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Where is the Exploration Money Going?

8

Pacific Potash (PP:TSXV), like many juniors, has seen its share price battered over the past two years. Take a look at the company’s two year stock chart below.

Does the chart look familiar? Pacific Potash’s stock chart probably looks very similar to a junior explorer, or two, sitting in many portfolios. However, there may be a few significant differences between Pacific Potash and many other junior resource plays.

While many junior exploration companies are in a tough financial position (in February a reported 600+ junior resource companies had less than $200,000 in the bank), our new Client and Featured Company, Pacific Potash (PP:TSXV), just completed a $2.25 million private placement financing with the intention of executing a summer 2013- exploration and drill program in an emerging potash district (click here for full news release). In addition, over the past 30 trading days – a period which has seen liquidity dry up for many juniors – Pacific Potash has traded nearly 10 million shares. It currently trades for $0.095.

So the question is ‘why’?

Why was Pacific Potash, a company with a market cap of roughly $3.8 million prior to its latest financing, able to complete a $2.25 million financing in a time period that has been deemed the worst junior resource market in 30 years? And why hasn’t liquidity in its market dried up like so many other juniors?

It certainly isn’t because Pacific Potash is a safe haven investment…like all junior exploration investments, this company is speculative and comes with significant risk; so what is the reason behind the interest in this speculative potash company?

Pacific Potash has managed to become the only TSX Venture traded company, that we could find, planning a work program in the emerging potash district of the Amazonas Basin in Brazil (100% right to undivided interest on nearly 800,000 hectares – click here for news release).

A junior explorer planning to work on an asset situated in the Amazonas Basin is significant for a few key reasons. First, the Amazonas Basin in Brazil has been somewhat off-limits in the past, but now exploration in the region is promoted by the government to hopefully reduce its potash dependency on countries like Canada and Russia. Potash is only produced in an estimated 12 countries right now, yet roughly 150 nations import it – Brazil being one of the largest importers.

Mining Investment Expected to Rise

The Brazilian government is supporting the development of potash projects in the Amazonas Basin for the country’s own sovereign economic gain and crop security. Broadly speaking, the Brazil Mining Association (IBRAM) predicts that mining investment in the country will rise to $68.5 billion by 2015, due to political stability and high-quality deposits.

One of Pacific Potash’s neighbors in the basin is Brazil Potash, a company who last year raised $58.66 million to explore its project in the area; and just this week the Wall Street Journal reported that Forbes & Manhattan is working to raise $100 million to complete studies for Brazil Potash Corp’s project in the Amazon.

The government of Brazil is hoping the Amazonas Basin, which has been compared geologically to the Saskatchewan Potash Basin and labelled a ‘World Class Potash Basin’ by Brazil Potash, will relieve some of its dependence on importing potash.

Brazil, its farmers and its people are at a huge disadvantage right now simply because they have to pay a large premium on potash due to importing costs, mainly from Canada and Russia. It has been estimated that if Brazil can develop its own potash producing region, it will lower its importing costs from roughly $200 a tonne to around $50. That’s a huge cost savings.

Potash Shipping Routes to Brazil

Remaining import dependent for potash is a recipe for disaster from the government’s standpoint because Brazil is the world’s third largest importer of the commodity and its domestic demand keeps rising.

In fact, potash consumption in Brazil has grown 40% in the last 5 years. To Brazil’s credit, it has a federal plan to reduce imported potash from 91% to 60% within the next five years. For the country to achieve this lofty goal, it will require aggressive exploration and new potash mine development within the country. And in order to try and develop potash mines, the Brazilian government is supporting exploration in the Amazonas Basin – possibly because Petrobras, whose biggest stakeholder is the Brazilian government, identified a non 43-101 compliant historical resource totaling 1.1 billion tonnes of potash on two deposits (combined) within the Amazonas Basin. Ironically, this discovery was made by Petrobras while the company was searching for oil; like so many great discoveries, a little serendipity was involved.

