BERAL, INC.
Andrew Racz
Director of Research
300 East 54 Street, Suite 26C
New York, NY 10022
Phone: (212) 319-6949
Fax: (212) 753-1944
E-mail: mlikar@aol.com

Western Potash Corp.

May 12, 2008

(WPX – VSE)

Price:

$1.00

Price Range:

$1.22 - 91¢

This company went public on May 6, 2008.

Shares offered:     46,000,000

Debt:      -0-

Conclusion

Undoubtedly, many factors depend on management. Their knowledge of the industry and their contacts with the related fields cannot at this stage be measured. However, if their attitude towards the industry is constructive, then this small company, Western Potash, with less than $100 million market cap, in contrast to POT, whose market value is $60 billion, offers the most leveraged but positive participation for the fertilizer industry. I hope history will confirm that the judgment of this scenario is affirmative.

Conclusion and Conceptual Recommendation

Western Potash (IPX.V) may turn out to be an unusual, highly speculative, but intriguing way to play the fertilizer industry.

Approximately 95% of all potash produced is used for agricultural fertilizer. Global population and income growth are driven by food demand and therefore fertilizer usage. Particularly in the developing world, increased consumption of meat requires large amounts of grain which require fertilizers. The world’s arable land per capita if anything declines.

The USDA report of May 10, 2008 is expected to show that, over all, the world grain supply/demand balance will remain in a deficit for 2008, which is bullish for future fertilizer demand.

Inventories of key crops are shrinking.

1. Barley dropped in inventory from 4 million metric tons in 1990 to 2 million in 1995.

2. Rice dropped from 150 million metric tons to 80 million.

3. Corn dropped from 200 million metric tons to 100 million.

Sharply rising prices pose problems for many millions except farmers. For instance, dairy product prices have increased from $2000 for a metric ton in 2006 to $5000 a metric ton in 2008.

The 21st century has changed the profile of our lives. The world’s population and their respective prosperity created a world where the standard of living has changed with increased meat consumption.

Table: World Meat Consumption

 

Million Tons

1980

50

1990

70

2002

135

2015

175

2030

250


Table: Grain Required for Meat Production

 

Kg of grain needed to produce 1 kg of meat

Poultry

2

Pork

4

Beef

7

These numbers represent basically our entire lifestyle except that the price of each agricultural commodity is growing every year.

At the heart of these problems are fertilizer prices, a commodity in limited supply and with limited potential for practical expansion for the next 10 years.

Western Potash’s Strengths

In addition to the favorable industry trends, Western Potash believes that the following strengths and factors will help achieve its business goals:

Mining Friendly Jurisdiction with Existing Infrastructure

Yearly production will be 9.7M tons in 2008, 12.7M for 2012, and 15.7M ton in 2015.

Western Potash (WPX) is the sole junior potash exploration company with a project located in Manitoba and one of only three companies, including BHP Billiton Limited and Agrium Inc., focused on the area. Mining is Manitoba’s second largest resource industry and as such, receives significant government support. In 2007, Manitoba was rated as having the best policy environment in the world for mining by the Fraser Institute. Centrally located, Manitoba is a key link in the mid-continent trade corridor. It has excellent access to Asia and Europe through its deep water port on Hudson’s Bay. The port of Churchill is nautically closer to ports in Northern Europe and Russia than any other port in Canada, and is a part of the closest shipping route between North America and Asia. Manitoba’s three rail connections to the U.S. Midwest provide ready access to one of the world’s largest potash markets.

Properties in Established Potash Producing Region

Western Potash’s property is located on the Devonian Prairie Evaporite, one of the world’s most prolific potash regions, which covers a significant portion of southern Saskatchewan and extends into the McAuley-Russell area of Western Manitoba.

Potash deposits in the prairie Evaporite are unique because they typically have very consistent thickness and grade across a wide lateral zone.

Due to the predictable and generally consistent nature of potash deposits in the Prairie Evaporite, it is possible to define a western Manitoba potash deposit with relatively few drill holes supplemented by seismic coverage to establish continuity between drill holes. For example, the production decision for Potash Corp.’s Lanigan mine was based on only 18 exploration drill holes and various seismic surveys.

Potash Corp.’s Rocanville potash mine, according to Potash Corp., one of the lowest-cost potash production facilities in the world, with a mineral reserve of 422 million tones grading 22.5% K2O, is located 25 km southwest from the centre of the Manitoba Potash Property (13 km from the edge of the Manitoba Potash Property). Historical drilling and seismic results on the Manitoba Potash Property show promising geological results—analysis of two drill holes, approximately 13 miles apart, has thus far revealed intersections of 13.5 feet at 18% K2O and 12.5 feet at 20% K2O. The Manitoba Potash Property is also adjacent to properties held by BHP Billiton Limited (164.67 million tones @ 24.5% K2O) and Agrium Inc. (750 million tones @ 21% K2O). See “The Manitoba Potash Property—Introduction.”

