Is Anglo's potash move its biggest ever gamble?

Anglo plans to produce polyhalite, a type of potash that currently accounts for a miniscule percentage of the global market for crop nutrients. These nutrients are essential as they replenish soil and can enhance yield.The only other miner in the world producing poyhalite is Cleveland Potash at Boulby, not far from Woodsmith in North Yorkshire.But checks at Companies House last week reveal Cleveland has never made a profit. In other words, polyhalite's economic viability remains unproven at this stage.Anglo has to build a market from scratch. Compared to BHP's Jansen potash project in Canada the task ahead for Anglo looks daunting .Jansen will produce just 4.5 million tonnes a year of a mainstream potash product, potassium chloride, and sell into a sizeable market that accounts for 70Mt or 90% of global potash demand.Forecasts for Anglo's production at Woodsmith are for 20Mt or more. That would mean production equalling 20 times the size of today's entire polyhalite market which accounts for little more than 1% of potash consumption. Anglo intends to massively grow the market via its substantive, global marketing network, but some investors fret this is a tall order.The company will have to convince a large number of farmers - usually a conservative bunch -to switch from using tried and tested (and cheaper) potassium chloride products to a blended-polyhalite premium offering.One industry executive said: "You must start with field trials with farmers, and you've got to convince them that a mineral which nobody has heard of is as good as or better than what they are using today."Farmers won't alter the habit of a lifetime overnight. "It takes four or five years for a farmer to change his mind," said the executive. "He needs to be thoroughly convinced a new product is going to work properly so as not to put his income at risk."By now, you might be wondering why Anglo plans to plough an estimated $3 billion-plus into Woodsmith.The move, though, has a certain rationale. Like its competitors, Anglo views potash as a forward-facing commodity whose carbon footprint is relatively low, especially when compared to the production of other agricultural staples such as nitrogen.Woodsmith is in a greenish space very much in vogue, and with the macro picture supporting the project. There needs to be an increase in agricultural production of 60% between 2010 and 2050 to meet rising global food demand, according to forecasts. Sustaining increased livestock herds requires greater efficiency from grain production and arable land.POLY4, the name given to Anglo's polyhalite product, contains four of the six macronutrients essential for plant growth: calcium, magnesium, potassium and sulphur. But some farmers who buy potassium chloride and need additional nutrients simply buy them separately to blend in themselves. It's not clear an all-in-one product such as polyhalite would be a cheaper alternative, according to Humphrey Knight, an analyst at CRU.Anglo trumpets POLY4 as "certified organic" and having a very low carbon footprint (there's no requirement for chemical processing, for example).That said, other potassium chloride products also have a low carbon footprint.A distinct advantage of polyhalite is it contains a low level of chloride which can adversely affect some crops - although by no means the majority.And POLY4 will need to knock other low chlorine products off their perch in order to storm the market, probably via being billed as a cheaper alternative.The takeaway here is this: Anglo plans to take a niche product that's part of a niche sector and turn it into a bulk fertiliser. "That represents a significant challenge," said Knight.Perhaps this year, Cleveland Potash can demonstrate it can make a profit off the back of record potash prices due to the imposition of sanctions on key producers in Russia and Belarus following Putin's invasion of Ukraine. Supply gaps could be filled by polyhalite in the absence of anything else and be a first taste for farmers of the mineral's potential.In the interim, the final bill for Woodsmith is unknown as Anglo is revamping the project that involves building a 37km conveyor belt to take the material to a port on Teesside. Former owner Sirius Minerals said the mine would cost £3.3bn and involve sinking two 1.5km-deep mine-shafts. But new Anglo CEO Duncan Wanblad will not be ready to outline the final plan till the end of the year."There are currently more questions than answers," said Knight.

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