Petrobras’ deposits are known as Arari and Fazendinha. At the Arari deposit, Petrobras identified 659 million tonnes of 17.7% KCl* (2.47 m thick) and at the Fazendinha deposit, Petrobas identified 520 million tonnes of 28.8% KCl* (2.63 m thick) – Non 43-101 compliant.

Petrobras’ two potash deposits are situated approximately ~20 and ~40 km from the property being optioned by Pacific Potash within the Amazonas Basin.

The Amazonas Basin is similar in depth, age, original and scale to the basin in Saskatchewan. Within the basin there are some key players to be aware of – they are:

Potassio do Brazil (Brazil Potash) – Forbes Manhattan Affiliate. Completed a US$58 million capital raise to further develop its project in the Amazonas Basin, announced May 31st, 2012. Also of significance, Brazil Potash made a potash discovery in close proximity to the property being optioned by Pacific Potash. In addition, the chief geologist for Brazil Potash’s exploration program in the basin, who was instrumental in the company’s recent discovery, is now advising Pacific Potash for its planned exploration program.

Petrobras – Already identified a historical, Non 43-101 compliant potash resource in the Amazonas Basin (mentioned above) and its major stakeholder just so happens to be the Brazilian government.

Pacific Potash’s location and surrounding neighbors – click to enlarge:

Pacific Potash has a 100% right to undivided interest on 90 mineral exploration licenses in three separate contiguous blocks within the Amazonas Basin that cover an aggregate total of 795,824 hectares (click here for details from company news release). Furthermore, the leader of bringing money into the Amazonas Basin for potash project development of late is a company known as Brazil Potash (aka Potassio do Brasil – mentioned above). This private company has been making headlines for its potash discovery which is in close proximity to the property being optioned by Pacific Potash.

Brazil Potash is partly owned by Canadian merchant bank Forbes and Manhattan. The company is planning an IPO on the Bovespa exchange later this year or in early 2014. Media outlets have reported the company may raise anywhere from $300 million to $1 billion (more on this later).

Brazil Potash’s CEO, David Argyle, stated that the company is hoping to prove a 650-million to 700-million ton resource capable of producing 4 million tons yearly of potash.

In addition, according to Mining Weekly, Brazil Potash has already signed offtake deals with two Brazilian agricultural firms and aims to start building a mine in early 2014, with first production penciled in for mid-2017.

Take a look at some of the drill results returned by Brazil Potash on its asset which is in close proximity to the property being optioned by Pacific Potash (see map above for location):

Brazil Potash Drill Result Highlights:

Discovery Hole PB-AT-10-02 resulted in 1.86m @ 32.59% KCl
Hole PB-AT-11-03 resulted in 1.76m @ 21.10% KCl
Hole PB-AT-11-09 resulted in 1.82m @ 39.94% KCl
Hole PB-AT-11-12 resulted in 2.31m @ 35.20%
KCl Hole PB-IP-11-03 resulted in 2.20m @ 23.26%
KCl Hole PB-IP-12-06 resulted in 4.84m @ 25.74% KCl

Reuters reported last month, in an article by Sabrina Lorenzi, that Brazil Potash’s Project “holds 500 mln tonnes of potash resource.”

In the Reuters article it stated:

“The Brazil Potash asset is one of several potential potash projects in a 400 kilometer (250 mile) potash belt south of the Amazon river. Brazil’s mines and energy ministry believes the region could produce enough potash to eventually make Brazil one of the world’s largest producers.”

image source: Brazil Potash corporate presentation

The Reuters article elaborated “The Brazil Potash project is expected to cost $2 billion to $3.5 billion to build and Brazil Potash hopes to sell as much as $1 billion of stock in its Brazil-based Potássio do Brasil operating unit in the next year to help finance construction, the source said.”

Click here to read full article.