Well Financed, Potash-Focused Public Company

Before giving effect to the Offering, Western Potash has approximately $50M cash on its balance sheet, increasing to approximately $70M, after the exercise of warrants and options, subsequent to the closing of the Offering. The strong cash position will allow the Company to aggressively advance exploration of the Manitoba Potash Property on an accelerated time frame. Accordingly, the Company provides a unique opportunity to invest in a nimble junior public enterprise focused solely on exploring for potash in Manitoba.

Use of Proceeds

The net proceeds to the Company from the Offering, after the payment of all costs in respect of the Offering, are estimated to be $50M. The net proceeds of the Offering together with the proceeds from prior sales of Common Shares are expected to be used as follows:

 

Maximum Offering

Phase I exploration program

$

 3,723,500

 

Phase II exploration program (1)

$

14,003,000

 

Administrative costs

$

       

 

Unallocated working capital

$

       

 

Total

$

       

 

__________________________

     

(1)  Contingent on results of Phase I exploration program.

The Tiny Western Potash in the Total Picture

WPX has the second largest potash reserve in Manitoba. Centrally located, Manitoba is a key link in the mid continent trade with access to Asia and Europe. It has first rate access to the United States with rail concessions. The most important potash mines are listed in the table below 

Table A: Saskatchewan Potash Mines

1.

Vanscoy – Agrium

2.

Cory – PotashCorp.

3.

Patience Lake – PotashCorp.

4.

Allan – PotashCorp.

5.

Colonsay – Mosaic

6.

Lanigan – PotashCorp.

7.

Belle Plain – Mosaic

8.

Esterhazy K1 – Mosaic

9.

Esterhazy K2 – Mosaic

10.

Rocanville – PotashCorp.

11.

Burr* - Athabasca Potash

12.

Jansen Lake* - Anglo Potash

* Potential mines subject to feasibility and financing.

While it would take 5 years to bring WPX to commercial production, it is part and parcel of the global picture. Estimated cost is $3.0 billion

Table B: Global Potash Fertilizer Use by Crop – 2006/2007
   

World Potash Reserves
(Billions Tones K2O2, Percentage of Global Reserves)


The price of potash meanwhile is growing rapidly. Effective June 1, 2008, the price range will be between $150 to $175. A recently signed contract with India was priced at $355, and with China at $400. Current contracts for future delivery are priced at $725. In this potash-inflated world, when we take into account the world’s population grows, the conclusion must be reached that unless 50-100% increase in arable land can be achieved, the demand for current and future production can increase dramatically.

World population was 2.5 billion in 1950, 6 billion in the year 2000, projected to reach 7 billion in 2010, and 9 billion by 2050. The production forecast for major producers appears in Table C.

Table C: Potash Supply by Major Suppliers

Company

Country

2007

2008

2010

2012

2020

Potash Corp.

Canada

9.0

10.4

12.0

14.5

15.1

Belarnskali

Belarus

8.3

8.3

8.8

8.8

8.8

Mosaic

Canada

7.2

7.2

7.5

8.2

8.8

Israel Chemicals

Israel

5.4

5.6

5.6

5.6

5.6

Uarikali

Russia

5.0

4.8

5.9

5.9

4.5

I, we accept the theory that Western Potash has arable potash-producing land, and we can assume that in 5 years time it will produce potash, then the stock is the depository of many positive—if hypothetical—factors.

There are various possibilities.

1. Any of the food hungry nations can buy into Western Potash and provide capital for accelerated development.

2. Any of the large currently producing companies would buy 100% of Western Potash simply to reproduce its reserve position on the future.

3. The potash demand would value in the second or third year the underlying potential for potash producing capability of Western Potash, which means meaningful appreciation of the stock price and the conversation of yet unissued stock into cash. 

Undoubtedly, many factors depend on management. Their knowledge of the industry and their contacts with the related fields cannot at this stage be measured. However, if their attitude towards the industry is constructive, then this small company, with $100 million market cap, in contrast to potash corporations market value of $60 billion, offers the positive outlook the judgment of the prospect in the affirmative.

Disclaimer

Information contained herein is based on data obtained from recognized statistical services, issuers reports or communications or other sources believed to be reliable. However, such information has not been verified by us and we do not make any representation to its accuracy or completeness. Any statement non-factual in nature constitutes only current opinions which are subject to change. BERAL INC. or their officers, directors, analysts or employees may have positions in the securities or commodities referred to herein, and may as principal or agent buy and sell such securities or commodities. An employee, analyst, officer or a director of BERAL INC. may serve as a director for companies mentioned in this report. Neither the information nor any comment expressed shall constitute an offer to sell or a solicitation of an offer to buy any securities or commodities mentioned herein. There may be instances when fundamental, technical and competitive opinions may not be in concert. This firm may from time to time perform investment banking or other services for or which investment banking or other businesses from any company mentioned in this report.

 

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Andrew Racz. 300 East 54 Street, Suite 26C, New York, NY 10022
Phone: (212) 319-6949 Fax: (212) 753-1944. E-mail: mlikar@aol.com

Copyright © 2011 Andrew Racz. All Rights Reserved.

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