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New potash play soaring since IPO Add to ...

Karnalyte Resources KRN-T has been on a tear since closing its $64-million initial public offering in mid-December. The stock first hit the market at $8.60 per share and traded late Monday around $11.30 - a 31 per cent gain in a month.

On Monday alone the stock was up about 15 per cent, while its larger-cap comparable peers like Potash Corp. of Saskatchewan Inc. are relatively flat. However, micro-cap potash play Allana Potash Corp. which owns Ethiopian potash assets, was also up 23 per cent.

BMO analyst Joel Jackson has picked up coverage on Karnalyte -- BMO also led the IPO -- and he attributes interest in the company to strong potash fundamentals. Demand for the product is expected to be up over the next few years, and other agricultural commodities, like corn, have also shot up.

But the run may not last long. "There is a large supply (40+) of unfunded potash projects in the world," Mr. Jackson noted. "The vast majority of these are only in the resource delineation stage; however, within a couple of years, there could conceivably be a dozen or more projects at or beyond the feasibility stage."

Karnalyte is currently developing its Wynyard project in Saskatchewan, which would be the first meaningful carnallite solution potash mine. About 90 per cent of the world's current potash supply comes from sylvinite, which is a combination of potash and sodium. Carnallite, which is currently mined from the Dead Sea, is a combination of potash and magnesium salts.

BMO expects Karnalyte's project to start producing in 2014 and believes the company could ramp up production to 2 million tonnes over by 2020. Throughout the process, Mr. Jackson believes finding financing could be the company's biggest challenge because it requires $950-million of external funds to construct the $1.7-billion mine.

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