Which country is more important to the global economy – Saudi Arabia or Morocco? According to legendary investor Jeremy Grantham, it’s a no-brainer: without Morocco – home to 75 per cent of the world’s high-grade phosphate reserves – the world loses its ability to fertilise its crops and feed itself.
"If ISIS takes over Morocco, I give you my personal guarantee that within a week the military of China or the US or both will have intervened," Mr Grantham wrote last year. "We simply cannot manage for long under currently configured agriculture without Morocco’s reserves – perhaps 35 to 40 years."
Like Saudi Arabia, Morocco’s position as a resources powerhouse provides limited avenues for foreign capital, as currently configured. But this doesn’t mean UK investors are shut out of the market for fertilisers. In fact, miners focused on agricultural end markets have been one of the most successful pools of fundraisers in London in recent years.
Africa-focused phosphate group Kropz (KRPZ) completed the largest equity raise in the Alternative Investment Market (Aim) mining sector last year, when it went public in November. Kore Potash (KP2) and Danakali (DNK) hope to emulate Sirius Minerals (SXX) in their efforts to raise hundreds of millions of dollars for their respective potash projects. Sirius, which tapped investors for $1.2bn (£942m) at the end of 2016, is also in the process of securing a further $3bn for its polyhalite business.
This optimism and activity contrasts with the noises of many base metal miners, apparently unwilling to risk new projects amid fears of supply cannibalisation, uncertain demand drivers and geopolitical stability. But for the agri-miners, the outlook appears steadier. On a short, medium and long-term view, the world’s growing population will continue to increase its pressure on the availability of arable land. Farmers around the world have been tasked with doubling production by 2050. Short of the wholesale revolution in farming and diets that is ultimately required, growth in demand for fertilisers is likely to continue.
Some, including Mr Grantham, believe these pressures could prove cataclysmic in the decades ahead. Throw into the mix the escalating threats of climate change, water scarcity and soil degradation – all of which are in part driven by industrial agricultural practices – and the future of food security looks truly alarming.
But this hasn’t detracted from investor enthusiasm towards fertilisers, and their promise as a solution for farmers' need for improving yields. Perhaps that's to be expected; the marketing materials for fertiliser giants such as Mosaic (US:MOS) and Nutrien (CA:NTR) are chock full of references to feeding the world. If you accept the premise, then it feels like a solid investment pitch.
In London, the poster child for this sub-sector is Sirius Minerals, which is currently constructing the Woodsmith underground potash mine on the North Yorkshire moors. At the centre of the Sirius investment case is POLY4, a multi-nutrient crop fertiliser described by the group’s chief marketing officer, JT Starzecki, as a "game-changing product" for farmers. Depending on the crop, Sirius points to evidence that POLY4 can contain costs, increase yields or both.
For these attributes, Sirius is marketing POLY4 as a premium fertiliser. It's had some success, having forward-sold an aggregate peak contracted take-or-pay sales volume of 8.2m tonnes a year to partners in Africa, Southeast Asia, North America, Central America, South America and China.
Danakali, whose secondary listing last July laid the groundwork for a fundraising for its Colluli project in Eritrea, can afford to take another route to market. That’s because the group believes the project will occupy the bottom 15 per cent of the global cost curve for sulphate of potash – a profile that has won it a sales agreement to supply Switzerland-headquartered fertiliser giant Eurochem with up to 100 per cent of production.
Co-passenger on Sirius’ coat-tails is Kore Potash, which listed in London last March. Like Danakali, its flagship potash project – the Kola development in Republic of Congo – is slated to be among the lowest-cost producers globally, and comes with a viable export market across the Atlantic. It could also soon be jostling with Danakali for investment capital, if chief executive Sean Bennett can make good on his ambitions to raise up to $600m this year.
