REALAZ Potash Profile · due to world population growth and a corresponding need for increasing crop yields. Four powerful drivers are fueling demand for increased food production:

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IntroductionPotash Mining, Processing and Distribution

Real AZ Development Council

Real AZ Corridor

Real AZ Corridor

Real AZ Corridor

is one of the four sectors identified by the

as having very

strong economic development potential in

the . Potash Mining directly

impacts the world agricultural, food supply

and mining markets; has proven potential in

the Holbrook Basin; and will be a source of

sustainable, long-term economic growth and

jobs in the region – potentially for the next

80 years.

The outlook is impressive. The potential for

significant, long-term potash mining in the

has been demonstrated

through drilling and resource reports and two

global companies have begun major capital

investment programs. A third privately held

company is also at work in the region. Their

combined efforts are expected to produce

500 to 800 short-term construction jobs once

permitting has been completed, and up to

1,500 full-time mining and related sector jobs

over the next 5-7 years.

The development of the Potash Mining,

Processing and Distribution sector will

produce significant new capital investment

throughout the as

supporting or complimentary businesses

develop and result in significant annual

payroll growth, incremental wage growth,

facility construction, new business

development and the retention and

expansion of existing businesses that benefit

from the expanding regional economy.

Potash mining in the Corridor is expected to

produce up to 2.5 billion tons of potash, be

productive for more than three generations,

and create full-time jobs that pay an average

of $70,000 a year.

Potash’s Role in World Markets

Potash is the term widely applied to naturally occurring potassium salts and the

commercial product derived from them. It is a primary source of mineral fertilizer and

an important crop nutrient.

Potash contains potassium, which

helps produce healthier, higher crop

yields and is one of the three most

important nutrients to plants:

nitrogen, phosphorus and potassium.

It is primarily used as a soil fertilizer which

improves water retention, yield, nutrient value,

disease resistance and the taste, color and

texture of food crops.

Crops infused with potash are more likely to

survive harsh environments and ward off attacks

from disease and pests. Potash has application

to a wide range of fruit and vegetables, grains

(rice, wheat, corn), sugar, soybeans, palm oil

and cotton – all of which benefit from the

nutrient’s quality-enhancing properties. It is

considered to be critical to the protection and

expansion of the global food supply.

Ninety-five percent of all potash produced

worldwide is used for crop improvement.

There is no known substitute that is as

effective for this use.

In addition to its use as a fertilizer, potassium

chloride is important in industrialized

economies, where it is used in aluminum

recycling, in metal electroplating, to produce

oil well drilling fluid, in steel heat-treating and

for water softening. Salt gleaned from potash

mining can be sold as road salt and other

industrial uses, creating a secondary market

that also minimizes the need to store tailings.

These non-fertilizer uses typically account for

about 15% of annual potash consumption in

the United States.

Potash Mining, Processingand Distributionin the Real AZ Corridor

North America Market Facts

(U.S. and Canada)• Population 352 million tonnes

(combined);

• Account for approximately 14

percent of world fertilizer

consumption;

• Major suppliers of food and

fiber;

• U.S. accounts for about 40

percent of total global trade in

wheat, corn, soybeans and

cotton;

• Both countries are among the

world’s most efficient agricultural

producers;

• Rising global food demand and

domestic biofuel mandates have

created competition for limited

farmland.

Source: Market data. All numbers in tonnes.

A metric tonne is equivalent to

approximately 1.1023 U.S. tons.

www.RealAZCorridor.com

Sector Profile

1

0.9 DEMAND

18 SUPPLY

9.5 DEMAND

1.2 SUPPLY

According to the Fertilizer Institute, only 12 countries produce

potash. The largest consumers of potash include China, India, Brazil

and the United States. The U.S. relies on foreign production for

more than 85 percent of its potash demand. Experts agree that the

demand for potash will continue to grow in both the short and long

run. The U.S. Department of the Interior’s

projects that world potash consumption

will increase by nearly 4 percent annually over the next five years

due to world population growth and a corresponding need for

increasing crop yields.

Four powerful drivers are

fueling demand for

increased food

production: population

growth, changing diets in

developing countries, the

limited supply of farm

land and the expanded

use of farmland to grow

crops for biofuels.

