Trade Your Gold For Ags...

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Bringing you undervalued, high growth opportunities... Trade your Gold for Ags This article was posted originally to Premium Members 2 months ago on Jan. 16th, 2011. It has been edited. Agriculture is one of the hot sectors for 2011… The world is starving, is eating more red meat, taking up less crop land for other uses. Fertilizers stocks are an easy fix to the world’s hunger problems and maximizing arable land to make up for loss of cropland to feeding the cattle industry and industrial crops such as ethanol. Since BHP announced their failed takeover bid of POT, the AG plays that I have up on the website and their respective prices on that day, have outperformed as a group. Especially the small caps. I now think POT is well on its way to $200 and beyond now that the takeover saga is over and the whole group will be a steady outperformer throughout the year. I for one am happy the deal did not go through because the bid does not properly value Potash and forces outside competition to ‘build’ and not ‘buy’ if they want a piece of Canada. The idea of building means names like EPO and WPX in Saskatchewan and PPI in Arizona will do very well and are well on their way to being premiere mid-tier producers over the next 5 – 10 years. What the famous ‘no’ did for the AG sector was telling companies like BHP they can’t just buy. If they want to come in and build then we are all for that, but what Canadian’s want over the long run is not buying an asset that we built, but help develop future assets. There are no mid tier potash companies in the industry, so right now represents an extraordinary and unique opportunity for investing in the AG sector as we are having an emergence of a whole new group of Ag’s that will eventually be the midtier producers in the sector below names like POT and AGU and MOS. That is if they don’t get taken out. Companies like EPO and WPX in Saskatchewan are set to benefit in a big way. EPO’s land covers a huge area and is set to be an inhouse producer eventually where WPX’s projects are much more likened to a take out by a company such as Mosiac. My 2 AG picks ICP and WPX have outperformed everything else in the sector and I believe all these companies I mention are the next stage of up & coming mid tier producers in the sector where there are currently none. There are three main types of AG projects. Conventional mining which tale 5-7 years to bring online from discovery to production, Solution mining which takes 4-5 years to produce Solar Evaporation processing which can com online in 2-3 year timeframe. Evaporite projects have the ability to be in production very quick. I have several new picks to this group. AAA-V, EPO-V, BOE-V, PPI-V, AMZ-V are favorites with ICP and EPO. AAA being potential Ethiopian Potash Play, EPO and WPX are Saskatchewan companies ICP is the monster New Mexico Project with 2.1B NPV and BOE is my South American evaporite project. Western Potash WPX-V $1.33 $172M market cap Covered at $0.75 +$0.63 / 84% A recent scoping study revealed that WPX’s Milestone Property near the city of Regina is capable of supporting a 2.5Mt per year solution potash mine over the next 40 years. Western Potash’s 78,000 acre Milestone Property has much less carnalite than most other operating Potash solution mines and the deposit is quite flat lying making ideal conditions for solution mining. The project has a 2.2B NPV at a 10% discount and IRR of 19.2% and a payback of 9.5 years and an initial Capex cost of $2.4B. WPX has 245Mt KCL inferred and 36Mt KCL indicated. In addition to this project, Western Potash has 674,000 acres in Manitoba in the area of Potash’s Rocanville Mine and an additional 250,000 acres in Saskatchewan in the other side of the border. Western Potash has significant exploration upside with these properties and is an inviting target for acquisition. IC Potash ICP-V $1.62 $157M market cap Coverage @ $0.85 +$0.77 / 91% ICP is a potash company with a project in New Mexico that stands out and furthermore has created a nice little market niche for themselves aiming to be one of the lowest cost SOP Potash producers. SOP is a premium Potash product which has no chloride and no salt. Salinity is a problem that many crops suffer from and b/c of it SOP will be a product that commands a premium as well as always be in demand for superior crop performance. IC Potash recently released results of a pre-feasibility study which showed robust economics with a 1.4B NPV and an IRR of 25% discounted at 10% with an initial Capex of $662M. The project will produce 3.3Mt of ore per year over a mine life of 40 years. This project certainly provides much better bang for the buck than WPX requiring 25% the capex costs of WPX project with similar economics. If you discount ICP’s project at 8% than the NPV increases to $2.1B which makes it compare favorably to others this size with very low capex costs!!! ICP has 700MT of Potash in the measured and indicated and an additional 300Mt