These are the ASX small caps set to benefit from WA’s huge potash rate cut
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Potash players have welcomed the Western Australia government’s promise to cut rental rates on projects by almost 90 per cent, but say more still needs to be done to help the “fledgling” industry.
Potash is an essential nutrient in fertilisers that protects food crops from disease and pests, and improves water retention, yield, taste and appearance.
In WA, potash projects involve putting brine and salt into an evaporation pond, and letting the sun do its thing. It’s then a simple process to separate the salt from the potassium before it’s shipped off.
From next year the rental rate for potash projects will be reduced from $18.70 per hectare to $2.32 per hectare for the first five years.
From the sixth year onwards, the government will charge $4.64 per hectare.
Travis Burrows, an executive with Salt Lake Potash (ASX:SO4), says rental costs are one of the biggest burdens for potash players because projects cover such large areas.
“Across our 11 lakes we’ve got 5000 sq km of tenanted area,” he told Stockhead.
“So going from $18 down to $2 is a significant cost reduction, which allows us then to obviously spend money on more important things as far as trying get some of our tenanted areas operational and to market.”
Warren Pearce, the chief of the Association of Mining and Exploration Companies (AMEC) — which goes into bat for miners on issues impacting the industry — says the cut in rental rates has “lowered a barrier of entry that will encourage more potash projects in Western Australia”.
Pilbara-focused player Reward Minerals (ASX:RWD) labelled the move a “significant step forward” for the industry.
“It’s great the minister is taking note of this fledgling industry, which has huge potential for WA and it will need all the help it can get in getting off the ground,” CEO Greg Cochran told Stockhead.
Trigg Mining, which tried to get an IPO away earlier this year, agrees the rate cut will help the bottom line.
“This is a significant milestone for the emerging Australian potash industry and one that will have a positive impact on project economics,” managing director Keren Paterson said.
Agrimin (ASX:AMN), meanwhile, had been holding off on lodging its mining lease application for the Mackay sulphate of potash (SOP) project while it engaged with the government over the high rental rates.
“This decision acknowledges the importance of a new SOP industry to Western Australia,” CEO Mark Savich said.
“This rental reduction is an important milestone in facilitating the successful development of the Mackay SOP project, which has potential to become the world’s largest and lowest cost supplier of seaborne SOP.”
Agrimin will wait to lodge its mining lease application until the lower rates come into effect next year.
But while players praised the move, they also pointed out the government should not stop there to help the Australian potash industry, which is still in its infancy.
The broader industry issue is the long approval times.
“I suppose the old chestnut for everyone is the red tape,” Salt Lake’s Mr Burrows said.
“This present state government have made a number of significant changes within the bureaucracy and the different departments with amalgamating and things like that, and of course that has slowed things down.
“We’re not saying we don’t have to go through and have all the approvals and things like that, but it could be sped up.”
Salt Lake would also like to see the section of the Goldfields highway between Wiluna and Meekatharra sealed.
“Government at different times over the last 10-20 years has had a budget in place, then removed it with changes of government, to seal it,” Mr Burrows explained.
“If it was sealed it opens up Geraldton in the mid-west for us as far as logistically getting it to port and then on a ship.”
AMEC said that despite the recovery in the mining sector, companies developing projects are still faced with several challenges, such as raising capital, obtaining land access, the red tape and regulatory burden, high operating costs, and community expectations.
“This is what governments can do to attract investment and other states should take note,” Mr Pearce said.
“Governments can support industry by adjusting the financial and regulatory framework to support near-term development of a number of potash projects; this will drive regional development, job opportunities and economic growth.
“A successful, sustainable and robust mining and mineral exploration sector creates jobs and economic and social dividends for the community, and should be a priority for our political leaders.”
The future of potash
Potash comes from salts that contain potassium in water soluble form and is turned into a fertiliser.
There are two commonly used fertilisers – muriate of potash (MOP) and sulphate of potash (SOP).
MOP is the most common (around 90 per cent of the world’s potash) and is used on a variety of crops. However, the more chloride-sensitive crops like avocados, coffee beans and cocoa require SOP – which fetches around $US270 per tonne more than MOP.
The global potash market is estimated to be around 75 million tonnes.
Demand is set to increase as the global population grows to 8 billion and beyond by 2023.
Reward’s Mr Cochran told Stockhead earlier this year that an extra 100,000 to 150,000 tonnes of potash will be required each year.
Right now Australia imports all its potash from Canada, the Middle East and Europe. Australia’s MOP and SOP consumption is around 250,000 tonnes each year.
“A lot of the potassium that comes into Australia at the moment is manufactured out of what they call the Mannheim process, which is a chemical process,” Salt Lake’s Mr Burrows said.
He called his company’s evaporation method “a very organic natural process” by comparison.
Other ASX-listed juniors with potash projects in WA are Centrex Metals (ASX:CXM), ActivEX (ASX:AIV), BCI Minerals (ASX:BCI), Kalium Lakes (ASX:KLL), Australian Potash (ASX:APC), and Parkway Minerals (ASX:PWN).