LONDON/ADDIS ABABA, Aug 7 (Reuters) – Africa’s nascent potash industry, often enjoying low costs and shallow deposits while standing to benefit from fast growth in local demand, expects to withstand an expected drop in the crop nutrient’s prices better than emerging rivals.
The collapse last week of one of two global potash cartels is expected to take about 25 percent off prices, prompting questions over the future of projects such as BHP Billiton’s $14 billion Jansen and the K+S Legacy mine – both in Canada. Shares of small explorers and miners have been battered and financing, already tough, has become tougher.
But companies exploring Africa’s emerging potash regions – the Republic of Congo to the west and Ethopia and Eritrea to the east – say a price drop could benefit those with lower costs and high ore grades, if it means output cuts in established mining regions.
Lower prices could also increase demand for potash in emerging markets and notably in Africa, where food consumption patterns are changing as population growth and increased urbanisation alter diets and boost demand for grain.
“(The expected price fall) affects general market sentiment, which could be tricky for the next few months,” said Ed Marlow, Chief Executive of African Potash, which is working on the early stage Lake Dinga project in the Republic of Congo.
“But we are talking about world potash prices coming down as low as under $300 – if you are producing under $100 a tonne, there are still very good margins. There is not a lot that makes that sort of margin.”
Ethiopia faces greater difficulty than Congo, due to a longer distance from planned mines to port.
But the shallow deposits in the parched Danakil Depression mean the region that has seen some of Africa’s worst famines still hopes to cash in on the nutrient that will help the continent boost production and avoid such crises in future.
“We are going to have potash as a commodity in addition to gold, tantalum and gemstones,” Ethiopia’s Mines Minister Sinkenesh Ejigu said.
Just 12 countries produce virtually all the world’s potash, with Canada, Russia and Belarus accounting for the lion’s share.
While a boom around 2007 encouraged numbers of new mine projects, many were predicated on prices that now look distant.
The timing is more fortunate for Africa, which will not start producing significant amounts of potash before 2016 or 2017. By then it can hope prices will again be stable or rising as more of the world’s population seeks more and better food.
The African industry’s success will still rely on low costs.
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