Feeding the World’s Hunger for Phosphorus
Phosphorous is not a metal, and in
one of its elemental forms, yellow phosphorous, it is very reactive. Unless it
is submerged in water or oil it spontaneously catches fire in air, even at or
near room temperature. It was first prepared in the early modern age; its
Greek-derived name, which means the “bearer of fire,” came about after it was
observed glowing in the dark as it slowly burned.
.The USA is no longer self-sufficient in phosphate production.
Carpentersville, IL June 07,
Phosphorus is not a metal, and in one of its elemental forms, yellow phosphorus,
it is very reactive. Unless it is submerged in water or oil, it spontaneously
catches fire in air, even at or near room temperature. It was first prepared in
the early modern age; its Greek-derived name, which means the “bearer of fire,”
came about after it was observed glowing in the dark as it slowly burned.
Medieval alchemists had no theory of chemical elements; for example, they
thought that “metal” was a property given to one of the “Four Natural Elements”
of the ancients, the element “earth.”
Medieval alchemists did find that dissolving the vapor from burning phosphorus
in water produced a powerful solution of what we now call “acid” (in this case
phosphoric acid) that could corrode base metals and dissolve some types of
stone. Nineteenth century research showed that many natural solid materials were
in fact “phosphates”, created by the ancient reaction of chemical elements with
It is unlikely that anyone before the nineteenth century would have imagined
just how critically important natural deposits of phosphate rock would become,
to the health and survival of mankind.
In a nightmarish, yet disturbingly plausible, scenario: a nation finds its
supply of an essential commodity to be depleted. Without this element, its
citizenry’s very lives are threatened. Suppliers of this commodity, aware of
their influence, opt to band together as a cartel in order to control pricing
and distribution of this essential commodity, leaving the rest of the world
vulnerable to price and supply shocks.
While this may sound like the situation around oil, or perhaps even fresh water
if some projections are to be believed, this same scenario could conceivably
play out around an element without which large-scale, productive agricultural
activity is all but impossible: phosphorus, the key ingredient in phosphate
fertilizers. Just as those who profited most from the nineteenth century
California gold rush were those who supplied the essential tools for mining
(picks, shovels, wheelbarrows, rolling stock, canvas and donkeys), so also are
those who control the supply of crucial inputs for mass agriculture like
phosphate very much poised to profit.
Already, the United States has long since passed the point at which it produces
a surplus of this crucial material economically, and is increasingly reliant on
imported phosphates in order to remain the breadbasket to the world. This during
a time when continued population growth and rising standards of living around
the globe will require steady increases in the production of basic crops like
corn and wheat to feed both people and livestock.
While phosphorus is relatively abundant in other parts of the world, the
political security of this supply is somewhat lacking – indeed, the top
exporter, Morocco, recently had to cease production for three months due to
civil turmoil. With so much production concentrated in a relatively small part
of the world, additional investment is needed to mitigate the risk of supply
disruptions by broadening the geographic distribution of the supply base.
The main source of phosphorus is phosphate rock, which is mined in several
locations around the globe. This rock is found in two types of deposits,
sedimentary and igneous. The vast majority – some 90% – of deposits are
sedimentary, and contain contaminants such as uranium, thorium and cadmium that
must be separated during processing. These sedimentary deposits start with a
relatively high concentration of phosphate but can only be processed to about
32% end-use concentrate. In contrast, the much rarer and comparatively “cleaner”
igneous deposits start with a lower grade in the ground but can be concentrated
up to 40%. Because it is easier to separate and treat igneous deposits, it is
possible to recover more than 90% of the total phosphate from these sources,
while a recovery rate of around 80% of the total is the maximum for sedimentary
The rock is processed in order to extract the phosphorus values as phosphate.
For agricultural use, there is no known substitute for phosphorus.
In declining order of 2010 mine production, the largest producers of phosphate
rock are China, the United States, Morocco, Russia, Tunisia, Jordan, Brazil and
Egypt. Neither China nor the US export this material.
Morocco in North Africa, bordering the Mediterranean Sea, already accounts for
more than one-third of the world’s entire phosphate exports, and has larger
reserves than the rest of the world combined. But like Tunisia and Egypt, which
border the Mediterranean Sea east of Morocco, and which have seen their
governments toppled and businesses and exports slowed, Morocco has experienced
considerable civil turmoil recently, including riots specifically targeting
phosphorous mining operations. Tunisia, Egypt and Morocco have all seen their
phosphate supplies hindered by civil unrest. In the wake of escalating violence
in Morocco, including a late April suicide terror bombing in Marrakesh, do we
have any guarantee that the long-standing friendship and trade relations between
the US and Morocco will continue if the monarchy is overthrown?
In the case of the takeover of the Moroccan government by elements hostile to
the US, how would we replace our imports of phosphate from Morocco in a world
where the production of food has become politicized? Some political analysts in
fact attribute the overthrow of the Egyptian, Yemeni and soon, Libyan regimes,
to unrest over uncontrolled price increases for food in those countries.
