Anglo Potash (AGPOF.PK) & Potash One (KCLOF.PK)

Dear Bottarelli Research Member,

I’ll be recommending two (2) new small-cap companies in today’s alert, just like I did the week before last. Both companies have been quietly moving up in a sector that’s on fire. This exploding sector is based around the global need for food, but today’s two new small-cap picks have a specific emphasis on fertilizer and potash.

With a global “tug of war” over every food source you can think of, you can bet that the huge demand for fertilizer and potash will remain in place for many, many years. Today, I want to get us positioned in two of the best small-cap potash and fertilizer companies. And by doing so, we’ll handsomely profit off this forthcoming (and inevitable) multi-year up-trend.

The first company is involved heavily with BHP Billiton (BHP – NYSE), who just announced their intention to get into the potash business. Let me tell you, if anyone has the muscle and the money to successfully enter this sector, it’s BHP. Aside from BHP’s deep pockets, their team of mining experts and huge client base could very easily turn this first small-cap gem into one of the best picks we’ve ever made.

You see, this tiny company has accumulated one of the world’s largest potash landholdings — currently over 1.8 million acres! And of this 1.8 million acres, 1.6 million acres surround six world-class Saskatchewan potash mines that have been in production since the 1960s. Yes, you are reading that correctly. In addition to their joint venture with BHP, they could be sitting on 1.6 million acres of potash deposits. I don’t think I have to say any more to recognize the potential here.

So on that note, your first pick this week is Anglo Potash (AGPOF.PK).Based on the research and due diligence I’ve conducted, I think we’re all going to be smiling for a long time with this one.

Your second pick this week has been quietly accumulating land immediately adjacent to Mosaic’s Belle Plaine deposit in southern Saskatchewan (which is the largest potash solution mine in the world). I’m not sure how many of you are familiar with Mosaic (MOS – NYSE), but it has been one of the biggest run-away winners on Wall Street. MOS has gained over 600% since their listing in late 2004. In fact, for those of you who subscribe to Bottarelli Research Options, we’ve done extremely well trading MOS. Just look at this chart and you’ll see why:

As I poured over the statistics on this company, I became more and more impressed. You see, since 2005 this early stage explorer has accumulated 336,000 acres in a location called The Legacy Project (which is close to Mosaic’s mother load). Within this project are these staggering estimates of indicated and inferred mineral resources…

• Indicated Mineral Resource: 36.80 million tons of potassium oxide (K2O).
• Inferred Mineral Resource: 360.4 million tons of potassium oxide (K2O).

Potassium oxide is a key fertilizer ingredient. And this company is one of the very few junior public companies with current potash permits (and active work programs) in the Saskatchewan Potash basin. This is truly an amazing story. It pays to be early, folks!

As the drills begin to turn, you can expect to hear a lot of news coming from these guys – especially when they prove exactly what they have in the ground. This alone is mouth-watering to an early-stage investor, but as I poured deeper into this gem, I quickly learned that their management team has a very strong track record of creating tremendous shareholder value.

For example, this same management team was involved with a uranium company called Energy Metals Corporation – and at the time – it was one of the fastest growing companies in Canada. It grew from a market capitalization of $10 million in 2004 to $1.2 billion, and then it was sold off to a major uranium producer in early in 2007. As you can imagine, this phenomenal growth (culminated by the eventual sale to a larger company) made some early investors quite wealthy.

I’m sure you know where I’m going with this…

If history repeats itself, then this very same management team is once again preparing to build up their newest company – with the intention of selling it off at an incredible multiple to a major producer (like MOS, perhaps?). These guys have done it before, and they’re certainly capable of doing it once again – and I want to be sure that we’re all positioned to reap the benefits.

This is the kind of early-stage investing that can make you very, very wealthy. To my eye, this is one of the very best companies involved in the exploration of potash, and I want to make darn sure we all have a little piece of this puppy. You’re getting in on a small company that has situated themselves right beside the world’s largest known mine, so let’s get positioned in this company as well.

Today’s second company is Potash One(KCLOF.PK), and like most of our other timing entries, I’ve been waiting for the right time to strike. That time is now.

Both Anglo Potash (AGPOF.PK) and Potash One (KCLOF.PK) are perfectly situated for explosive gains. Anglo Potash has the largest backer you can ever wish for, and Potash One has substantial landholdings right next to Mosaic’s mother lode. I expect each of these positions to be very exciting for us, and I urge you to own both companies.

