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AMERICAN POTASH FOR AMERICAN FARMERS
Sage Potash Positioned to Dominate $6B/Yr U.S. Potash Market with Potential Added Kicker of High Grade Lithium
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95% of $6 billion in U.S. annual potash sales is imported from Canada and other distant suppliers that requires big transportation costs close to $250 per ton
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If a supplier could substantially reduce these high transportation costs, they could dominate the U.S. potash market
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Sage Potash holds claims centrally located in the 2 billion ton potash rich Paradox Basin in Utah and Colorado that have inferred resources of 280 million tons of high-grade potash and indicate substantially larger numbers
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Sage has been quietly developing what appears to be one of the largest potash mines in the U.S. and is now within less than one year of beginning production
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Sage enjoys further cost-saving benefits over the competition of warmer weather, lower cost labor, and substantially less energy requirements for their mining operations
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Sage announced high-grade lithium finds in surrounding region and in similar brine solution and at similar depths (about 5,000 feet) encountered by oil companies that have been disclosed in public information
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Sage appears to share same business model as SQM as largest lithium producer and lowest cost potash producer.
American farmers are paying excessive prices for $6 billion/year of potash to fertilize their crops because 95% is imported from long distances that add big transportation costs. The closest major potash mine is in Canada where typical transportation costs for American farmers add an additional cost close to $250 per ton. A large domestic mine in the United States would slash transportation rates between $125 to $250 per ton and would be strongly positioned to dominate this large market based purely on fundamental economics.
Sage Potash Corp. (SGTPF: OTC) (TSXV: SAGE) is rapidly approaching the end of a 10 year process of developing a well-positioned, domestic, large-scale, and high-grade potash mine with claims in excess of 80,000 acres. Inferred resources are so large and so well positioned that a strong potential exists for Sage to become the dominent producer of potash to a $6 billion market just in the U.S.
Sage claims are in the Paradox Basin in Utah which is centrally located for American farmers and is known to host extensive underdeveloped world-class potash resources; approximately 2 billion tons, according to the US Geological Survey. The Paradox Basin benefits from close proximity to modern infrastructure, low-cost utilities and electricity, milder weather compared to Canada, and an affordable, skilled workforce in a politically stable and mining-friendly state.
Sage Potash claims hold inferred resources of 280 Million Metric Tonnes based on initial exploration well and is described in company presentation on page 9. A 43-101 Technical Report was recently prepared describing Sage’s claims in the Paradox Basin. A potash mine with resources in the hundreds of millions of tons could have a life expectancy between 100 to 200 years and could become one of the largest potash mines in North America.
Reduced shipping costs is the key driver to Sage’s success
With a U.S. market that uses about $6 billion/year which is burdened with high transportation costs, Sage Potash is positioned to dominate the U.S. market for many years to come. Lower potash prices to western and southern US and Mexico are also expected to be a tremendous boost to Sage Potash sales.
Sage’s CEO, Peter Hogendoorn, commented, “Shipping costs from Saskatchewan and lower barge capacity due to low water levels of the Mississippi River, can still add $150 – $225/ton that would not be incurred by having local production.”
Competent Engineering is Critical
The importance of an experienced engineering component cannot be overemphasized and Sage announcedits partnership with RESPEC LLC., a best-in-class global engineering firm specializing in integrated technology solutions for mining, energy, infrastructure, water and natural resources. As leaders in potash solution mining consulting and engineering, RESPEC has successfully executed numerous projects worldwide and consulted for some of the largest potash producers including Rio Tinto, North Atlantic Potash, Potash Corporation of Saskatchewan (PCS) (now Nutrien), CanPacific, Sennen Resources and others.
Sage Potash Corp Management Team
Founders put together a first-class management team adept at all aspects of solution mining, surface processing, operations and distribution and has rapidly advanced engineering and permitting activities with an aggressive plan to begin test cavern development later this year and pilot production for mid-2024. Management also has extensive experience in raising capital that is a real asset in today’s challenging capital markets.
Financials
Sage Potash is a relatively new listing that trades on the OTC market as well as the TSX. The following financial information is reported in their recent Prospectus dated March 2, 2023. One particular standout is the very low number for debt which is a huge plus for Sage.
The numbers for Sage look compelling, but what about the timing?
The following chart illustrates the estimated timeline for Sage Potash to achieve production capability. Whole a typical large potash mine is expected to require close to 10 years to develop, the following “Project Schedule” indicates a projected date of mid 2024 for commercial operations.
Risk Factors
Readers are encouraged to read all of the pages of Risk Factors that are listed in the Prospectus dated March 2, 2023. My experience focuses on the ability to raise capital as perhaps one of the greatest risks in this and any early stage venture. Managements past ability to raise adequate capital sends a positive signal to me that they will probably be able to do it again. Especially as the potash resources continue to prove up with further geological work.
Conclusion
Sage Potash controls over 80,000 acres in the richest known potash region of the country called Paradox Basin where an estimated 2 billion tons of potash have been identified and where very high grades of lithium have been discovered by oil companies. Sage has demonstrated unusually large tonnage of high-grade potash that could exceed hundreds of millions of tons.
Giant lithium producers SQM and Abermarle share similar geological traits in their claims where high grades of potash in brine solutions also contain large quantities of high-grade lithium. This similarity in brine solution geological targets implies an enormous potential for Sage.
Because of the unique close proximity to U.S. farms, Sage could become the dominant supplier of potash to the $6 billion demand from U.S. farmers. Today, U.S. farmers have no choice but to buy from the closest source which is Canada that adds $125 to $250 per ton to the price they have to pay.
Additionally, Sage expects their cost to be lower than the competition because their mine is in a region of milder weather which translates to lower energy processing costs and lower cost labor.
Perhaps equally important is the favorable time factor. All large potash mines require a good 10 years to develop, and Sage has spent the last ten years developing this mine to where they are projecting a commercial start date in the second quarter of 2024.
The sales potential for Sage is so large compared to their relatively small $15 million market cap that the potential risk to reward ratio is unusually attractive.
Sage is a highly likely buyout target as soon as they build their first pilot operation in 2024. By then they will have further proven one of the largest, if not, the largest, potash mine on the United States. And there could be an enormously high value of large heigh-grade lithium resources. By then, Sage is expected to have proven the numbers and the profitability from their pilot operations.
No other potash supplier will be able to compete simply based of transportation costs that are only going to go higher over time. It makes sense that large potash miners with big cash positions may entertain and actually make a bid for Sage rather than try to compete with them in later years. Especially Nutrien that has the most to benefit by buying out Sage.
Shares trade on light volume and are subject to higher-than-normal volatility, both on the way up or down. My guess is up substantially up from here.
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