Phosphorus and its most common, oxidized form, phosphate, is essential to the
manufacture of a range of products – steel electroplating, toothpaste,
detergents and even soft drinks. It is a nutrient that is vital to all life,
which accounts for its use in animal feed supplements, vitamin supplements for
humans and fertilizers. Life as we have come to know it literally relies upon
the mining, processing and use of phosphorus mainly as phosphate.
Since the mid-nineteenth century, phosphate has been used in fertilizers to
promote plant growth and increase crop yields. Nearly 90% of all phosphate used
worldwide today goes into fertilizers, typically in combination with nitrogen
and potassium. The first modern agricultural revolution in fact occurred when it
was discovered how to “fix” atmospheric nitrogen into a useful form (ammonium
salts) for use as fertilizer, thus eliminating the need for natural materials
such as bird droppings and guano, which by the end of the nineteenth century
were highly valued due to their use in manufacturing gunpowder as well as
Basic demographic forces ensure that the demand for phosphate will only grow
moving forward. There are currently more than 6.9 billion people on earth, and
140 million babies are born each year. Life spans are increasing. Population
growth is rapid, especially in the developing world. By 2015, UN estimates
project that there will be an additional 400 million people, and that by 2020
global population will approach 7.7 billion as part of a steady growth
trajectory that is expected to top 9 billion by 2050. More mouths to feed will
require increased food production.
Feeding this growing population will not be as simple a task as increasing
agricultural output by the same rate that the population is increasing, as
standards of living are also rapidly advancing throughout the developing world.
A greater percentage of crops will be used to feed livestock as those in the
growing global middle class of consumers increase the percentage of meat and
poultry in their diet. Because significant caloric energy is lost in the
movement up the food chain from grains to meat, much more of the former will
need to be produced to provide the latter, which will drive increased demand
growth for phosphate-rich fertilizer around the globe.
As mentioned above, a recent study by the International Monetary Fund notes a
direct linkage between increasing food prices and instances of political unrest
in countries such as Tunisia, Egypt, Sudan and Yemen. Over the period of 1970
through 2007, a mere 10% increase in international food prices was found to
correspond with a doubling of anti-government protests in low-income countries.
Could continued rapid price escalation lead to similar unrest in the developed
world? The pressure is on everywhere to maximize agricultural output to hedge
against such possibilities.
Several other factors are also feeding into the demand situation for phosphate.
The proportion of arable land to living and manufacturing and energy production
space continues to fall, requiring increased crop yields that have been slow to
come. The increased production of biofuels ranging from ethanol to biodiesel is
also pitting food against energy in a potentially vicious competition.
A Threatened Supply
To be clear, there is not at present a shortage of phosphate, and the global
supply is believed to be large enough to meet several hundred years of demand at
the current rate of use. The concerns are around the anticipated rapid growth in
demand for the substance, the very criticality of the fertilizer supply as an
input to food production and the fact that so much of the world’s phosphate
reserves are in so few hands. Indeed, just as OPEC controls three-fourths of the
world’s oil reserves, some 90% of the world’s mined phosphate is in the hands of
five countries – China, Jordan, Morocco, South Africa and the USA.
The USA is no longer self-sufficient in phosphate production; it no longer
produces enough to supply its own domestic agribusinesses, and one recent report
speculates that at the current rate of production and with the anti-mining bias
of environmental activists, the country could exhaust its accessible and
currently worked reserves in as little as 15 years.
Thus, the North American domestic supply of phosphorus is dwindling rapidly.
Until 2003, the United States was an exporter of this substance. Now, Morocco
supplies nearly 10% of the phosphate rock used in the USA. A major American
mine, Mosaic’s property in South Fort Meade, Florida, may be shuttered due to
lawsuits related to its environmental impact, which would take several million
tonnes of the country’s phosphate rock production offline. In Canada, the
Kapuskasing (Ontario) mine owned by Agrium that produces around 1.5 million
tonnes of phosphate rock annually is known to be nearly depleted, with only a
few years of reserves remaining in the ground.
The United States and Canada are agricultural powerhouses – and as such, each is
highly dependent on phosphate-laden fertilizer. Canada is the world’s leading
supplier of rapeseed, from which canola oil is made, the fifth-largest producer
of wheat and a top ten producer of turkey meat, soybeans and beef. The United
States is the top producer of corn, soybeans, cow’s milk, beef, chicken and
turkey meat and a top-three producer of tomatoes, lettuce, pig meat, oranges,
cherries, eggs and wheat. While beer and wine are more often associated with
Germany and Italy, respectively, the US is the second leading producer of hops
and the third largest grape grower. Corn and wheat are particularly
phosphate-intensive crops. Any circumstances that threaten the supply of
phosphate to North America will bring severe ramifications to its citizens as
well as the many countries that rely on imports of North American agricultural
As everyone has noticed, food costs are rising even ahead of mass awareness of
the phosphate supply-and-demand situation – price increases that are driven in
part by increasing fertilizer costs. As of mid-February 2011, wheat prices had
more than doubled over the course of a year. Corn was up 87%, soybeans 59% and
sugar 22%. These increases are almost certain to continue. “I think you’ve got
plenty of people all over the world worried about food supply,” noted investment
guru James Dines. “When you’re [constantly adding to the monetary supply] you
have more paper chasing each bushel of wheat, corn and each pound of sugar so
prices are going up…So we’re in [a] super major bull market in food and that’s
what’s beginning to sink in on the world.”