Potash demand has

tightened during post-

recession recovery and

additional capacity is

needed to satisfy increasing demand in major consuming countries

like China, India and Brazil. In the U.S., demand for potash declined

during the recession, but began to expand again in 2010. The need

for increased global food production has led to huge increases in

demand for fertilizers which, in turn, has pushed the price of

potash to a sustainable $400 - $450 per ton on the world market.

Worldwide demand is expected to reach 36.5 tonnes (40 tons)

annually by 2015. Most analysts expect potash prices to increase

dramatically over the next 2-3 years, as the global hunger crisis

expands, new uses for crops emerge and expand (e.g. biofuels),

growing conditions continue to deteriorate due to climate change,

and the pressure to increase yields increases dramatically

worldwide.

2012 Mineral

Commodity Summaries

Market Outlook

Global Potash Resources and Markets

The leading drivers for fertilizer sales are the demand for food,

economic growth and biofuels. By 2050, The Food and Agriculture

Organization of the United Nations (FAO) estimates that production

of oil crops will more than double, with soybean and oil palm

generating the largest increases. The sugar sector may also

significantly increase as a result of the rapid expansion for biofuels.

By 2050, FAO expects world population to rise by 40% to 9.2 billion.

Such an increase in population growth will result in an increasing

need for crops used in food, animal feed, fiber and biofuels.

Growing demand for a grain-fed meat and dairy diet in developing

countries will further stress global grain inventories and exert

extreme pressure on grain – and potash – prices.

A new focus on the cultivation of biofuel crops has diverted much

agricultural production away from food as farmers are induced to

produce fuel inputs. High oil prices and increasing concerns about

carbon emissions have driven the subsequent use of ethanol and

biodiesel as alternative energy sources. These biofuels are

produced from crops such as sugar cane, corn, oil palm and

soybeans. This emerging demand is placing pressure on crop yields

and prices. It is also placing increasing strain on a global food

supply which is already struggling to feed the world’s nearly 6.7

billion inhabitants.

The International Fertilizer Association predicts the world’s

appetite for potash to grow at 3.7 per cent per annum based on

current consumption patterns. This is a future growth rate that is

generally accepted by analysts. Nearly two million additional tons

of potash production will be required annually to meet that rate of

growth.

According to the United States Geological Survey (USGS), world

resources of potash are estimated at about 250 billion tons, with

reserves at about 8.5 billion tons of K2O (oxide content)

equivalent. Canada has more than half of the global reserves (4.84

billion tons) based on an ore grade of 24% to 32% K2O and a

maximum minable depth of 3,300 feet.

The world’s second largest potash reserves are in Russia which

accounts for 21% of the global total. Belarus ranks third, with 9% of

world reserves.

Potash is used as a major agricultural component in 150 countries.

The largest importers of potash are the heavily populated countries

of China, India and Brazil. Asian nations produce only 3.1 million

tons while consuming 23.1 million tons. As much as 85% of the

world’s existing potash mining and processing facilities are more

than 25 years old.



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GlobalPopulation

Growth

NutrientDepletion/

Re-Stocking

Shift toHigher-Protein

and HigherValue Diets

Emergenceof Biofuel

Technologies

MoreEffective and

EfficientPotash

Applications

DecreasingSupply of

Arable Land

MOREPOTASHDEMAND

Plant uptake& growth

Harvest

Food

Disposalof human

waste

K in liquidfractionto watercourses

Rivers

Sea Water

Mineralsdepositedas ‘salts’

Extraction bymining or from

salt pans Separation of‘salt’ for use as

fertilizer

Potashapplication

to soil

KThe GlobalPotassium

Cycle


The current potash market is estimated at 50 million tons annually.

The U.S. remains one of the largest net consumers producing only

1.2 million tons per year while consuming 5.2 million tons/year.

Potash is mined in small amounts in Utah, Michigan and New

Mexico. Deposits in western Canada extend into northeastern

Montana and North Dakota at depths of approximately 5,000 to

9,000 feet (currently considered too deep for conventional

extraction). The Paradox Basin in Utah contains resources of about

2 billion tons, mostly at depths of more than 3,600 feet.

In the Carlsbad mining district of southeast New Mexico, the

Salado Formation contains 12 potash horizons covering 1,900

square miles.

Potash from reasonably-priced domestic sources can have a

competitive advantage because transportation costs are lower.

Additional consideration is given to domestic potash because of

the recent strengthening of the U.S. dollar versus the Canadian

dollar.

