Potash stocks rally following BHP bid

Vancouver – Smaller potash-based companies saw strong gains following BHP Billiton‘s (BHP-N) unsolicited buyout offer for Potash Corp (POT-T, POT-N).

While not quite approaching the 25.7% stock price gain of Potash Corp, a number of Potash-based companies saw some of the biggest gains and strongest volumes on the Venture board following renewed excitement for the commodity.

Joel Jackson, a fertilizer analyst at BMO Capital Markets, said in a phone interview that smaller potash players are more sensitive to market events.

“When you have these potash developers, they’re very speculative plays, and there is much more volatility in their stock price reaction to industry events,” said Jackson.

As a sample of companies, Western Potash (WPX-V), with projects in Manitoba and Saskatchewan, was up 5.5¢ or 12.9% to close at 48¢ on a million shares traded. Allana Potash (AAA-V), with projects in Argentina and Ethiopia, was up 4.5¢ or 11.7% to close at 43¢ on 4.3 million shares traded.

Passport Potash (PPI-V), with a project in Arizona, was up 1.5¢ or 17.6% to close at 10¢ on 6.2 million shares traded. Encanto Potash (EPO-V), with several properties in Saskatchewan, was up a penny or 7.7% to close at 14¢ on 5.2 million shares traded. IC Potash (ICP-V), with a project in New Mexico, was up 2.5¢ or 5.7% to close at 46¢ on 115,000 shares traded.

On the main TSX board the trend was upwards as well. Potash One (KCL-T), one of the companies Jackson covers, was up 35¢ or 14.2% to close at $2.82 on 3.1 million shares traded. Jackson has a target price of $3.50 for the company.

Meanwhile Agrium (AGU-T, AGU-N) was up $2.38 or 3.5% to close at $71.19; Miago (MGO-T) was up 36¢ or 5.7% to close at $6.65 and Mbac Fertilizer (MBC-T) was up 10¢ or 5.3% to close at $2.00.

Jackson pointed out that the day’s movement is part of a bigger expectation that potash prices will go up.

“There’s a lot of favourable reaction to fertilizer stocks right now because of strong crop prices, movements in nitrogen fertilizer and phosphate fertilizer price,” said Jackson. “Potash prices have been a bit more flat, so there is some renewed hope that operating rates in the potash industry will get tighter over the next little while and possibly add some meaningful potential for potash price increases.”

Potash Corp.’s president and chief executive Bill Doyle said in a conference call explaining the rejection of the BHP bid that the commodity is poised to return to historic trend-line growth by 2011, with tightened supply and higher prices.

Jackson ruled out BHP going after any more juniors for the time being.

“They have a massive land position in Saskatchewan with four projects on the go,” said Jackson. “They have their potash developments, and they’re now considering acquiring an existing producer.”

Jackson said potash stocks could gain more, but as always, there is some risk involved.

“There is potential for some upside, but the risk is that the grain prices don’t stay as strong as they’ve been, or that BHP doesn’t increase their offer, so there could be some downside to these stocks as well.”