Australia's potash players aim for global impact amid high prices

Burned by a crisis of confidence after their predecessors rushed into production, Australia's sulfate of potash players said they are slowly but steadily aiming to make the country a top global supplier of the premium fertilizer.

While potash prices have come off the highs seen earlier in 2022 after Russia invaded Ukraine, European prices are still above US$1,000 per tonne with supply curtailments out of China, according to resources exploration company Trigg Minerals Ltd.'s Nov. 29 annual general meeting presentation.

Australia should be in a prime position to capitalize on the higher prices after dominating global potash drilling and exploration in recent years, according to S&P Global Market Intelligence data.

Australia's sulfate of potash, or SOP, projects are among the world's largest, and production could eventually top 1 million tonnes per year, Western Australia Minister for Mines and Petroleum Bill Johnston told the Australian Potash & Phosphate Conference in Perth, Australia, on Nov. 22. The global SOP market is expected to grow to 7.4 Mt by 2025 from 7 Mt in 2021, Australian Potash Ltd. CEO Matt Shackleton told the conference.

SOP, also known as potassium sulfate, is an inorganic compound commonly used in fertilizers to provide potassium and sulfur.

'One step at a time'

Australian Potash estimates that Australia's SOP players, excluding BCI Minerals Ltd., have spent over A$1.3 billion to date trying to get their projects up and running. Yet Australian shares of those companies are worth a combined A$210.4 million as of the close of business Dec. 2, according to Market Intelligence data.

Recent struggles for the sector include the October 2021 collapse of Salt Lake Potash Ltd. in the wake of operational problems at the Lake Way plant, and Kalium Lakes Ltd.'s ramp-up issues, most recently seen in its Oct. 31 report saying flotation and solid/liquid separation were still constraining plant operation at its Beyondie project.

"We've all been slaughtered along the way trying to get projects into development," Shackleton said. "That happened because there was in the early days a mad, headlong rush to be first to produce SOP. This effectively quarantined the balance of capital available to the balance of the SOP sector."

The way forward for Australia's SOP sector is "just one step at a time," with projects needing to first achieve steady-state output to prove production is actually possible from Australian companies, Shaw & Partners Head of Research Andrew Hines told S&P Global Commodity Insights.

"Once they do, we'll see investment dollars come back into the sector pretty quickly," Hines said. "Someone will make a lot of money out of these projects eventually because the project economics at these prices look absolutely terrific."

Rapidly advancing technology

For now, Australia's SOP sector faces a "crisis of retail confidence" that will not improve unless several issues are addressed, including a dearth of technical talent, which contributed to bad decisions in the past, Shackleton said. Shackleton also cited previous errors in exploration with questionable reserves, poor management decisions and project design using "whatever technology they could get to make these projects work."

"The execution was nothing short of a travesty," Shackleton added.

While SOP projects are long-lived, they take a long time to develop. Australian Potash's Lake Wells project has a 36-month build and "will probably take us five years to get to a steady-state production, or to a point where we can reliably forecast any steady-state production, and it will take about A$500 million to do it," Shackleton said.

However, industry experience and a better technical understanding of the SOP process are rapidly advancing, Agrimin Ltd. CEO Mark Savich said in an email interview.

"We have always found it possible to recruit and retain a high caliber team and I believe the attraction of being at the cutting edge of an important new resources industry has aided this," Savich said. "The pool of potential strategic investors is very diverse geographically, given that demand for food and its inputs such as SOP is global."

Trigg is looking at alternative process routes — potentially employing technology used in other industries — to "gain more control over the process, reduce the risk and build a more robust project based on the learnings from the first movers, because that ramp-up time of the traditional process route is difficult to fund," CEO Keren Paterson told Commodity Insights.

Reward Minerals Ltd. in August lodged a patent for new potash brine processing technology for its Kumpupintil Lake project, hoping it will "significantly improve the game for the SOP industry."

Fertilizer as a critical mineral

Trigg's Paterson said the Australian government has driven investment toward critical minerals, with policy grants supporting these projects, "but by doing so they have distorted the investment market, which is making it very hard for us to compete for capital."

"It would be in Australia's interest to treat fertilizers as critical as battery minerals, given fertilizers are vital for food production and hence our very existence," Paterson added.

Potash is not currently on Australia's critical minerals list, but that is now being reviewed. BCI, Australian Potash and Kalium Lakes have received a combined A$714 million in debt finance for their projects from the Australian government's Northern Australia Infrastructure Facility. BCI's Mardie, Agrimin's Lake MacKay and Reward Minerals' Kumpupintil Lake have been granted federal major project status as being economically significant to Australia.

Johnston said the federal government "recognizes the challenges" of developing SOP projects and extended a scheme providing a nonrepayable 50% rebate on royalties paid for two years to companies that make their first SOP sales before the end of 2027.

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.