Potash Lease

[parsley]

The potash company itself sent me a formal offer and a formal agreement form to sign.

We do have a lawyer in the immediate family, who I am quite sure I can convince to check the agreement if I should take the notion to proceed, on some fine Monday morning.
But thanks for your kind concern, oneoff. Parsley

[mrossm3]

I own MR's on a 160 acres about 2 KM's (stoney beach) from the operating Mosaic Solution mine in Belle Plaine. I know they are expanding north. I have had a land-man chasing me for quite some time @ $100 per acre to SELL the rights. I have been digging about for a couple of years trying to get an answer on the worth of those M rights but to no avail. If you or someone else on this forum has an idea I would sure like to have a discussion and gain some insight.

[sumdumguy]

is that $100/acre/year?

[oneoff]

If you are asked to SELL the rights; that 100.00 per acre is likely to appear in one and only one cheque.

After all it isn't reasonable to still be receiving $100.00 per acre per year until eternity. There would come a time after the resource is mined and gone...that some bean counter would catch on that payments had to cease.

[oneoff]

And pars.....not everyone has a lawyer in their family.

and I have never doubted that some people are quite capable of looking after themselves.

But in matters like mineral rights and leases; its pretty safe to say that only a very few persons even know what the questions are that should be clarified.

[oneoff]

You know that back in the early 1950's Imperial Oil signed up leases for oil rights in Sask for 3 cents per acre per year.


And if the option was taken up to drill a well and they obtained commercial production of hydrocarbons; then a royalty of one barrel in eight was due to the oil mineral right holder. And that's where the old standard of a 12.5% royalty came from.

Fast forward to 2015 and we have potash companies looking to tie up the relatively few potential reserves that are not under lease by ordinary members of the public.

My question to the readers is have you ever thought how many tonnes of potash per acre might underlie a quater section that probably has the highest purity of potassium anywhere on the face of the earth.

Now the next step is the mind blowing one.

At an analogous "one barrel in eight" you could settle for with any oil company or speculator lease; just what fraction would you settle for with potash.

My guess is that most uncommitted potash rights owners don't even know what the point is.

Any idea what the gross value of the potash is under that quarter section?

Or in other words...how many pennies per ton will you receive when that resource is mined?

And thats my answer to the reply above about a relationship between crude oil and price at the pumps. Maybe with oil its out of whack by a couple of times its value......but I'm guessing that potash companies pay a ridiculously low royalty (or maybe nothing) to the rights holders above the lease payment (or an outright sale)

All I know is the pennies on the dollar deal they have with the provincial government for royalties. Why would they pay even that same fraction to an ordinary potash mineral holder who has zero chance of ever mining their own potash reserves.

[oneoff]

Based on what should now be called the history of the boom period that may just have ended; it appears that an approx 4.7% royalty (maybe plus or minus 4.7%) was the cut given to various lease holders.

Going forward into uncharted water; it might be wise to factor in that extremely high construction and operating costs are involved; the provincial government has just overhauled lease and "block' rules through legislation etc. etc.
Further; what demand will be; who the customer(s) will be; how price levels are set; who pays the bookkeeper; and whose interest is most important to the business.

It appears any payout to mineral owners, speculators or government coffers as well as decisions made regarding naming rights; pet projects and so on are outside the open ended lease deals that an extremely small number of people are looking at as a lottery windfall.

Who knows....even that might change

[oneoff]

One last thought

From the responses to this thread it sounds like the market value that has been set is approx. $40,000 per quarter when full mineral rights are involved.

Its certainly possible to sell only the potash rights and retain the rest.
Buyers and speculators are also capable of accepting a deal with other assets thrown in for free.

So it appears that the going rate is $40,000 for potash rights; money supposedly upfront and no hidden costs.

The alternative is that over an approximate 80 year operating life of a mine you enter into a "pooling" agreement that you might as well be satisfied whatever the amounts are over the next several generations.

Your minerals and everyone else's are in a pot that as its mined... and priced... and sold to who knows whom..and if disasters are avoided at the mine and in potash business in general.......you're looking at the time value of $40,000 per quarter section of potash minerals.

Putting it into perspective is $40,000 really big money. Farm land values have increased that much in much shorter time periods; and like pipelines; there are costs and restrictions and affects that not all come to mind without some thought.

[mrossm3]

When you consider a section yields about 6.75 million tonnes of product at about $300 US per tonne and subtract about 72% production costs there is still $567M profit in a section. $40,000 per section sounds pretty low ball as it represents significantly less that 4.5%