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Tickers in this Article: BHP, POT, AGU, MOS, WPX.V, AMZ.V, VALE
Following BHP's (NYSE:BHP) $39 billion hostile bid for Potash Corp (NYSE:POT), there has been much news and speculation centered on potash. Because Canadian antitrust laws make it extremely difficult for one of the major players (such as Mosaic (NYSE:MOS), Agrium (NYSE:AGU) or Potash Corp.) to be taken over by a competitor, junior corporations have become subject to takeover rumors. Potash One (KCL.TO) has recently agreed to be acquired by Germany's K+S Group and Athabasca Potash was acquired by BHP in March of 2010. Junior potash companies can produce significant capital gains to investors, either through discovering value in untapped markets or becoming future acquisition targets.

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Western Potash
Western Potash (TSE:WPX.V) offers exposure to mining regions in Saskatchewan and Manitoba, and has access to high-grade commodities for an estimated 40-plus year period. Following an extensive feasibility study, management concluded that the net present value of the Milestone project is $5.22 billion, and has an after-tax payback period of 7.3 years. Production is expected to commence in 2015 at a rate of over 2.5 million tons per year. As a benchmark of comparison, Mosaic saw sales volume of 1.8 million tons in their latest fiscal quarter. Because WPX has no debt and holds significant reserves in areas that border the mining regions of large international competitors, such as Vale (NYSE:VALE) and BHP, the company is a likely takeover target.

Amazon Mining
Amazon Mining (TSE:AMZ.V) conducts its operations in Brazil, a country that potentially holds 20% of the world's arable land; only a small fraction of this, however, is currently utilized for agricultural purposes. Based on conservative estimates of AMZ's Cerrado Verde holdings, the preliminary economic assessment indicated that the project has a net present value of $455.4 million and a payback period of 2.38 years. Brazil is becoming the fastest-growing potash consumer, which will aim to reduce its dependence on Russian and Canadian imports. Amazon Mining is expected to initiate operations in 2013, and is likely to prosper from Brazil's macroeconomic environment (infrastructure developments are being created to aid with potash distribution channels).

The Bottom Line
Potash typically trades at higher prices than would otherwise be dictated by market forces, because the largest five companies control 65% of production, thus reducing competition. As long as Canpotex maintains the potash cartel, prices are unlikely to fall. Furthermore, as indicated by the USDA World Agricultural Supply and Demand Estimates report, the demand for global farm products is outpacing supply. Demand would actually be even higher if developing nations had more stable commercial banking operations, which would extend farm credits.

With diets in emerging markets, specifically China, become more nutrient-oriented, and new farmland developments requiring more fertilizer to produce competitive yields on less arable land, potash prices will continue to escalate, along with commodities such as corn and soybeans. (For additional related reading, see 5 Things To Know About Potash.)

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