UPDATES

Titanium Metals (TIE – NYSE): Shares enjoyed a massive upside move on Wednesday after the company reported that first-quarter profits rose to $76.4 million ($0.41 per share), beating Wall Street estimates. On the news, TIE gained over $2.50, good for a 16% gain. This could be the beginning of another upside move, so maintain your position in TIE for more gains. Hold.

Graham (GHM – AMEX): Right after we put out our sell alert last Friday, GHM opened on Monday over $64.00 a share, so I hope you booked these fantastic gains! Bryan and I both believe that we could see a pullback, and if we like what we see, then we may get back into GHM. But for now, all of our gains have been booked and the position is officially closed. Congrats on a very nice winner.

General Moly (GMO – AMEX): Our small-cap molybdenum play has once again pulled back, but as steel prices continue moving higher, the investing thesis on GMO remains strong. Remember, molybdenum is a key ingredient in making steel, so let’s use this “seasonal weakness” to once again buy the dip. GMO is proving out yet another mine (called the Liberty Mine) which comes in addition to their Mount Hope project in central Nevada. As you already know, the Mount Hope deposit is considered one of the world’s largest and highest grade molybdenum deposits. Not only that, but they have also teamed up with steel giant POSCO, and the details of this partnership should all be finalized this July. A small-cap company partnering with a major is always music to my ears, so let’s add to our position in GMO now. Buy.

Terra Nostra Resources (TNRO.OB): I’m getting very frustrated with the action on this pick, even after they reported another great round of earnings. Therefore, I’m putting it on the “short leash.” I certainly thought this stock had all the right signs of a winner (and it still may) but it has fallen hard alongside a number of other Chinese companies. Therefore, I need to see shares move back up. And if not, it might be time to move on. I’ll give it a little more time, so for now, continue to hold. Hold.

Interoil (IOC – AMEX): IOC announced that they have secured their financing, which is exactly what I’ve been waiting for! As a result, we’ve seen a strong upside move in the stock. But the best part about this arrangement is the fact that IOC has given their investors an equity stake in the company for the price of $22.65 per share. Folks, this is absolutely great for us because we entered IOC right around this price (if not even lower). In other words, we’re in at levels at or below what this new group of investors paid for their stake! Talk about a great entry price. Furthermore, think for a moment about why these investors agreed to take an equity stake instead of cash. I firmly believe these inside investors know a whole lot more than we do about what lies beneath the ground, and it’s the very reason they took an equity stake. It’s like saying, “you can either have $100 today or $200 tomorrow.” To me, that’s a simple choice. The future looks very bright in IOC, so continue to hold for more gains. Hold.

Northern Oil & Gas (NOG – AMEX) & Brigham Exploration (BEXP – NASDAQ): Our two newest oil and gas recommendations continue to look great, and they appear poised to move even higher. On NOG, an early investor just exercised their warrants, giving NOG a cash infusion of approximately $9.8 million. This is fantastic news, since this now gives NOG enough cash to move forward with their drilling objectives for the foreseeable future without worrying about financing. We are going to be hearing a lot from both companies over the coming months, so make sure you own both NOG and BEXP. Hold.

New Portfolio High Water Marks: And finally, we’ve seen a fair share of new “high water” marks across many of our other small-cap picks. Companies like Canadian Solar (CSIQ – NASDAQ), Gran Tierra Energy (GTE – AMEX), Polymet Mining (PLM – AMEX), and International Coal Group (ICO – NYSE) have all registered new highs in our small-cap ledger this week, so continue to maintain all of these positions for more gains. When I see a nice collection of companies hitting new high levels like this, I get the feeling that we’re very well positioned for some tremendous returns heading into the summer months.

So on that note, have a great weekend. And as always, be sure to give thanks for the abundance in your life.

Sincerely,

“The fertilizer industry has been on a high as major companies across the sector have reported first-quarter profits that more than doubled—and occasionally nearly tripled—in the past year.”

- Forbes, May 2^nd 2008

“There are no other potash mines in all of Asia.”

- Keith Crosby, Canadian potash mine worker for 30 years

“Saskatchewan is the Saudi Arabia of potash for the world.”

– Steve Halabura, President of North Rim Exploration

Last week, I began by recommending a way to protect our small-cap ledger against any market downside action. Specifically, I recommended the DIA June 125 Puts (DAW RU) for $1.47 per contract, and gave a standing order to sell these puts if they traded at or above $2.00. As of today’s trading, these puts have indeed traded as high as $2.16 per contract, good for a one week return of 46.94%. Therefore, this position has done its job of properly protecting us against market weakness, and our gains have officially been locked in. Congrats on a nice “protective” winner!

