First, there was eu-phoria over uranium, then a mania about molybdenum; now, there is a passion for potash.

The latest fashionable commodity is nothing more than plant food, yet, in an era of global agricultural shortages, this is the very quality that has sent prices soaring. In May 2007, the average spot price of potash being loaded onto ships at Port Vancouver was US$183 a tonne. By May 2008, the price had jumped to US$525 a tonne.

According to Patricia Mohr, vice president of economics and a commodity market specialist at Bank of Nova Scotia in Toronto, spot prices will probably continue to rise, reaching US$800 a tonne by the end of the year, then stabilize.

As a result, early investors are in the money. Those holding a basket of 20 international potash producers and explorers compiled by Resource Investor, an online source of mining news and analysis, would have scored a weighted average return of 236% in the 12 months ended June 30.

Potash is a potassium-rich organic product mined from deposits left behind when the water in ancient seabeds evaporated — and there is no commercial substitute for it in fertilizer used for crops. It is the high prices of agricultural commodities that are driving potash prices.

“Because of the surge of prices for most grains and oilseeds, you find that most farmers can afford to apply more fertilizer to boost yield,” Mohr says. “They have been doing that around the world, even in some of the poorer countries.”

The growth of the biofuels industry has also boosted potash prices, as many of the common biofuels, including palm oil and ethanol, are processed from crops that use potash as a fertilizer, Mohr says. Several countries, including Canada, have already implemented or are considering legislation that would force oil companies to blend barrels of fossil fuel with 5%-25% biofuel.

Another factor driving prices higher is lack of supply. “You had a period of about a decade when there were very few potash mines brought onstream and some were even taken out of production because prices did not justify them,” she says. “Because it takes a number of years to bring a new potash mine into production, supply is probably going to remain tight for the balance of the decade.”

No wonder, then, that Saskatoon-based Potash Corp. of Saskatchewan Inc., the world’s leading potash producer, has the highest market capitalization on the Toronto Stock Exchange and that several junior companies have jumped on the bandwagon, prompting a staking rush in Saskatchewan’s well-known potash belt.

A recent report from Toronto-based RBC Capital Markets raised its target price for shares of Potash Corp. to $340 a share from $300, reflecting “an upward revision to our fertilizer [potash, phosphate and nitrogen] price assumptions.”

The price pressure might begin to ease early in the next decade as dormant capacity comes onstream, Mohr says. Currently, the main producers of potash are Canada, Russia and Belarus. These nations also have 85% of the world’s potash reserves, creating a higher market concentration than for most other commodities.

Both Potash Corp. and its Min-neapolis-based rival, Mosaic Corp., are planning to spend billions to increase capacity at their existing mines over the next decade. The third-largest producer, Calgary-based Agrium Inc., will spend $500 million to increase its annual capacity of 2.1 million tonnes by 40%. Still, Mohr says, demand should easily absorb the increased production.

As for new mines, current estimates suggest that it takes at least seven years and about US$2.5 billion to develop a two-million-tonne potash mine and mill in the Saskatchewan potash belt. At long-term potash prices of US$400-US$450 a tonne, a mine of that size would have net present value of US$500 million-US$1 billion, according to a recent research note from Winnipeg-based Wellington West Capital Markets Inc.

That’s a tall order for the juniors sitting on potash exploration permits in Saskatchewan and in Newfoundland and Labrador, yet the stock prices of these companies have soared in recent months as investors have speculated on their production or takeover potential.

Take Vancouver-based Potash North Resource Corp., for instance. The tiny company saw its stock rocket by 300% in the week after it listed on the TSX at slightly more than $1 a share in early June. The company’s main assets are two exploration permits covering 185,000 acres of land adjacent to an existing potash facility in eastern Saskatchewan.

@page_break@Or Anglo Potash Ltd. of Calgary: it is about to be bought by its joint-venture partner, BHP Billiton Ltd., the world’s largest mining company, in an all-cash deal valued at $8.15 a share ($284 million). Anglo holds 1.8 million acres in Saskatchewan, most of it contiguous to six potash mines that have been in production since the 1960s.

The remaining major junior players with TSX listings include Saskatoon-based Athabasca Potash Inc. and, from Vancouver, Potash One Ltd. and Western Potash Corp.

Other players with exposure to the potassium-rich fertilizer are Vancouver-based Ringbolt Ventures Ltd. and Raytec Metals Corp., China-based Migao Corp. and, in Newfoundland and Lab-rador, Vulcan Minerals Inc., Cornerstone Capital Resources Inc. and Altius Minerals Corp.

Wellington West’s report says there are four main attributes to look for when identifying early-stage potash-development companies: contiguous acreage (40,000-80,000 acre minimum) with a grade of roughly 25% potassium oxide (K2O); nearby infrastructure (rail, power, water); strong management and/or a strategic partner to advance the project; and capital or access to capital to finance exploration and development.

Ringbolt is in the process of raising $20 million at $1.40 a share to finance exploration and development of its potash properties in Utah. It holds more than 80,000 acres of leases in the Parodox Basin, a known potash mining district.

Raytec has recently released a resource calculation based on historical drilling of its KP441 project in south-central Saskatchewan. The calculation estimates total indicated resources of 148 million tonnes graded at 23.4% K2O, and additional inferred resources of 229 million tonnes graded at 20.4% K2O. The project covers about 87,000 acres and lies adjacent to claims held in the BHP/Anglo Potash joint venture.

The St. George’s Basin of southwestern Newfoundland is another hot exploration spot. It is geologi-cally analogous to the Moncton subbasin in New Brunswick, in which Potash Corp. operates an underground potash/salt mine.

Toronto-based Sprott Resources Corp. and St. John’s-based Altius have teamed up to explore a large land package covering several known potash occurrences within the basin. Sprott may earn up to a 60% interest in the 85,000-acre project by spending $2.5 million over four years, subject to an underlying 2% gross sales royalty payable to Altius.

Vulcan, another multi-commodity explorer, also owns mineral and petroleum rights in a portion of the basin. Seismic data suggests that discoveries of potash and salt Vulcan made there a few years ago may be connected, and assessment of the discoveries is ongoing.

Cornerstone has staked 67,000 acres of claims nearby.

Migao processes potash into fertilizers for the China market. Migao recently announced a joint venture with Sociedad Quimica y Minera de Chile SA, the world’s largest producer of potassium nitrate, to build a new 40,000-tonne-a-year potassium nitrate facility in China, expected to be operational in the first quarter of calendar 2009, at a capital cost of US$20 million.

Because the world’s population is growing and requires more food, the tight market for potash won’t end until new capacity comes onstream sometime in the next decade. With potash producers and explorers off 15%-60% from their mid-June highs, now might be a good time for your clients to wade in. IE