in the inferred category at 23.4% Potash. The reason why I like this so much over WPX and ICP being my top ag pick is this project is cheap to put in production, robust econmics and a very large resource for future expansion and development. Everything about ICP says this is going to be a top performer and would not be surprised to see this trading double its current share price within next 4 – 6 months. ICP is my must own Potash Pick. THIS IS A MUST OWN GUYS. Encanto Potash EPO-V $0.495 $120M market Cap Encanto Potash is the new kid on the block in Saskatchewan with the aim of being a producer within 5 years and has a superior land position in potash rich lands surrounding Regina. Drilling last year produced values of greater than 25% K2O and over 40% KCl over mineable widths in 2 separate potash beds on the Muskowekwan Project. In Potash exploration the deposits are very continues so extensive drilling is not needed. Instead 2D and 3D seismic surveys are used to establish the size the resource which usually extends for miles. They did 2D seismic over 1.5km lines which showed good structure over a large area which 36,000 acres of the 43,000 acre project appear continuous which indicates very good potential. They also performed a 3D seismic which established geological continuity and significantly de-risked the project for resource exploration. EPO is aggressively working on this project which currently has no NI43-101 but a resource calculation is expected in Q1 and it is expected to be very positive which will establish a base for an economic study on these rich potash lands. EPO has a 25Mt resource K2O in both categories on the Spar Property, but all the potential with EPO stands with the huge First Nations Project where they hold over 250,000 acres of highly prospective prospects with the first prospect Muskowekwan showing very high continuity cover 36,000 of the 43,000 acre project with very high grades. EPO rounds out my North American top 3 Potash plays and is the least advanced of the 3 but has huge potential. Trade your fringe gold in for these plays and you will be rewarded. I feel there is a lot of momentum in AG’s and will be an outperforming group in 2011. I prefer to buy AG stocks when food prices are high b/c I do not understand the individual commodities and fit well within my investing theme of undervalued projects with high growth potential. Food is a necessity and will become more in the forefront as famers will need higher yields with farmers turning their lands to feeding cattle instead of what it used to be used for, rice, corn, wheat… whatever. The developing world’s appetite for red meat is having the dangerous effect of turning more and more cropland into land that was used for food into other uses such as feed for the cattle industry. Bottomline, there is only so much arable land in this world and the population is still growing at an alarming rate and the developing world is demanding food that is more inefficient to grow than traditional diets... A major solution to this is increasing yields. Fertilizer products are going to be in high demand for years to come. If there is one vital, strategic industry above all others, it certainly is controlling fertilizers because at the present time, it is the best way to feed a hungry planet en masse. A couple other international plays I would be looking at are Allana Potash AAA-V $0.90 – World Class Potash in Ethiopia on Dallol Project covering 150 square kilometers. This is a cheap stock at less than $100M market cap and a world class project in Ethiopa. Drill intercepts up to 5.5meters of 25.8%. KCl inferred resource of 105Mt potash mineralization @ 20.8% potash. $86M market cap. AmericasPetrogas BOE-V $1.55 – Brine Potash in Peru. These guys have a project that could be online as early as 2011 and have awaiting the results of a N43-101 report in Q1in order to have a feasibility study in Q2 2011. Prefeasibility indicate low Capex of $125 million and total operating costs delivered to port of $100/t. The project is based on 500,000 tonne of KCl per year indicate $137 million annual revenue for the life of the project producing KCl and K2SO4 implying a 4x cash flow value of a least $500M market cap value when the project is producing. $247M market cap Amazon Mining AMZ.V $7.85 – Thermal Potash in Brazil. Positioned to capitalize on the Brazil potash market that is an net importer of potash and Brazil’s lands nutrient deficient. Project has $858.1M NPV with an IRR of 40.2% at a production rate of 2.2Mt per year. Capex costs are $269 million which makes if a cheaper project to put online with a payback of just under 2 years. $225M market cap There are a few other names that should round out the Ag watchlist… I am not going to go into them all tonight but here they are that should round out anyon’s small cap ag portfolio. Stonegate Agricom Ltd. ST-TO $1.56 $218M market cap PhosCan Chemical Corp FOS-TO $0.70 $120M market cap Passport Potash PPI-V $0.325 $23M market cap Happy Investing :) Christopher Skidmore