Moving on to today’s new recommendations, let’s begin today’s alert by asking a simple question…

“What is potash?”

By definition, potash refers to mineral and chemical salts that contain potassium.

Potassium (K) is the seventh most abundant element in the earth’s crust. It’s found in every cell of plants and animals, is essential for their growth, and helps plants fight stress, disease and injury. In other words, potassium helps plants grow strong stalks in the same way that calcium gives humans strong bones.

From this description alone, it’s easy to see why potassium is a critical and necessary element for fertilizer. It’s absolutely essential for plant growth — and there is no substitute.

Potash (pictured above) is mined from naturally-occurring ore deposits that were formed when seas and oceans evaporated. Although potash can be used to make glass, soap, television tubes, perfumes, de-icers, oil-well drilling mud, pharmaceuticals, ceramics, and even explosives, 95% of potash is used to make fertilizer. And as an interesting “fun fact,” the first ever U.S. patent was issued in 1790 to Samuel Hopkins for an improvement “in the making potash and pearl ash by a new apparatus and process.”

Now here’s the thing. Despite the fact that potassium is the seventh most abundant element in the earth’s crust, it is very, very rare to find a mineable potash deposit.

Currently, potash is found in only 20 regions of the world, and of those 20 regions, only 12 countries have the ability to produce potash. Considering potash is consumed in over 150 countries, it’s clear that the global potash industry has very high barriers to entry.

Of all the potash-rich regions across the globe, Canada has the world’s largest and best potash reserves. 95% of Canada’s reserves are found in the province of Saskatchewan.

In fact, Saskatchewan contains over 50% of global potash reserves. That’s large enough to supply global fertilizer demand for several hundred years, and since Saskatchewan’sdeposits are found inflat-lying and evaporated sea beds, they represent the world’s best place to mine potash.

In terms of demand, China is the world’s largest consumer of potash, followed by the United States, Brazil, and India. And it’s easy to see why. The two drivers of potash demand are population growth and economic growth, both of which show no signs of slowing down.

The world population, for example, is currently growing at the rate of 75 million people per year (most of this increase is occurring in Asia’s developing countries). This growth is expected to continue until at least 2050, and if it does, we’ll have over 9 billion people living on earth. That’ll represent a 2.5 billion increase from the global population of 6.5 billion registered in 2005. In other words, we’ll have 40% more mouths to feed in 40 short years.

And as you very well know, there is only a set amount of land on the globe. In fact, the amount of arable land is decreasing on a per capita basis. You see, as our growing population becomes increasingly urbanized (which reduces the land available for agricultural), this puts tremendous pressure on farmers to increase their crop yields. Fertilizer is their one and only solution. In fact, data from 157 years of studies on crop production indicates that fertilizer using soil-replenishing nutrients can increase crop yields between 30% and 50%.

Since 1995, every year but two has seen growth in potash demand. And going forward, potash growth will continue to increase at a yearly average rate between 1.7 to 2.0 million tons per year. That’s the equivalent of a new potash mine each year!

This demand is now beginning to effect potash prices. For example, the price of potash has increased from $175 in January of 2007 to $425 as of April 8^th 2008. That’s a remarkable increase, and it’ll only grow larger. For example, just look at the link below, which breaks down the potash demand by country, and you’ll see that the demand is nowhere close to slowing down. Click on a country, and then click on the Fertilizer tab for all the details.

http://www.potashcorp.com/media/flash/world_map/

So what you have is a situation where key fertilizer supply is constrained while demand continues to grow. Plus, toss into the mix the changing diets of developing nations, and the supply/demand imbalance grows even larger.

You see, the increasing wealth of developing countries means that their populations can now afford to consume a greater quantity and quality of food (namely meat) which increases the demand for cereal-based animal feed. And I won’t even get into the increase in biofuel production, which has also pressured commodity prices.

