Junior Potash Developers Are Sitting on Big Assets

“Just when we need more soil to feed the 10 billion people of the future, we’ll actually have less—only a quarter of an acre of cropland per person in 2050, versus the half-acre we use today on the most efficient farms.” David Montgomery, author of the 2007 book Dirt: The Erosion of Civilizations

Fertilizers are going to become increasingly important to improve crop yields.

2010 is going to be the remembered as the year of the fertilizer deal. BHP Billiton acquired Athabasca Potash for C$341 million. Vale paid US$3.8 billion for the South American fertilizer assets of US commodity supply chain company Bunge and at the same time acquired a 16 per cent stake in Fertilizantes Fosfatados of Brazil. The recent $38 billion all-cash bid for Potash Corp (POT-TSX) by BHP Billiton (BHP-NYSE) has stirred up the fertilizer sector and reminded the investment community of potash’s uniquely attractive economic fundamentals.

There are two junior potash developers in Saskatchewan, and one in Brazil, on my radar screen.

Amazon Mining Corp. (TSX.V – AMZ) was founded by Brazilians in 2005. The company is focused on the development of its Cerrado Verde project. Cerrado Verde is source of a potash rich rock from which Amazon plans to produce a slow-release, non-chloride, multi-nutrient, fertilizer product. Brazilian soils are generally poor in potash and Brazil only produces 10% of its current potash needs.

Their leading exports – sugar cane, soy beans, orange juice, coffee, tobacco, beef, poultry and corn – all require potash rich environments. Brazil is one of the few countries left with potential to materially increase arable land and that has an abundance of freshwater (Brazil, Canada, China, Colombia, Indonesia and Russia have half the world's supply of freshwater. Asia has the lowest water supply per capita). Increasing the size of the country’s agricultural land base will drive further potash demand.

Independent engineering work began on the preliminary economic assessment (PEA or "scoping study") for the Cerrado Verde project in July, 2010. The work is being completed jointly by ECM.S.A - Projetos Industriais and SRK Global Mining Consulting. Results could be as early as October.

Amazon is in the midst of lab scale testing of preliminary ThermoPotash products. To date, the company has received excellent results from solubility tests and nutrient availability tests. Tests are also being conducted to demonstrate ThermoPotash’s resistance to leaching (the combination of acid soils and torrential rains in Brazil reduces the efficiency of traditional chloride based potassium because it dissolves too quickly) and how effective ThermoPotash is on lowering limestone requirements to reduce the acidity of soil.

The company has entered into an agreement with the University of Lavras, Minas Gerais, Brazil, to complete a full slate of tests required to register the ThermoPotash product as a fertilizer in Brazil. The goal is to complete the requirements and register the product in Q3 2011.

An interesting development to Amazon’s remarkable story is the discovery of natural gas close to their Cerrado Verde project - a development that might have economic implications and bears watching.

"We are pleased to see that the discovery of natural gas will also be a boon to the agricultural sector because it will lower costs for the local production of potash. We are undertaking talks with Amazon Mining in order to reach an agreement that will ensure the flow of benefit in the near future." State Secretary Ribeiro

Analyst coverage includes:

• Clarus Securities
• Kaiser Bottom-Fish Online