Australian Potash (ASX:APC) has signed an initial offtake agreement with Australian chemical company Redox for its proprietary product K-Brite, produced at the Lake Wells potash project. 

The 10 year take-or-pay binding term sheet signed between the companies earmarks 200,000 tonnes of the K-Brite (a sulphate of potash product) annually, and also gives Redox exclusive distribution rights to the product in the Australia and New Zealand region.

Sulphate of potash is considered a premium-quality potash compared to muriate of potash (MOP), and is used for high-value crops and agricultural needs.

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Located in Western Australia, the Lake Wells potash project has an estimated 30 year mine life and is expected to enter production in mid-2022. But CEO and Managing Director Matt Shackleton noted that the coronavirus outbreak that has rattled markets across the globe could weigh on that start date.

“The effective closure of the Australian equity capital markets is beginning to have an impact on all greenfields developments; however, it is not possible at this stage to say what impact precisely this event will have on (Lake Wells’) development schedule,” he told the Investing News Network via email.

When asked if the pandemic will affect the offtake agreement the company has recently announced, he remained confident in the partnerships Australian Potash has built.

“There is minimal impact on our offtake program from economic or pandemic factors; the relationships we are formalising now have been developed over a number of months/years,” said Shackleton. “Having said that, the signing ceremonies will be much reduced due to travel restrictions.”

Despite the current environment, potash demand, specifically SOP, is projected to increase as grow seasons become more precarious and arable land becomes harder to access.

“SOP demand is forecast to grow at between (a) 4 to 6 percent cumulative average growth rate over the next 10 years, with a small dip in growth over the next two years,” said Shackleton.

He continued, “The rapid growth will be driven largely by supply-side macroeconomics — there will simply be more supply into a previously supply-constrained market. Many users of MOP would prefer to use SOP due to its better agricultural benefits; however, it has always been supply constrained and therefore higher priced.”

Weather played a key role in the 2019 agricultural market, with prolonged rainy seasons impacting planting and seeding schedules, and consequently impacting agricultural additive sales.

Last year, the International Fertilizer Association noted that 25 percent of global cropland has experienced degradation, which over time will make it harder to grow sustainable crops. The organization expects demand for fertilizers to increase significantly by 2030 to offset the effects of soil degradation and greenhouse gas emissions.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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