Dwayne Dahl: Potash 2.0- Disrupting Potash Production in SaskatchewanTuesday September 27, 2016 14:29
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Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host, Collin Kettell. Just a quick reminder for our listeners, we are still doing the silver giveaway. We are giving away one free American ounce silver round each and every week to our listeners. Just go to www.palisaderadio.com and sign up. Each and every one of the people that sign up will receive a 15-page report on silver.
On the show with us today is a new guest to the program. His name is Dwayne Dahl. He is an expert in the potash space. He has been involved in the potash space for quite some time. I know potash is not the sexiest commodity, but there was a few years ago a time when every potash company was on the rise, and we do believe at some point interest will come back into the potash space. In the meantime we have been looking for companies that do not need high potash prices to excel in this market. Dwayne is associated with a company we are invested in called Gensource Potash that we are going to talk about today. Dwayne, welcome on the program.
CFO, SVP Finance and Treasurer, Canpotex Limited, Dwayne Dahl: Thank you, Collin. It is a pleasure to be a guest on your show.
CK: Dwayne, I think the best way to start here is if you can give a brief background on yourself, how you got involved in the potash space and how long you have been in the potash space.
DD: I have been in the potash space now for 25 years and had experience in the various levels and positions with Canpotex Limited. Canpotex Limited, if your listeners are not familiar with it, is a marketing and exporting logistics organization that was created by the potash producers in Saskatchewan in the early ‘70s. Back in those days there was about twelve companies that own the ten mines, and they got together and created this marketing organization.
During my time at Canpotex I started in the accounting and treasury role and then I had increased in more senior positions including taking up credit administration, IT, and sales administration, and eventually became one of the three C-suite level executives. I was also on the board of all of the Canpotex subsidiaries, which were involved in things such as marketing ocean transportation, rail car in leasing subsidiaries,
I have had pretty much experience in all facets of the potash sales process from taking the title of the product at the mine site, moving it in the rail cars, loading it into vessels at terminals, and then the ocean freight over to the customers.
CK: Dwayne, certainly a rich background that you have in the space and you are more knowledgeable than most people on potash that is why we have gotten you on the program. Despite the fact that Palisade Radio is typically focused on gold, silver, and base metals, it is always interesting to touch on some other commodities, potash and agricultural commodity.
I want to gauge how important potash is in the global market, what its uses are, and since you are so close to the space how bad has it been? The price of potash is down significantly, but what kind of effect has that had on production, the price decline? What have you seen on the ground?
DD: I think potash is very important particularly as one of the three key nutrients, the other two being nitrogen and phosphate. Potash has a lot of benefits to plants, it strengthens them, and makes them more disease and pest-resistant. It helps with the uptake of the other nutrients and maybe more importantly to listeners is that it improves the taste which is pretty key for the fruits and vegetables that we eat.
I think we can differentiate potash from some other types of commodities, for example, oil. There is a lot of pressure on it maybe due to options to oil. There is solar. There is nuclear. There is wind power. There is really no option for potash. There is no other way to create it. It is not like nitrogen; you can take natural gas and create a lot of nitrogen. Potash is, I think, pretty key and where you are going to see more use of potash is particularly when people change their diet.
If you want to create more protein and that people are trying to switch now from starch to more protein diet particularly in third world and other countries, if you want to get beef or pork or poultry it requires a lot more plant growth so you will need a ratio of maybe 7 lbs, 5 lbs or whatever of plants to create 1 lb of meat. You have got significant need of potash in that realm and also you are going to see it as the population grows that we are going to have to grow more.
I think some of the world organizations, if you look at what the International Fertilization Association says and the international plant nutrition institute, they basically show that most of the future growth in food is going to be coming from fertilizers and the big chunk from potash. The other source probably is from some GMO seeds or some type of change in the actual plant seeds, but that is going to have its own impacts and people sometimes have concerns as well.
As far as the market, the market is not doing very well right now. As we all know the tonnages have been down and the prices have fallen significantly. But given some of those reasons for demand for potash going forward that I have just highlighted, it is probably going to come back and we would like to see that with the eventual potential return of some demand for biofuels that will also increase the need for potash for plants like palm oil and sugarcane and corn which are used for biodiesel production and ethanol production.
CK: Dwayne, what kind of changes have you noticed in the potash space over the last 12 to 24 months, and is there any significance you can place on the merger of POT and Agrium or is that just normal business transaction?
