The scene: A public company shows up with a big plan and you know all about it, because it’s bought a million dollars worth of investor marketing and has gone out to 2 million email addresses and all the messageboards have fake accounts talking about how they’re going to be a buck in days. The price duly jumps because everyone knows the promotion machine is in full swing, even if they also know the company is a fake.
And then, when that stock price jump starts to flatten out, the sell-off begins.
That’s your garden variety pump and dump, and we see them every day in the Vancouver/Venture scene. Folks buying garbage that they know will never become a company proper, and selling off before the four month hold on the last financing clears. It’s a bullshit scene, mostly, because it takes as much thought and financial know-how as roulette.
No good company is forged through such nonsense. Gains are short terms, losses are long, insiders break with a bunch of cash, and you outsiders get humped.
I like the other kind of public junior, where the story is laid out clearly, the execs do what they say they’re going to do, the sector is hot, the product in demand, the likelihood of a long term revenue builder is high, and the promo is restricted to non-fiction.
The problem with these kinds of deals? The market hates them. Because the market is drunk.
Your dear old grandpappy, with his polio limp and his non-trendy neckbeard and that armchair with the greasy armrests that he ate his TV dinners off, he made his money on companies like this. He retired on companies like this. Dividend payers and employers and producers, companies that didn’t raise millions to toss drills around in the hope they’d find something, but instead put their money into real world industry, with predictable outcomes.
In the old days, you’d frame your stock certificate from those companies, because selling them would just make no sense outside of a financial calamity. And once a year, you’d get your Christmas bonus and buy more.
These days, we buy condos with 5% down, drop a kitchen upgrade onto the Mastercard, flip it for a profit, and call ourselves ‘investors’, at least until the housing market takes a dip.
I like a company that shuts the hell up and does the work. Admittedly, I’m not going to buy a speedboat on the profits from investing in such a company, at least not for a year or two, but your grandpappy was onto something when he bought such companies up early and sat on them for five years, or twenty years, or left them to your parents so they could sell up before the corpse was cold and pay off the Durango.
Potash Ridge (PRK.T), of all the companies we’ve talked about over the last year, is about as firmly in this category as any I know. Oh sure, they’ve had financings that involved short term financiers that jumped in and jumped out again. And they’ve spent some money trying to help the market understand what it is they do.
But mostly they’ve just shut the hell up and done the work.
Potash Ridge’s first problem is it has ‘potash’ in the name of the company, because these days the market views fertilizer as something that people used to invest in back in the old days, before the Russians messed it all up and the commodity price fell back to, no pun intended, shit.
But there are two kinds of potash; there’s the kind that is yanked out of the ground all over the place, for not much margin because there’s no shortage of the stuff, and then there’s the primo stuff, that you need for certain high value crops, and that is beset by a long term global shortage.
Muriate of Potash (MOP) is the (again, no pun intended) bullshit fertilizer, that brings little value outside of a giant production facility, and little margin because the Russians got all stupid about it a few years back.
Sulphate of Potash (SOP) is the hot shit fertilizer. Potash Ridge competitor IC Potash (ICP.T) has a good rundown of why SOP is legit:
SOP benefits farmers worldwide:
- SOP improves the quality and yield of high value crops – fruits, vegetables, coffee beans, nuts, potatoes, and tobacco.
- SOP makes plants more resistant to drought, frost, insects, and disease.
- SOP improves the nutritional value, taste, and appearance of produce, including the size, color, and smell.
- SOP slows the deterioration of produce during transport and storage.
- SOP provides plants with two vital nutrients – potassium and sulfur.
- SOP improves a plant’s ability to photosynthesize.
- SOP improves a plant’s ability to absorb phosphorus, iron, and other micronutrients.
- SOP aids plants in the development of proteins, enzymes, and vitamins.
- SOP has a low salinity index, which gives it an edge in regions with salty soils.
- SOP is the preferred potassium fertilizer for sandy soils since it reduces the leaching of calcium and potassium.
- SOP is the most environmentally friendly potassium fertilizer.
It’s just a better product. Additionally, it brings a higher price because some crops can’t use MOP. while the price of SOP used to be fairly consistent with the price of MOP, lately the prices have started to separate.
So why isn’t every potash company producing it?
