Editorial: Potash earthquake

Like a sudden Saskatchewan thunderstorm, the potash market surprised everyone yet again with its capacity for drama and destruction, as everyone learned just how important the Russian-Belarusian potash cartel had been all this time in supporting the potash market to the benefit of Western producers and juniors alike.

As detailed in these pages, the major North American potash producers and their investors were side-swiped by news in late July that Russia’s Uralkali was leaving the BPC potash cartel it had created with Belarusalkali as a Slavic twin to the long-standing North American cartel Canpotex run by Potashcorp, Agrium and Mosaic.

Uralkali is already the world’s largest and lowest-cost potash producer, and is now vowing to ramp up production and accept lower prices in order to capture new Asian markets.

In retrospect, the fact that two Russian billionaires unloaded their substantial shareholdings in Uralkali in the weeks leading up to the announcement was a sign something was afoot. (Though, for some reason, we’re not expecting any insider trading investigations to get underway in Moscow any time soon.)

North American juniors in the potash space have always had a tough time, given that potash projects are so vast in cost and scope that developing them on their own is never a realistic option. And after the Uralkali news, shares of the juniors were particularly hard hit, as investors were justifiably worried about majors’ waning interest in new development projects, and junior management teams scrambled to put out reassuring statements about the global potash market.

In the entire potash mining space, about $21 billion in market valuation evaporated in the days after the BPC breakup news. That’s about four Bre-X Minerals scandals in market cap.

In Germany, the potash-magnesium giant K+S reacted to the bad news with some dry humour, stating that “following the principle of prudence,” it will “no longer maintain its forecast for 2013 that a slight increase in operating earnings will be possible.”

• There was an important legal precedent set in the murky world of Canadian lobbying, and, no, this time it didn’t involve a retired prime minister, hotel rooms and briefcases stuffed with cash.

While most mining juniors and small producers leave much of the lobbying of the federal government to their astute and savvy trade organizations — such as the Canadian Institute of Mining, Metallurgy and Petroleum, and the Prospectors & Developers Association of Canada — the major producers have always engaged their own lobbyists in Ottawa when required.

The federal Lobbying Act took effect in 1989, but on July 31 there was the first-ever conviction of a lobbyist for violating the act. Andrew Skaling pleaded guilty to failing to register as a consultant lobbyist, and was fined $7,500. The incident related to his work in 2010 for his client Canadian Network for Respiratory Care, and, while small, the fine is the largest ever imposed under any of Canada’s lobbying laws at the federal, provincial or municipal level.

Remarkably, it was his client that reported to the Office of the Commissioner of Lobbying that Skaling had failed to register as a federal lobbyist.

In a bulletin, law firm Fasken Martineau says the development is a “wake-up call” and notes that there is a “recent increase in intensity” of lobbying law enforcement at the federal level, with three more allegations of violations of the act under investigation by the Royal Canadian Mounted Police.

• IntierraRMG did some number crunching to show just how quiet the last few months have been in terms of mine financing globally. It reported that only US$2.3 billion was raised in the second quarter of 2013, compared with US$6.1 billion in the year-ago quarter, and US$5.2 billion in first quarter of 2013. Of that US$2.3 billion raised in the second quarter, US$1.2 billion was raised by seniors and US$1 billion was raised by juniors.

Intierra found that in the recent quarter, only US$450 million was raised on the Australian Securities Exchange, US$1.1 billion was raised on the TSX and TSX Venture Exchange, and US$500 million was raised on the London Stock Exchange.