Peak Oil=Peak Food
Most educated people are fairly comfortable with the concept of peak oil. Oil fields worldwide gain in production until production peaks and then it goes down. Peak oil does not mean we have run out of energy, it just means it will become scarce and more expensive. There will be less around to share.
Food requires fossil fuel to produce. There are formulas covering just how many kilocalories of fuel it takes to produce calories of food but in simple terms, if you have peak oil, you also have peak food. With a third of the world surviving on $2 a day, billions of people in the world are on the edge of starvation daily. Peak oil appears to have been in May of 2005.
If the price of gasoline doubles, consumption goes down. That's how economics works, it is taught in Economics 101. As price increases, demand goes down. But what happens when the price of food doubles? Are you going to consume half as many calories? [Editor's note: Actually that's a good idea, if most people in the Western world consumed half the calories, they would be a lot better off, physically, financially and therefore mentally.]
The world faces a giant issue with that of peak food and it's not something you hear discussed very much but it's very real. We need to produce more food. We somehow need to do it with less energy.
We don't hear very much about global warming anymore except from Al Gore. Everyone else recognizes it for what it really is, climate change. And everyone in the mining business knows that the climate has been changing on a regular basis for eons. But the climate change looks a lot more like global cooling than global warming.
Global cooling could prove to be a bigger problem than global warming and far sooner. Don Coxe of the BMO Financial Group reports that the world could face global starvation if North America has a major crop failure. Furthermore, the next food crisis, when it comes, would be a far bigger shock than $147 oil.
Coxe says, "It could happen as early as this fall if for instance we have a killing freeze in Iowa in August."
The US Congress in it's infinite wisdom has just passed the largest tax increase in history all based around the flawed theory of global warming based on the production of greenhouse gasses. It was a brilliant political move worth of an institution made up of pimps and prostitutes. Not a single CongressCritter read the bill.
They couldn't have, it wasn't printed up before the vote. [Editor's note: And it was timed well, the global media's attention was totally and absolutely taken over by the coverage of the death of Michael Jackson].
It will be the largest tax increase in history and consisted of 1,201 pages of text. You may feel like shuddering, I do. One of the most significant laws in history and Congress can't be bothered reading it. Sounds like the Patriot act. The cost of energy is about to jump in the United States and that means the cost of food is about to jump.
There is a solution of sorts to the food verses energy issue. Use more potash.
Potash is hot right now and has been for the past year. If you need to improve food production, you need to use more potash for fertilizer. Canada is the world's biggest producer.
The Holbrook Basin in Northeastern Arizona has 3,500 square miles of salt beds with as much as 600 square miles of potash deposits under the basin.
I went out to Arizona to see a new junior company last December. The company was Passport Metals (PPI-V), set up to take advantage of the boom in potash. Within the Holbrook Basin, they control 18 square miles or 11,520 acres of prospective potash deposits. They have the potential for a JV on another 3 square miles of the basin.
Steven L. Rauzi, Oil and Gas Administrator for the state of Arizona has estimated the basin contains a total of 2.5 billion tons of potash. Arkla Exploration Company drilled over 100 holes during the 1960s and 1970s to define a resource. Their drill data is still available.
It's taken Passport six months to get a drill permit and they lead a pack of juniors interested in developing other parts of the basin. By being in the right place at the right time and a lot of hard work, PPI leads the pack by about three months. They were the first to get their drill permit.
They are drilling right now. Results well be released very soon. Arkla drilling revealed that the primary potash target is between 900 and 965 feet deep. There may be a secondary potash zone about 40 feet deeper so Passport project manager Terrance Smithson is drilling down to just below 1,000 feet.
Drilling a salt deposit isn't expensive. PPI figures the cost will be about $80,000 total with future holes costing maybe $25-$30 a foot. Terrance is using diamond core for the first hole in order to correlate the Arkla results with the diamond core. If they get similar results of the first twinned hole, it's possible they can use the historic data still on file to determine a resource. Naturally that will save them a lot of money, as much as $5 million for 100 holes.
Determining grade and depth of a potash deposit is fairly simple. You use down-hole geotechnical tools including natural gamma ray, spectral gamma ray and density measuring instruments. PPI will know width and approximate grade in a few days.
The bagged and tagged core is being sent to ALS Chemex in Reno for further testing. One of the most important cost issues is solubility. There are a number of potash minerals. Some are soluble, some are not. If what PPI finds is soluble in water, the deposit can be mined using what is called dissolution. You pump hot water down both vertically and horizontally to dissolve the potash. The fluids are brought to surface and dried in giant holding ponds. The Arizona heat is perfect for mining potash via dissolution. The alternative is to mine using conventional drifts and stopes.
Passport is exceptionally tightly held. Since there hasn't been any news, the stock has been pretty quiet for the last six months. I don't expect that to last for long. With a present market cap of about $4.3 million, the shares have a long way to run.
Drilling though salt doesn't take long. Passport has finished the first hole and will be releasing results this week. The 2nd hole has been started and will be finished this week, look for those results next week. And there will be a 3rd hole completed in about 10 days with results a few days later.
We have been shareholders of PPI for nearly a year. I buy into the story. While most commodities have been hammered, the potash industry is still showing near record prices. Demand is down for now but the current record drought in China and a potential freeze in the US makes any potash play an interesting bet.
I like the management of PPI. They are an advertiser and we own shares. If there is another placement soon, I anticipate that I will buy more shares. We are biased. There is a world of information out there about potash and I highly encourage all potential investors to go to Google [Editor's note: Or, better still, Bing... Bing is now the search engine of choice in my browser] and study up. It's a great story. As always, we don't share in your gains, we don't share in your losses and you are solely responsible for conducting your own due diligence.