DD: As we have seen there has really been a hit to the potash industry and I think this merger potentially shows the extent that the industry is in flux. Now generally speaking the fertilizer sector pundits seem to think that the merger is mainly or potentially a defensive mechanism in staving off unwanted outside takeover camps due to the opportunity created by the declining stock prices. That may be the case. After an initial bump in the stock prices, they seem to have retreated again.
But I think customers will likely view it as a further concentration of supply in an already small field of sellers if it passes the shareholder in a competition agency reviews and they create ability for a new entity to shudder further mines and therefore reduce excess production and supply. Any consolidation of that sort could create opportunities for companies like Gensource as customers will likely seek additional potash resources to reduce dependency on a small group of current suppliers.
CK: Dwayne, I want to talk about Gensource Potash, a company you are now very involved with and that we are investors in and have been for some time. Gensource is contemplating an entirely new business model in the potash space. Traditionally, potash mines are multi-billion dollar Capex underground hard rock mines, and Gensource is looking at a completely different way of disrupting the industry. Can you talk to our listeners a bit about it?
DD: Vertical integration was the first thing that interested me in Gensource. The idea of pre-selling the product and scalability of facilities to meet pre-sold demand makes a lot of sense. I have always felt that one of the biggest risks in the potash industry was uncertainty regarding future sales. This created significant swings from quarter to quarter or year or year in the tonnage sold. Not exactly a desirable situation in an industry where you have huge mining facilities that are pushing their product and that product is water soluble and therefore requires covered storage. These large mines, when a covered storage is pulled, they need to be shut down, and restarting them can cause massive cost and production problems.
Once I started researching Gensource I thought this is a good idea to be able to pre-sell the product, have a scalability of facilities to meet just the demand that is there. I also notice that they had taken a truly clean sheet approach to potash production. They are looking for ways to not only solve fluctuations and sales, but they basically are doing a true potash 2.0 approach and looking for solutions to all the industriy’s problems including fresh water use, environmental safety, production processes, cost reduction.
Some of those items that I think are truly evolutionary in the sense that the Gensource approach they will not be using any fresh water. For a lot of people the amount of fresh water that is used in this day and age is a very big issue- for a lot of farmers and people who might be close to the potash mine, and instead they will be using brackish water from Blairmore underground.
They are not going to have any underground mining or any brine ponds or tailing piles. This will be quite an environmental advantage in the sense that all those tailings are currently, at mines, they are stored above ground, and there is no real use for them. At some point, environmentally, they are likely to become an issue. Because they are not having the underground mining, because they are not having the ponds to store, then it will create a lot more or a lot less safety issues, and I think that that will be a big benefit to Gensource.
The other thing is because of the scalability of production and because of the technology that they are using that was similar to directional drilling in the oil industry, their production costs are going to be low and that will likely make them very viable in the future.
CK: Dwayne, thanks for that. I want to kind of sum up here by talking about Saskatchewan. For Canadians, that is something they are familiar with. For people in other places of the world, it is a quiet region that not that many people know the name of, but it is really the epicenter of potash certainly in North America. It is somewhere that you have worked and you have put quite a bit of your time into. What is it that makes Saskatchewan so important on the global scale when it comes to potash production?
DD: Saskatchewan has a lot of the potash reserves. Almost 50% of the world’s recoverable potash reserves are in Canada, and other than a bid in New Brunswick where they are no longer a producer. It is all in Saskatchewan basically. Saskatchewan, the location of it is good. There is a big demand for potash in the US where they only have about 1% of the recoverable reserves. China only has 2% and Brazil has 3%, so Saskatchewan is very important to the world as a supplier of potash. The ore here is quite rich and the costs of production are relatively low, and basically, hundreds of year’s production is still available.
In Saskatchewan we have a resource-friendly government and reasonable royalties, so it is important. Governments naturally want royalties and taxes to be in balance with creating an environment for business and they seem to be doing a good job of that here.
CK: Fantastic, Dwayne! I really want to thank you for coming on the program today. For any of our listeners that are interested in finding out more about potash or Dwayne the best place to go would be www.gensourcepotash.ca. Once again that is a company that we are shareholders in and we have participated in both of the last financings and are very optimistic. Mike and Rob as a leadership there and now with Dwayne are putting together. Dwayne, thank you so much for coming on the program and we will certainly look to get you back on in the near future.
DD: Thanks Collin. Have a great day!
By Palisade Radio