Have you ever given much thought about investing in potash?
On one hand, it seems like a no-brainer for a well-diversified portfolio. Potash is one of the three main components in fertilizer, which helps farmers produce bigger and healthier crop yields. With a growing population bringing more mouths to feed, there is no end in sight for potash demand as it is a key macronutrient that can help feed the world. And that’s true whether we continue to consume a lot of meat, or if we turn towards a more plant-based diet in the future. Biofuels are another area of potash application. So again, no-brainer.
On the other hand, investing in potash has never really been a mainstream or popular choice. But why is that? It could be that people just don’t know much about potash or what it’s used for. But the more likely reason is that when you start researching potash you hear words like ‘price control’ and ‘cartel’, and when it comes to investing, those words can make investors uncomfortable. Let’s take a closer look.
Canada sits on the world’s biggest pile of potash, and along with Belarus and Russia, holds about two-thirds of the world’s potash reserves. There are over 160 countries that consume potash and exporting it has historically been handled by just a few companies (not surprisingly, those companies are based in Canada, Belarus, and Russia). Because there were no other players, those three companies were able to act as cartels and control the price of potash, leaving countries (and the farmers who need potash) with no choice but to buy it at the price that was set.
This doesn’t seem fair to end users, especially those in developing countries, so investing in potash with a clear conscience might be a hard decision for some investors to make. Another issue is when just a few companies control the price, they can raise or lower it to suit their needs, and that doesn’t exactly suit the needs of investors either. An example of this can be seen in the recent Belarus – China potash deal that made headlines – and raised eyebrows.
A market that is so controlled is hard to get into. And typically any new potash companies trying to get a foothold in this controlled market are huge, meaning they need very deep pockets before even thinking about starting production. That sort of risk is another reason investors might shy away. So are there other options for people wanting to invest in potash and food security? Glad you asked.
An innovative company called Gensource Potash (TSXV:GSP) is disrupting the potash industry by doing things a little differently. Formed by a highly experienced team with longstanding credibility and success in the potash industry, their vision is to achieve food security by supplying the world with a key macronutrient at an affordable cost within an open, transparent and sustainable environment. Already, that sounds miles away from cartels and price fixers.
There are two fundamentals that set Gensource apart.
One is vertical integration. Gensource seeks out agricultural decision-makers to partner with to create value and efficiency for everyone involved. By partnering with the end-user before the onset of production, the potash produced is already sold. That way, there are no surprises when it comes to pricing, and partners can secure future crop inputs they know they will need. Sounds like a win-win.
The other area where Gensource really shines is in its potash production method. Unlike some of the larger potash companies with large production facilities, Gensource produces potash by creating a series of smaller, sustainable production facilities. The smaller size helps with vertical integration, as partners are able (and eager) to take the entire amount of potash produced. And perhaps more importantly, the sustainable aspect of their production means that there is much less impact on the environment – both the earth itself as well as the surrounding communities.
Gensource produces potash using a closed-loop method called selective extraction. This method produces no salt tailings and requires no surface brine ponds, removing the largest and most negative environmental aspects of potash mining. In fact, their methods have such little impact that the Saskatchewan Ministry of Environment doesn’t even consider their projects to be a development and doesn’t require them to do an Environmental Impact Assessment.
As we continue to face ongoing food security issues, farmers need potash to support healthier, larger crop yields and it’s pretty easy to feel good about a company with sound financials and a mission to do good for people and the planet. But here’s something else that will be music to investors’ ears. Thanks to their innovative methods, Gensource will also be one of the lowest-cost producers in the industry. So if you’re looking to add an agricultural play to your portfolio, why not take a look at a company that’s focused on innovation in potash rather than one that’s involved in the politics of it all?
For more information along with news and updates on their latest projects, take a look at Gensource Potash Corp.
Belarus – China potash deal: