Mining potash can be a lucrative business. Just ask Dmitry Rybolovlev, the Russian billionaire who made his US$9.5bn fortune through potash giant Uralkali and who now owns Monaco Football Club.
Last year, not much was known about the product that is used as a fertiliser for crops, but since then, all that has changed as the potash industry faces a period of lower prices and uncertainty for a number of its producers.
It all started last month when Uralkali opted to split from a cartel with Belarus’s Belaruskali for breaking the rules of a deal that had kept potash prices steady for eight years.
The news saw shares across the sector plunge. Uralkali dropped 17% on the day, Germany’s K+S shed 21% and ICL-Israel Chemicals slid 18%. Canada’s Potash Corporation and America’s Mosaic also suffered from the break-up, both losing billions of dollars in market value.
And no wonder – the price of potash is expected to fall from US$400 to US$300 a tonne. That’s the prediction of Vladislav Baumgertner, Uralkali’s chief executive, who was arrested in Minsk on Monday after being invited to speak with the Belarusian prime minister.
Baumgertner is the chairman of the Belarusian Potash Company, the joint venture set up by the duo.
The break-down of relations leaves just one global potash cartel: Canpotex.
It was under threat in 2010 when its biggest member, Potash Corporation, became the target for BHP Billiton (LON:BLT), the Anglo-Australian mining giant that has long had a penchant for potash. It planned to buy out the Canadian company and pull out of the cartel.
That deal may have fallen through, but it did not weaken BHP’s resolve in mining the fertiliser.
The divorce of Uralkali and Belaruskali proved to be bad timing for BHP. It has not pulled out of its potash venture – far from it, having committed to spending an extra US$2.6 billion on the Jansen potash project in Saskatchewan – but it is certainly not going full tilt, hinting at a delay to the giant deposit’s development, with work running into 2017.
It even implied it may sell down its stake in the project.
“We caution that while BHP has chosen to continue financing Jansen, the company has yet to approve the final stages of the project; the total cost of the project is estimated to be in the US$16-US$18bn range,” warned broker JPMorgan Cazenove in its weekly potash news round-up.
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