table.
While Russian potash, representing 30 per cent of EU imports in 2020, does not fall directly under sanctions, it remains at risk of significant logistical challenges and potential export restrictions contingent on how the Ukrainian conflict progresses.
Who will fill the shortfall in Potash?
Increased production from Nutrien, Canada’s top potash producer, is likely to meet EU shortfalls over 2022.
But uncertainties remain due to the Ukrainian conflict, its effect on potash supply, and increased costs related to re-routing supply chains.
This state of affairs has placed the spotlight on EU-based potash companies to ramp up production, secure a domestic supply, reduce Russian and Belarusian dependency, and ensure European food security as its population continues to grow.
One such company, South Harz Potash (SHP), holds the potential to expedite EU potash independence through its MOP-optimised mining projects in Thüringia in central Germany.
Its three perpetual mining licenses and two exploration licenses contain a JORC mineral resource of 568Mt of potassium oxide (35Mt indicated and 533Mt inferred) over 659 square kilometres, an area as large as Perth, representing Western Europe’s most significant potash resource.
Considering EU sourcing of 5Mt to 6Mt of potassium sulphate per year from between 2010 and 2020 – including an average of 1Mt per year (60 per cent of imports) from Russia and Belarus combined from 2017-2020 – South Harz is well-positioned to supply the bloc for generations to come through locally-sourced production.
The company could also play a pivotal role in keeping up with global MOP demand, which is expected to grow to 91Mt by 2036, according to Argus Potash Analytics.
South Harz’s licenses benefit from data from over 300 historical drill holes, proximal infrastructure, and a shallow starting depth, which presents capital and operating cost advantages.
The licenses are also unencumbered by royalties or rents, offering optionality in the form of joint ventures or offtake partnerships to reduce financing costs.
West Europe’s largest Potash discovery
Tying South Harz’s catalysts together, Thüringia has been producing potash since the late 19th century, meaning the company benefits from a supportive regional government and a long history of skilled labour within Europe’s largest economy. Let’s now take a closer look at recent development work.
After defining four potential project areas across its licenses, South Harz identified Ohmgebirge (42Mt potassium oxide inferred) as an ideal starting point thanks to its high-quality mineralogy, existing mine workings, and large voids for tailings disposal to minimise production impact.
A recent scoping study further substantiates Ohmgebirge as a world-class potash project.
Supposing MOP production of 1Mt per year and a price of US$385 per tonne FOB Hamburg, the underground mining operation would offer:
• A potassium oxide head grade of 13.5 per cent and ore throughput of 4.5Mt per year
• A post-tax net present value (NPV) of US$1.279 billion (8 per cent) with a payback period of 3.6 years
• Low expected capital intensity of US$620 per tonne vs. US$1,000-$1,500 per tonne for global peers
• An internal rate of return (IRR) of 26.6 per cent
Ongoing pre-feasibility work is slated for completion by Q4 2023 and includes an optional phased approach (0.5Mt + 0.5Mt) to accommodate market demand.
The company then intends to complete a definitive feasibility study (DFS) by Q2 2024, followed by first production estimated for June 2027.
Successful development at Ohmgebirge would set the stage for additional mines on South Harz’s most prospective licenses, including Muhlhausen–Nohra South (290Mt potassium oxide), Muhlhausen–Nohra North (164Mt potassium oxide), and Ebeleben (69Mt potassium oxide), potentially eliminating the EU’s dependence on potash imports over time amidst rising demand.
According to Argus, European MOP demand will reach 8.6 million tonnes in 2022 (7.3Mt ex-Belarus) and grow to 9.6 million tonnes by 2036, with only 4 million tonnes estimated to be available through domestic supply.
This places South Harz on a trajectory to establish itself as an anchor to the EU’s food supply against future geopolitical tensions.
And with a share price hampered by hawkish monetary policy, now may be the perfect time for investors to analyse the company’s fundamentals before the world catches on to its generational growth opportunity.
Potash: Impact assessment for supply security (European Commission, 2022).