The location of northern Arizona potash resources also presents a

geographic advantage, given the region’s proximity to California,

which is an epicenter for U.S. agricultural production. California’s

ports are also a gateway that could provide quick access to major

markets in China, Brazil and India.

Potash mining can bring various benefits to a region.

Economic benefits can include royalty revenues for

mining on public lands, state and county ad valorem

taxes and sales tax revenues. Short-term

construction and permanent mining and processing

jobs are created. Economic growth results from

spending by mining companies and their workers,

new business for local service providers and

suppliers, payments to local property owners, and

the creation of businesses that are necessary to

support mining or that are enabled by it. Workforce

training programs often develop through investment

by nearby communities and educational facilities.

Mining companies often make direct community

investments by improving or expanding

infrastructure, and by sponsoring new educational

programs or medical facilities and services.

A large

potash resource also lies about 6,300 feet below central Michigan.

The Holbrook Basin of Arizona (Real AZ Corridor)

contains resources of at least 1 billion tons at much shallower

depths of 700 to 2,000 feet.

Importance of Potash to the

Real AZ Corridor

Related Industries and Sectors

The emergence of a significant potash mining sector can also be

expected to attract the development of related businesses,

including transportation (truck, rail), equipment sales, maintenance

and repair; and road salt sales and marketing (an output of potash

mining).

There is also the potential to develop solar fields on land above

underground potash mines. Marine algae farming requires water

which is similar in brine content to that utilized in potash mining. It

is feasible that successful algae cultivation could take place on land

which is above or immediately adjacent to underground potash

mines. Algae & Other Biosciences is one of the four high potential

development sectors identified in the .

Primary targets for sector-related development would include

trucking and transportation companies, including fuel providers

and paving companies; ventures that support high volume

industrial rail traffic; and companies which sell, maintain, rent and

repair mining equipment and trucks or truck parts. A strong

secondary road salt sales and marketing sector could emerge,

targeting high snow and mountainous regions surrounding the

Holbrook Basin.

Real AZ Corridor


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PROPOSED EXPANSIONOF PETRIFIED FOREST PETRIFIED FOREST

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Potash Deposits Arizona Land

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Summary of the Corridor’s Suitability for

Potash Development

Potash was first identified in the Corridor in the 1920’s. Later

exploration (1960’s) identified significant resources, but it was not

mined in Arizona due to Saskatchewan’s (Canada) subsidized over-

production in the late 1960’s.

Helium was explored and produced in substantial amounts near

the northeastern potash deposit boundary between 1961 and 1976

in two fields: Pinta Dome and Navajo Springs. In the early 1970s, 11

solution caverns were created within the region’s salt strata as

subsurface storage facilities for liquefied petroleum gas at

Adamana. They are still in operation and are served by the

Burlington Northern Santa Fe (BNSF) railroad.

Northern Arizona’s potash resources remain virtually untouched.

According to the 2008 Arizona Geological Survey (AZGS), there are

between 682 million and 2.27 billion metric tons of potash in the

Holbrook basin of east-central Arizona. U.S. potash production

totaled just 1.1 billion tons in 2011, by comparison. At a price of

$450 per ton, the Holbrook Basin potash would be worth between

$300 billion to $1 trillion.

The deposits have

relatively shallow

depths between

700 and 2,000 feet

and lie in a 600

square mile area.

Shallow deposits

with fewer faults

are significantly

easier and less

expensive to mine.

The potash

deposits in the

Holbrook Basin are

considered to be of a relatively high grade, available at shallow

depths in uniform layers and, therefore, cost effective to mine. The

region’s proximity to existing infrastructure makes mining even

more attractive, with rail, interstate access and power for utilities

all nearby. The BNSF rail yard is located less than seven miles away,

at Holbrook. Interstate 40 runs adjacent to the project and is a

major artery connecting California with the rest of the U.S. Power is

readily available from two major power generation stations located

within 25 miles of the project area.

Passport Potash, one of two major mining companies working in

the region, estimates that there are up to 2.5 billion tons of potash

in the Holbrook Basin, which could provide for an estimated 80

years of production. The Holbrook Basin deposits could prove to be

‘very competitive in the global market’, according to the Arizona

Geological Survey in Tucson.

• Access and Infrastructure

Real AZ

Corridor

Much of the current domestic potash production in the U.S. occurs

in the southwestern region of the country, where lower freight

costs to regional markets provide a commercial advantage over

imported products, mainly from Saskatchewan. The

is ideally located and has the infrastructure in place to

expand on those transportation efficiencies.

