Small-cap potash stocks roar
From Gold Investor Sun, 02/13/2011 - 22:19 Source: Gold Investor
* Potash News
Article Source:
Gold Investor
With growing grain prices and burgeoning fertilizer demand tipped to make potash one of the hottest commodities of the next few years, investors are flocking to potash stocks in burgeoning numbers—but this week was not without turbulence.
Major firms are seeing multi-year highs: Potash Corp. of Saskatchewan (POT:TSX) closed Friday trading at $186.99,its highest level since late 2008, Agrium Inc. (AGU:NYSE) is also at an over two-year high at $98.49, as is the Mosaic Company (MOS:US) at $88.57.
That’s impressive enough, but down in the minor leagues, investors are buying junior potash stocks in a frenzy not seen since the price of potash spiked up in the first half of 2008. And the gains made so far in 2011 have been nothing short of amazing.
Allana Potash Corp. (AAA:TSX-V) shares have shot up over 200% since January 1, hitting a new 52-week high of $2.43 on Wednesday—but declined to $1.69 by the end of the week. Encanto Potash Corp. (EPO:TSX-V) hit a 52-week high of 65 cents on Feb. 9, and currently trades at 53 cents. IC Potash Corp. (ICP:TSX-V) set a 52-week high of $1.89 on Feb. 11, since slipping to $1.81. And Western Potash Corp. (WPX:TSX-V) hit a 52-week high of $1.70 on Feb 9, edging down to $1.69 at press time.
Analysts predict growing inflation in top consumers such as China, to combine with looming food shortages to keep prices heading upward for at least the near and medium terms. Initially the major potash firms saw a burst of investment, but as the majors’ share prices steadily increase many investors are looking for riskier—but potentially much more lucrative—stocks among the small-cap set.
Interestingly, the riskier early-stage potash plays, such as Marifil Mines Ltd. (MFM:TSX-V; 50-week high of 44 cents on Feb 8) and Passport Potash Inc. (PPI:TSX-V; 52-week high of $1.86 on Feb 9) are seeing substantially more inflow than the more predictable advanced plays.
But is this rush to invest in higher-risk, early-stage plays rational? The proof, as they say, is in the potash. The pressure is on these junior firms to deliver—the major firms will come calling with lucrative buyout offers if they can develop something promising.
After the last run on potash stocks in 2008, the star junior stocks from that period, such as Potash One Inc. (KCL:TSX-V), Athabasca Potash Inc. and Anglo Potash Inc., were bought out by the majors. The current wave of investors are banking on the latest leading juniors such as Allana, Encanto and IC Potash getting snapped up in the next wave of acquisitions—and considering the heightening M&A activity in the potash sector, these acquisitions could well start sooner rather than later.