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Ringbolt Ventures

Ringbolt offers excellent exposure to the potash sector

Rising demand for food and the consequent increase in food prices have suddenly made the agriculture sector appealing to investors. Fundamentals are particularly strong for potash companies due to the increased use of potash by farmers in their attempts to increase crop yields. Not surprisingly, potash prices and share prices of companies that provide exposure to them have been on the rise.

Among potash companies what makes Ringbolt Ventures (TSX.V: RBV, Frankfurt: FTW) unique?

Ringbolt has its flagship project in Utah and is in the elite league of those few potash players with assets in the USA. The company has applied for strategic leases totalling 86,000 acres within the Paradox Basin, Utah.

Saskatchewan’s eminence as a potash destination has attracted investor attention towards companies with assets in the province thus muting the investment case of companies such as Ringbolt. While Saskatchewan indeed accounts for much of world potash reserves, the Paradox Basin is also a known potash producing region. The Basin is a massive Salt Anticline covering a large area of eastern Utah and western Colorado. According to the US Geological Survey the Paradox Basin is estimated to contain as much as 2 billion tons of Potash. Ringbolt certainly is not on a wild goose chase!

In fact, there has been a history of production in the Paradox Basin led by New York listed Intrepid Potash, Inc. (NYSE: IPI, market capitalisation US$4.2 billion). Intrepid Potash is the largest potash producer in the US and operates the Cane Creek Mine located 5 miles west of Moab, Utah. This mine has been in production since the mid 1960’s. Current production from the mine is in excess of 100,000 tons of Potash per year. Ringbolt`s leases are just 30 miles away and on the same geological structure.

Ringbolt’s interest in the Paradox Basin came with its acquisition of a 90% interest in a private Utah company with 23 prospecting permits (about 49,000 acres) and one exploration permit (37,000 acres). Ringbolt has obtained data on 48 oil and gas wells on these prospecting and exploration permits consisting of radiometric electric logs, which can detect the presence of potassium. Ten of the wells also includes chemical analyses on some of the potash beds. The wells, drilled in the 1950s and 1960s, predate NI 43-101 requirements and results of the data should be viewed as historical in nature. Given the production statistics of Intrepid Potash’s Cane Creek Mine however, Ringbolt’s assets inspire much optimism.

The company’s immediate plans entail a drill programme to arrive at a NI 43-101 compliant resource estimate for its Paradox Basin permits. The objective of the programme is to confirm historical data, to expand historical data and to satisfy obligation to the US Bureau of Land Management (BLM). The drill programme is expected to commence once the BLM grants its approval of the exploration plan.

Ringbolt’s corporate strategy is to develop these assets to establish its resources and then develop then in partnership with a larger group in the potash space. The management is of the view that a larger group would accelerate the progress and add shareholder value faster. The company is on the look out for larger companies for partnership and is open to accommodate an appropriate partner to form a strategic relationship.

Ringbolt’s 100% owned Hornby Basin property meanwhile adds another dimension to Ringbolt story. This is a radium/uranium asset in the Great Bear Lake Area, Northwest Territories some 80km north of Port Radium.

The property has four mineral claims and is subject to a 2% Net Smelter Return (NSR) Royalty but Ringbolt can buy down the NSR to 1% at a cost of $1 million. The project is currently on hold due to permitting delays.

Similar to the Paradox Basin, Port Radium and environs have a history of mining. Exploration for radium, and subsequently for uranium and silver commenced in the Port Radium area in the early 1930’s following the identification of secondary cobalt and nickel mineralisation. The Hornby project itself however is at very early stages and the company is yet to identify any mineralisation within the property.

Ringbolt’s investment case however rests largely on its Paradox Basin asset and the exposure it provides to Potash. Located in a potash mining district, Ringbolt’s Potash project is expected to attract the interest of investors as well as other potash companies for partnerships or acquisitions. The focus however is to develop the permits in an attempt to establish its resources which could well lead to improved valuations.

Potash fundamentals have been buoyed by the increased food consumption from emerging economic giants such as China, Brazil and India. Large populations of these countries together with their increased consumption on the back of improved economies have continued to augment the demand, thus propelling world food prices to a new high. Agriculture stocks could well be about to replace commodity stocks that has so far enjoyed an extended run. The market therefore naturally views companies such as Ringbolt with heightened optimism on the back of its direct exposure to the sector.

Matters are only expected to improve. Over ninety per cent of global potash production is used as fertilizer to assist farmers in growing crops to feed and fuel the world. Potash fertilizer is essential for plant growth and there is no substitute. The rising affluent section of the population in fast-growing economies such as China, Brazil and India is driving the demand for more food, including better quality, high protein food such as meat; Potash Corporation of Saskatchewan estimates that a third of each new dollar earned by people in these countries is spent on food, particularly protein-rich food. Over 170 million tonnes of additional meat, per annum, has been consumed worldwide throughout the last forty years.

Much of the growth has actually come from the developing countries; for instance, growth in meat consumption in developing countries during this period has been 5-6% per annum, compared with just 2% per annum growth in developed countries - a trend that is expected to continue. To produce meat you have to feed animals large quantities of grain. This is significant for the potash industry, because it takes several kilograms of grain to produce just one kilogram of meat. As such, more grain will need to be grown on the world’s limited arable land acreage which is declining on a per capita basis as the global population increases and urbanization gathers pace. Basically, every acre of arable land will need to become more productive.

Rising demand for potash is already apparent. China, which signs annual price contracts, settled for 2008 contracts with both BPC (Belarussian Potash Company, the export company owned by Belaruskali of Belarus and Uralkali of Russia) and Canpotex (the export company owned by all Saskatchewan potash producers namely PotashCorp, Mosaic and Agrium), at $575 per tonne. This marks a staggering $400 per tonne increase from $175 per tonne in 2007 in Vancouver. Canpotex has also concluded its annual contract negotiations with India at $625 per tonne.

A strong potash market would not only help producing companies but also underpin valuations of exploration companies such as Ringbolt. Any good news on drill results or resource estimates could attract renewed buying interest. Follow Ringbolt`s progress we may well be in for a pleasant surprise.

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