The Holbrook Basin is accessible via U.S. Interstate 40 (I-40) in the

north, U.S. Route 77 in the west, U.S. 191 along the eastern edge

and U.S. Route 180, which crosses the area. The town of Holbrook

lies approximately seven miles northwest of the area. Snowflake

and Taylor are nearby.

The BNSF railway transects the northern part of the

region. The Apache Railway, a one-track railway with excess

capacity, is located less than four miles west of the property.

County maintained roads serve the entire project area.

I-40 is a major west-east interstate which intersects with eight

north-south interstate highways, making it a full service truck

transport and support system throughout the southwestern

portion of the U.S.

The BNSF main line is located to the north of the Holbrook Basin

and is a dual track built for heavy duty service. The BNSF southwest

system runs through Fort Worth, TX (BNSF headquarters) through

New Mexico, Arizona and into California. The sea ports of Stockton

and Long Beach (CA) and the Mexican sea ports of Guymas and

Topolabampo are easily accessible and suitable for international

shipping.

A coal-fired power station (Arizona Public Service’s Cholla plant)

provides electricity to the area and is located just west of Holbrook.

Tucson Electric Power has a plant near St. Johns which has recently

expanded. The region is covered by an electrical distribution

network and a gas supply system. Water is relatively abundant in

the region. Water for drilling can be obtained from range tanks,

wells and the Little Colorado River. The Coconino Sandstone

Aquifer provides water resources to the region.

St. Johns is close to the Apache County

deposits.

Map of resources in Real AZ Corridor


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-7500Michigan Holbrook

Basin, Arizona

0

-1500

-3000

-4500

-6000

Depth to potash by basin

Depth(feet)

ParadoxBasin, Utah

CarlsbadDistrict

1,700 ft3,600 ft6,300 ft

5,800 ft


Conservative estimates for total capital investment for a

greenfield potash development project typically range between

$3.5 to $5 billion. Development costs are expected to be

significantly lower ($1.4 - $2 billion) in the Real AZ Corridor, due

to existing infrastructure and the quality and accessibility of the

potash resources in the region.

• Workforce

• Sustainability

• What are the opportunities in this sector?

Prospect Global Resources Passport Potash Hunt NZ Potash

The region has a sizable resident workforce that can be trained for

mining operations. The closure of the Catalyst Paper plant in

Snowflake expanded the available labor pool. Workforce

development programs in mining operations are being planned by

educational institutions including Northland Pioneer College.

Contract training programs are expected to develop as actual

construction and mining jobs are created, potentially as early as

late 2013.

The Holbrook Basin is considered to have potash resources which

could produce significant mining capacity for up to 80 years, given

current technology. Future resource discovery and/or extraction

technologies could expand the production capacity, output and life

of the current resource area.

The highest potential opportunities in this sector lie in the

development of an active, high volume mining and rail operation

which will encourage other industries to locate in and near the

Corridor in order to capitalize on economic growth. Fertilizer and

other processing plants could choose to locate in or very close to

the region and create distribution centers that could also be

utilized for related products. An active, multi-modal distribution

system will encourage companies targeting similar destinations

(California, agricultural markets, shipping ports) to locate nearby to

take advantage of transportation efficiencies.

There are three entities with major land interests in the region:

, and .

Two are actively working to develop northeastern Arizona’s potash

resources: American West Potash (through Prospect Global

Resources) and Passport Potash. The third company, HNZ Potash, is

a private company that was formed from Hunt Oil and NZ Legacy.

HNZ has interests in 75,000 acres in the region. Potash resources

also exist on Native American lands, and the Hopi signed an

agreement with Passport Potash in 2012 to allow joint exploration

and potential mining of resources on Reservation and private (non-

Reservation) Hopi land.

Profiles of Current Potash Interests

in the Real AZ Corridor

— American West Potash

— Passport Potash, Inc.

American West Potash

Prospect Global Resources

Passport Potash

is based in Denver, CO and owned by

. The company has stated that it plans

to invest more than $1.4 billion in initial capital costs in the

Holbrook Basin, and that it expects potash mining in the region to

be a catalyst for related industries, including vendors for supplies

and services

Prospect Global has acquired leaseholds on more than 93,000

acres of state and private land in the region. The American West

Potash project is located within Apache County, immediately east

of the Petrified Forest National Park. The center of the project area

is approximately 10 miles south of Interstate 40 and is close to the

city of St. Johns.

