Caught in the Crosshairs: Bidding War Speculation Bumps Western Potash Up 20 Percent

Shares of Western Potash (TSX:WPX) spiked today, fueled by rumors that the development and acquisitions company could be at the center of a bidding war. 

Investor speculation was spurred on by a report from Stephan Bogner, analyst at Rockstone Research. The report, the first since Rockstone initiated coverage of the potash firm on February 19, surmises that the advanced-stage potash company is caught in the “crosshairs of a deep-pocketed suitor.”

Rockstone views recent buying activity as a possible signal that the company is on the verge of a potential takeover, or at the very least, gearing up for a joint venture with a mining industry giant.

Bogner’s report picks up on cues from an article written by India’s Dr. Didar Singh, current secretary general of the Federation of Indian Chambers of Commerce and Industry; Singh’s article emphasizes that Canada plays a unique role in Southeast Asia’s food supply. Bogner also considers comments from a 2012 announcement in which R.G. Rajan, chairman of Rashtriva Chemicals and Fertilizers, laid out India’s intention to purchase potash mines in order to secure the fertilizer. Bogner hypothesizes that Western Potash is an ideal candidate for India to acquire.

The plot only thickens from there. Rockstone also examines other joint ventures or acquisition opportunities for Western Potash, starting with sovereign wealth funds and Chinese end users, but also looking at major players like K+S, PotashCorp (TSX:POT,NYSE:POT) and Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO).

No doubt what makes Western Potash such an enticing acquisition is the promise found in its flagship property. The company is working on the Milestone property in Saskatchewan, which sits some 80 kilometers southeast of Mosaic’s (NYSE:MOS) Belle Plain mining lease. Milestone has the potential for a 40-year mine life, has completed the feasibility stage and has received environmental assessment approval. In June 2013, Western Potash announced the closing of a strategic investment with ChinaBlue Chemical and Benewood Holdings. Milestone could produce up to 2.8 million tonnes of potash annually, and has one of the lowest projected production costs in the world of potash.

Only time will tell if Rockstone is correct. But given that Western Potash’s project boasts some impressive economics, it shouldn’t come as a surprise to investors if there is a deal in the works.

Western Potash closed Thursday up 20 percent, at $0.54.

 

Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.