Throw it all together, and the fertilizer industry has been on fire. Major fertilizer companies have all reported Q1 profits that more than doubled, and occasionally tripled, in the past year. Names like Potash (POT – NYSE), Bunge (BG – NYSE), Terra Nitrogen (TNH – NYSE) and CF Industries (CF – NYSE) all posted skyrocketing first-quarter results. See for yourself:

• Potash’s first-quarter net earnings nearly tripled to $566.0 million, or $1.74 a share, plowing through analysts’ estimates for earnings of $1.52 a share.
• Bunge’s sales increased 70% and net income shot up to $289.0 million in the quarter from $14.0 million a year ago, more than twice as much as Wall Street had been expecting.
• Terra Nitrogen’s first-quarter net earnings more than doubled to $81.6 million on strong U.S. demand for nitrogen.
• CF Industries said net earnings nearly tripled, driven by higher prices for nitrogen and phosphate. Profit rose to $158.8 million, or $2.77 a share, from $57.2 million, or $1.02 a share.

MAKE NO MISTAKE: This story is showing no signs of slowing down. And that’s why Anglo Potash (AGPOF.PK) and Potash One (KCLOF.PK) are such powerful investment plays right now.

Anglo Potash is a junior potash company focused on exploring and developing Saskatchewan’s first new potash mine in almost 40 years. In fact, Anglo Potash has accumulated one of the world’s largest potash landholdings at over 1.8 million acres, and of this, 1.6 million acres surround six world-class Saskatchewan potash mines.

Not only has Anglo Potash acquired some of the world’s best potash land, but it has also partnered with the world’s largest and most diversified mining company: BHP Billiton.

And not only does BHP have the expertise and the capital to see a potash project of this size and complexity through to fruition, but they also have the global network to get product to market. There is no other company out there that has more mining expertise then BHP Billiton, giving Anglo Potash an unparalleled advantage for success. As Mark mentioned above, BHP has developed mines in every continent on earth, and they are extremely focused on developing a potash mine. The details of the Anglo Potash/BHP Billiton J/V are as follows:

• Anglo Potash has a 25% Stake (yet able to use BHP’s engineering and exploration expertise).
• BHP Billiton has a 75% stake (which is appropriate, given they’re putting up all the seed capital).
• BHP Billiton agrees to spend up to $40 million towards a bankable feasibility study from June 2006 through to the end of 2011.
• If BHP Billiton decides to go ahead a develop new mine, Anglo Potash receives an additional $10 million.

When it comes to evaluating Anglo Potash as an investment opportunity, here’s what I find very interesting. As it stands today, the company has conducted two technical reports, and these two reports cover only 6% to 7% of the 1.6 million acres of landholdings that Anglo Potash controls.

Therefore, it’s easy to see that we’re jumping on board in the very early stages of the game. All the pieces are in place, and if things progress the way we expect, this could truly be a mammoth winner for our small-cap ledger.

But not to be outdone, we also have a powerful investment opportunity in shares of Potash One.

Like Anglo Potash, Potash One is also well-positioned to benefit from the growing global demand for food, feed, and biofuels, but what separates Potash One is their Legacy Potash Project. You see, Potash One is one of the only junior exploration companies that owns current potash permits and active work programs in the Saskatchewan Potash basin.

In 2005, not a single investor knew what potash was, but that’s when Potash One began acquiring their landholdings surrounding the largest potash basin in the world. Smart move! This early entry into the potash industry has given Potash One a strategic advantage over its competitors.

Their Legacy Potash project is situated immediately adjacent to the largest potash mine in the world (Mosaic’s Belle Plaine) in southern Saskatchewan. In 2008, Potash One acquired three additional potash exploration permits in this powerful project, which now gives them four active permits covering over 336,000 potash-rich acres.

As Mark mentioned, their latest technical report estimated 36.8 million tons of indicated K2O and 360.4 million tons of inferred K2O. And based on the history of their management team, you better believe they’re planning to rapidly increase their company’s value (via stock price appreciation) with the intention of selling out to a major producer for a very high price multiple.

Now, when it comes to the timing of their new potash mines, both Anglo Potash and Potash Onedon’t expect anything to be ready until 2013 (five years from now).But that doesn’t mean we can’t see upward price movement in the shares. Based on the continuous global potash demand, any company with a hint of potash deposits will be “in play” for the immediate future. This truly represents an early stage investment opportunity, and that’s why I consider both Anglo Potash and Potash One dynamite additions to our small-cap portfolio. All things considered, let’s establish a position in each company now!

PLAY #1: Buy shares of Anglo Potash (AGPOF.PK) at or under $6.50, good for the week.

PLAY #2: Buy shares of Potash One (KCLOF.PK) at or under $3.50, good for the week.

Note: In addition to the U.S. Pink Sheets, both companies also trade on the Canadian stock exchange under the symbols KCL.V and AGP.V.

Sincerely,