The company has completed an NI 43-101 Resource Report which

included 70 miles of seismic studies, 12 new wells and 81 historic

wells. The mineral resource estimate is 3 million tons measured,

25 million tons indicated and 53 million tons inferred at an average

depth of 1,427 feet. An independent geologist’s report concluded

that Prospect Global’s properties can produce 2 million to 3 million

tons of potash per year for 40 years. At today’s potash prices, 40

years of production could be worth $40 to $60 billion in sales.

Preliminary design, budget and permitting plans call for a facility

that will produce 2 million finished tons of potash per year. The

company expects to create 500 to 800 temporary construction jobs

in the first 18 to 30 months, and then 300 to 400 permanent

mining/production jobs once operations begin.

In 2012, Prospect Global entered into an agreement with Sichuan

Chemistry Industry Holding to buy a minimum of 500,000 tons (and

up to 1 million tons) of potash per year for 10 years. The amount

could represent about 25% to 50% of Prospect Global’s estimated

annual production of potash.

Vancouver, BC and Apache Junction, AZ-based

currently has interests in more than 86,000 acres in the Holbrook

Basin (including leaseholds, lease/purchase agreements and

prospecting permits on Federal and State lands). The company also

has a letter of intent to purchase an additional 41,000 acres of

private land. An exploration campaign that began in 2009 is now in

its second phase and the company has more than 47 new

exploration drill holes in license areas and a seismic survey of its

landholdings in Navajo and Apache County.

According to a NI-43-101 (resource) estimate released in mid-2012,

the company has 3.7 million tons measured, 37.8 million tons

indicated and 87.3 million tons of inferred potash at an average

depth of 800 to 1,400 feet, and with an average KCI grade of

14.93%.


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A 2012 agreement with the Hopi tribe will enable the company to

assess and potentially mine resources on Reservation and non-

Reservation properties with greater efficiency. The cooperative

agreement will allow Passport to access and conduct certain

exploration activities on an additional 12,853 acres of privately

held Hopi land (non-Reservation land) while allowing the tribe to

share in the study results.

The company expects that conventional mining methods can

recover up to 80 percent of the mineral in the deposits and that

the life of the mine might be 40 to 50 years.

Passport Potash and Prospect Global will compete for a share of

the U.S. potash market, while their efforts in the Holbrook Basin

will collectively increase U.S. competitiveness in the global potash

market. Both projects will be huge regional economic development

growth drivers in the .Real AZ Corridor

— Hunt NZ Potash

— Outlook

Hunt NZ is a privately-held company without any obligation to

share company information publicly. The company is known to be

cooperating with Passport Potash, through a joint venture

agreement to explore and potentially develop 21 permitted zones

for which Passport holds the drilling permits but Hunt NZ owns the

land.

Prospect Global has prepared a Preliminary Economic Assessment

and signed a provisional contract for selling some of its potash in

China. Passport expects to release its Preliminary Economic

Assessment in the first quarter of 2013. Advanced construction is

expected to begin in 2015, including roads, rail lines, mining

contracts, purchase orders for trucks, water and waste lines, etc.

Both companies are forecasting production within a few months of

one another, by 2016. A typical potash mine needs approximately

two years to ramp up to full production. There is much to be

excited about in the Corridor.

This profile is for general information purposes only and not intended to provide investment advice or an

analysis of any company. It was developed to illustrate the potash sector’s potential in the .

This sector profile was produced by the Real AZ Development Council utilizing funds from a

2012 Vision Grant provided by the Arizona Commerce Authority.

Real AZ Corridor

Resources

Compiled by ED/c Partners from existing secondary resources and reports, including:

• Arizona Geological Survey, , Arizona www.az.gov

• Sources cited in investment blog, Greg Miller, November 13, 2012; Troy Bayer, July 12, 2012;

• Reports from Mining.com;

• Potash Development Association website, http://www.pda.org.uk/

• Potash Fundamentals, Passport Potash website, http://www.passportpotash.com/potash.html

Major Potash Deposit Near Holbrook

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February 2013

REALAZ Potash Profile · due to world population growth and a corresponding need for increasing crop yields. Four powerful drivers are fueling demand for increased food production:

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