Altius
This project is part of our
All-Canadian royalty portfolio

Potash
Prairie Royalties

Overview

Altius' Prairies Royalties holds royalty interests in respect of potash produced by three potash mining companies, namely Potash Corporation of Saskatchewan (“PCS”), the Mosaic Company (“Mosaic”) and Agrium Inc (“Agrium”). The Potash royalties relate to more than 60% of Canada’s potash production and based upon published potash reserves by the respective operators the average mine life is over 70 years! Potash is a fertilizer that is absolutely fundamental to the global food production chain and thus Altius views these royalties as "royalties on food".

The Potash leases from producing mines within the Prairies Royalties have existed for at least 40 years with several undergoing current expansions of which are tabled in detail below:

Potash company Plant Leased acres
PCS Rocanville 30,455.96
PCS Rocanville West 3,188.48
PCS Cory 7,704.92
PCS Allan 1,151.21
PCS Patience Lake 8,087.26
Mosaic Esterhazy PML 10 14,092.91
Mosaic Esterhazy (East & West Lease) 11,182.81
Agrium Vanscoy N.a.

In general, the potash royalty agreements are structured as a lease of subsurface mineral rights to the potash mining company for a specified term in return for a royalty payment to Prairies Royalties based on a percentage of the net selling price of potash. The royalty percentage is generally determined in accordance with Saskatchewan’s Subsurface Mineral Regulations, which provide for a variable rate depending on the average grade of potash ore mined.

The Prairies Royalties potash royalties are subject to variations in both potash produced and potash price resulting in royalty revenues being exposed to the movement in potash prices.

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Potash demand and price outlook

Saskatchewan accounts for almost half of the world’s potash reserves and 35% of the global potash production capacity resulting in Canada contributing 37% of the global trade volume in potash.

Approximately 95% of potash is used to produce fertilizer while the balance is used in commercial and industrial products. The fundamental drivers of long-term fertilizer and consequently potash demand are population growth, income growth, bio-fuel growth and the reduction in available agricultural land per person.

Demand for potash has steadily grown over the past decade driven by the factors outlined above. Apart from a fall in demand during the 2008 global financial crisis where potash users deferred purchases and in 2012 due to fertilizer subsidy cuts in India, potash demand has continued along its long-term upward trend and is likely to reach an all-time high in 2013.

Historically potash production capacity has exceeded demand, resulting in the low levels of capacity utilization. Producers managed to maintain prices at levels sufficient to generate reasonable margins through production discipline, which was aided by the concentration of marketing efforts through two syndicates, Canpotex, which manages the majority of export sales from Canada, and Belarusian Potash Company, which markets production from the former Soviet Union.

Over the last decade, strong demand and lower capacity utilization within the potash industry have resulted in constrained supply and unprecedented increases in the price.

Potash prices are further supported by the high barriers to entry exhibited by the industry. These barriers are more significant in the potash industry than in other fertilizer markets due to the high cost and time involved in bringing on new supply. This is a significant reason why no new greenfield capacity for potash has been installed for over 20 years.

Prairies Royalties main royalty counterparties are amongst the top producers globally. Given the high barriers to entry in the industry and the concentrated reserves, Altius expects that these producers will maintain or grow their market share over the immediate future.

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