I think that Dines is correct.
Companies to Consider
With this crunch in supply comes an opportunity to profitably invest in North
American-based companies that are developing potential new sources of phosphate
rock. A few to consider include Canadian junior miners PhosCan, Stonegate and
Arianne, each of which will trade at a premium as the US dollar continues to
depreciate against the Canadian currency.
Toronto-based PhosCan Chemical Corp. is the sole owner of the Martison Phosphate
Project, an igneous deposit located in Hearst, Ontario, that may have as much as
120 million tonnes of phosphate rock. The company’s current intent is to
beneficiate the rock at the open-pit mining site and then divert the product
through a 44-mile slurry pipeline to a rail head that would then transport it to
Agrium’s phosacid plant in Beamer, Alberta. Martison will also produce niobium –
which is used in the production of high-strength, low-alloy steels – as a
byproduct, with the potential to also produce some rare earth elements. The
sheer volume of material processed in such operations gives rise to the
opportunity to profitably produce some rare metals that are present in
concentrations, too low to be economical as primary products. PhosCan has been
publicly traded for several years and has a fully diluted market capitalization
of approximately $94 million.
Stonegate Agricom Limited, also based in Toronto, has a pair of phosphate
projects under development. Located approximately 150 miles east of Lima, Peru,
the Mantaro Phosphate Property is located near the city of Huancayo in Peru’s
Junin District. The measured and indicated deposits of phosphate rock in the
property’s west zone are just short of 40 million tonnes, with an additional 376
million tonnes inferred. There may also be approximately 700 million more tonnes
in the eastern portion of the property, which links to both Lima and the coastal
city of Callao via highway and rail. Stonegate’s Paris Hills Project is in
Idaho, near the center of the most extensive phosphorite beds in the US. Paris
Hills has inferred mineral resources of just under 120 million tonnes of
phosphate rock. Rail service is available less than 15 miles from the site.
Stonegate Agricom went public in late 2010 and has a fully diluted market
capitalization of approximately $240 million.
With its well-situated Lac à Paul Phosphate Project in Quebec, which has easy
access to road, rail and a deep water seaport as well as a ready supply of
hydroelectricity and water for beneficiation, Arianne Resources has an igneous
deposit of 78 million indicated and 260 million inferred tonnes of phosphate
rock with a potential mine life of more than 25 years. Due to its proximity to
transportation, the company estimates that phosphate rock from Lac à Paul can be
shipped for as little as $75 per ton – a price that offshore sources cannot
approach. As an added bonus, the Lac à Paul Phosphate deposit also contains
titanium reserves as a byproduct that could increase the total value of the
project by some 20% to 40%.
Because it has a fully diluted market capitalization of around $116 million,
Arianne could well be a takeover target for a larger producer like Agrium, which
has a phosphoric acid plant that will be idled when Kapuskasing runs out of
phosphate rock in a few short years, or Mosaic. Relative to its peers –
Stonegate, Phoscan and MBAC – shares of Arianne are severely undervalued based
on project economics, resource size, location and other factors. Due to
super-clean and high-concentrate shipped/finished ore, Arianne’s production will
command a premium price. The time to strike on Arianne is now, before the drill
uses its power as a “truth machine” to drive shares significantly higher.
Final Thoughts on Phosphate
It is generally estimated that the typical person can go no more than three
minutes without air, three days without water and three weeks without food. Food
production requires fertilizer, with phosphate as the critical component –
without phosphate fertilizer there is no way for food production growth globally
to keep up with the growth of the world’s population; it’s as simple as that.
A secure supply of this substance is essential to America’s future well being –
as well as the many other of the world’s people who depend on this nation’s
farming output. Yet the story around phosphate remains under told, much as the
North American companies specializing in its extraction are currently under
appreciated. An investment in a quality phosphate junior miner is worth a much
The technology metals, base metals and precious metals that currently command
such a significant percentage of investors’ dollars won’t be of much use to
people who do not have enough to eat.
About Jack Lifton
Jack Lifton is today's leading authority on the sourcing and end use trends of
rare & strategic metals. He is a Founding Principal of Technology Metals
Research, LLC and President of Jack Lifton, LLC, consulting for institutional
investors doing due diligence on metal-related opportunities. When not trotting
around the globe, Jack calls the suburbs of Detroit, Michigan home. Check out
Jack's full bio for more details.
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