The Connection

Brazil Potash’s results speak for themselves. As we touched on earlier, the chief geologist for Brazil Potash’s world-class discovery was a man named Andre Costa. Mr. Costa was responsible for the potash exploration technical program, compiled all regional data, developed Brazil Potash’s drilling program and was instrumental in the development of its major discovery. He oversaw the compilation of historic data and execution of a successful drill program, the first of its kind in the Amazonas Basin. Needless to say, Mr. Costa knows the geology in the basin intimately.

A Key Player

Mr. Costa has joined the team at Pacific Potash as an advisor. He will be responsible for leading Pacific Potash’s planned summer drill program in the Amazonas Basin. This is a key reason behind our selection of Pacific Potash as our new Featured Company. Having Mr. Costa’s expertise is invaluable to a junior of Pacific Potash’s stature.

Pacific Potash’s Executive Chairman, Mr. Balbir Johal, stated “He has overseen the drilling of over 20 potash wells in the basin, supervised the compilation of data for Potash Brazil’s technical reports, and from a potash exploration perspective he is one the most knowledgeable individuals regarding the basin. Mr. Costa feels confident that Potash Brazil’s successes are only the beginning of things to come in the Amazon.”

Compelling Infrastructure

There are sections of the property being optioned by Pacific Potash which run adjacent to the Amazon River. It is well permeated by its tributaries through the majority of the property. A nearby section of the Amazon River has been dubbed ‘A Super highway for Soybeans’ because it provides a main source of large vessel cargo transportation (often for large ships carrying soybeans – a main export for Brazil).

The property being optioned by Pacific Potash is in the Amazonas Province (the only free trade zone in the country), in northern Brazil, roughly 150 km east of Manaus – a city with an excellent workforce, a population of roughly two million and home to a world cup game in 2014.

image source: Brazil Potash

There is direct access to both international and internal shipping routes via Manaus and Itacoatiara, with established routes used for soya exporters. The Amazon River can handle 60,000 tonne vessels. There is access to roads, water ways, ports and air-strips. The location of the Amazonas Basin provides quick-to market avenues within Brazil and to foreign countries looking for fertilizers.

Nearby roadways – source: Brazil Potash

Cargo ship at Port of Manaus

Port in Itacoatiara – source: Brazil Potash

As mentioned, Brazil’s government is actively looking to increase fertilizer self-sufficiency and is investing in stream-lining mining applications, improving infrastructure and making Brazil more attractive to foreign investments. With the built-in advantages the Amazonas Basin already has, it comes as no surprise that it is being aggressively explored by the likes of Brazil Potash.

While Pacific Potash is a junior exploration company, an inherently risky investment, we are placing a bet on this one. We have selected Pacific Potash based on location, the surrounding players, its battered share price, its planned summer work program and the strength of its technical team.

The Brazil Factor

Brazil is the world’s third largest agricultural exporter and has the world’s largest reserves of farmable and non-cultivated land. It is currently the world’s largest producer and exporter of a wide range of crop-based products, including soybean, coffee, cane sugar, orange juice, meat and tobacco. It uses roughly 75% of its potash to produce soybean, sugar cane and corn. This is a country that has to secure its own domestic supply of potash.

Brazil’s Exports

Pacific Potash (PP:TSXV) has a chance to potentially make a discovery in a region with major players (Brazil Potash and Petrobas). Of course, there are no guarantees Pacific will make a discovery, but this region has the Brazilian government’s support and the nearby infrastructure to get the product to market, if an asset was to become a mine. Significant amounts of speculative money is being drawn to the Amazonas Basin, which has been led by Brazil Potash, a company with a neighboring asset to the property being optioned by Pacific Potash.

A company like Pacific Potash isn’t in the Amazonas Basin to try and build a mine; that’s not feasible for a small company, nor is it something explorers are typically designed to do. Explorers are designed to try and make a discovery.

With the company planning for a drill program within the Amazonas Potash Basin in Brazil this summer, we felt now was the time to make the introduction.