Because they can’t find it.
Potash Ridge found it. They’re sitting on a fairly decent amount of it. So now it’s time to yank it out of the ground, which is why insiders aren’t selling any, even with the stock at a low.
Instead, the company has brought on new executive heft, and is gearing down towards production.
“We are currently focused on bringing Valleyfield into production. With a fixed capital cost, known and proven process, and significant commercial agreements in place, we have a clear path to construction, production and cash flow in the near term for Valleyfield,” said Guy Bentinck, Chief Executive Officer. “Additionally, it is our strong belief that Blawn Mountain has the ability to become a world class disruptive global producer in the SOP sector with its excellent project economics, including long resource life and low production cost. Recent interest in our by-product alumina has the potential to enhance the robust economics at Blawn Mountain.”
- Published an updated NI 43-101 compliant pre-feasibility report in April 2017, which included the following:
- Expected to be the lowest cost producer of SOP in North America: average net cash operating costs after by-product sulphuric acid credits of $177/ton of SOP (exclusive of royalties), which includes approximately $40/ton in transportation costs;
- Projected after-tax net present value of $482 million using a 10% discount rate, with no terminal value added to the NPV, which assumes no extension to life of operations;
- Unlevered after-tax internal rate of return of 20.1%, based on assumed price of $675/ton for SOP and $115/ton for sulphuric acid in 2020 and 2% inflation;
- Proven and probable mineral reserves of 153 million tons which support a 46-year project life;
- 19.4 million tons of measured and indicated alumina resources, which represents potential upside for the project as these resources are not currently incorporated in the project economics;
- An average of 255,000 tons of SOP per annum [$172,125,000 at $675 p/ton] during first 10 years of operation after ramp-up; life of mine average of 232,000 tons of SOP per annum;
- Flexible process capable of producing both crystalline soluble and granular potassium sulphate to meet market conditions;
- Installed potassium sulphate capital cost of $456 million; and
- Potential economics upside with:
- Expansion of initial production rate;
- Possible monetization of the residual waste material given its high concentrations of alumina.
And that’s just Blawn Mountain. They’ve also got Valleyfield:
- Secured a lump-sum engineering, procurement and construction contract with SNC-Lavalinfor the construction of Valleyfield;
- Secured an off-take agreement with a leading integrated agriculture organization for up to 25% of the annual production of SOP;
- Signed off-take and funding arrangement with Jones-Hamilton Co., a leading U.S.-based chemicals company, whereby Jones-Hamilton will fund the hydrochloric acid equipment for Valleyfield and exclusively sell 100% of the hydrochloric acid production from Valleyfield;
- Agreed to a five-year contract with a major North American chemical company for 100% of Valleyfield’s sulphuric acid requirements; and
- Engaged Novopro Products Inc. to act as lead Owner’s Engineer to advance the project through final engineering and construction completion.
Lot of things going on, lot of value unlocking, and a product there’s a chronic shortage of.
Current market cap: $19.4 million. That’s disturbingly cheap.
Yet, the stock price is running on a long southward slope. So why are we still talking about it?
Because THE STOCK PRICE IS RUNNING ON A LONG SOUTHWARD SLOPE.
In October 2016, this company was a long way less developed, had a lot more risk, and was worth about 140% more. Today, as it continues to do its business and roll closer to a production scenario, it’s sitting here at a $19 million market cap, with off-take deals signed and resource estimates posted.
This is a stock that your polio-stricken pappy would have locked down. He’d have that cert in his bottom drawer in the desk in the den, under the Jameson, where maw would never find it, just in case one day she R-U-N-N-O-F-T.
We never tell readers to buy or sell any stock at Equity.Guru, even for a company like Potash Ridge that we both believe in strongly, and have a commercial relationship with. But, lansakes, stick it on your watchlist. Observe it for a while and watch how it moves, because there will be a reckoning with this low share price eventually, and when it comes, it looks like it’ll be an event.
UPDATE: New CEO announced almost right as this article dropped, which continues a boardroom shuffle that’s been going on for the last few weeks. If you suspect, as I do, that this mob is gearing up for big things, this is a major indicator.
— Chris Parry
FULL DISCLOSURE: Potash Ridge is an Equity.Guru marketing client.