Having Andre Costa leading the company’s work program is a valuable asset for Pacific Potash. Costa has experienced great success with Brazil Potash in the region already and he will be instrumental in determining where Pacific ends up drilling.

We don’t share in your profits or losses, so practice your own thorough due diligence. Also, we have subscribed to Pacific Potash’s recent private placement, it is a client of ours and for obvious reasons, we are biased.

Expect further updates on Pacific Potash (PP:TSXV) and the Amazonas Basin over the coming weeks.

All the best with your investments,

PINNACLEDIGEST.COM

VISIT PACIFIC POTASH ONLINE

Management Team

Advisory Board

RECENT NEWS FROM PACIFIC POTASH (PP:TSXV)

Pacific Potash Corp Acquires 100% Right To Undivided Interest In The Amazonas Basin Potash Property – February 26, 2013

Pacific Potash Strengthens Brazil Exploration and Development Team – March 1, 2013

Pacific Potash Corporation Announces Agapito Associates, Inc Opinion On Feasibility of Solution Mining – March 26, 2013

Pacific Potash Corporation Completes $2.25 Million Private Placement Financing – April 11, 2013

Disclaimer and Information on Forward Looking Statements: Please read carefully before proceeding.

Important: Our disclosure for this report on Pacific Potash Corporation applies to the date this report was released to our subscribers (April 21, 2013) and posted on our website. This disclaimer will never be updated, even after we have sold all of our shares in Pacific Potash Corporation.

All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance.

Forward-looking statements are often, but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe” and similar expressions. Much of this report is comprised of statements of projection. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Statements regarding mineral exploration operations and objectives are subject to risk, including, but are not limited to, the availability of financing; fluctuations in commodity prices; changes to and compliance with applicable laws and regulations, including environmental laws and obtaining requisite permits; political, economic and geologic risk, inflation and costs of goods and services, property title issues and regulatory approvals and other risks. Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this report. In addition, with respect to any particular company, a number of risks relate to any statement of projection or forward statement.

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Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, has been paid CDN$50,000 plus gst to provide online advertisement coverage for Pacific Potash Corporation for a pre-paid six month online marketing agreement. The company (Pacific Potash Corporation) has paid for this service. The service includes, but is not limited to, the creation and distribution of reports (reports such as this one) authored by PinnacleDigest.com about Pacific Potash Corporation, as well as display advertisements about the company on our website. We (Maximus Strategic Consulting Inc., owner of PinnacleDigest.com) subscribed to Pacific Potash Corporation’s private placement. In that private placement, we (Maximus Strategic Consulting Inc.) purchased 515,000 units at a price of $0.08 per unit. Each Unit of the placement consists of one common share of Pacific Potash (Shares) and one common share purchase warrant (Warrants). Each Warrant entitles us to purchase one Share at a price of CDN$ 0.13 for a period of 30 months following the closing date of the Offering. All securities issued in connection with the Offering will be subject to a four month hold period from the date of issuance in accordance with applicable securities law. We (Maximus Strategic Consulting Inc. and our employees and consultants) may purchase more shares of Pacific Potash Corporation following the release of this report (report was released on April 21, 2013). Every share we (Maximus Strategic Consulting Inc.) own in Pacific Potash Corporation, we intend to sell for our own profit and without further notice to our subscribers. Every share we (Maximus Strategic Consulting Inc. and our employees and consultants) may purchase in the future of Pacific Potash Corporation, we intend to sell for our own profit and without further notice to our subscribers. Please recognize that we are extremely biased when it comes to Pacific Potash Corporation.

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This report and supportive documents used in the research process of this report may use the term “Inferred Resources”. U.S. investors are advised that while this term is recognized and required by Canadian regulations, the Securities and Exchange Commission does not recognize it. “Inferred Resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of “Inferred Resources” may not form the basis of feasibility or other economic studies. U.S. investors are also cautioned not to assume that all or any part of an “Inferred Mineral Resource” exists, or is economically or legally mineable.

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