Western Potash is a "strong acquisition target", says Fundamental Research

Junior miner Western Potash (TSE:WPX) is a "strong acquisition target" as its Milestone potash property in Saskatchewan is one of the few projects in the province that has yet to be acquired, according to Fundamental Research.

The independent equity research firm has a "buy" rating on the company with a fair value stock price of $2.90.

In a note, Fundamental Research analyst Siddharth Rajeev said: "We continue to believe that WPX is a strong acquisition target as Milestone is one of the very few advanced stage potash projects in Saskatchewan that is yet to be acquired - and therefore, potential bidders need to move fast to beat the competition."

Fundamental's Rajeev reckons that a potential acquirer could be fertilizer companies or major mining companies - other than Rio Tinto (NYSE:RIO)(LON:RIO), BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE) -  who do not have any significant exposure to potash.

The recent drop in potash demand in India due to price increases is a strong incentive for fertilizer companies in India and China to cut their current reliance on major potash producers and acquire long-term stable potash sources to curb price volatility and uncertainty in supply, the Fundamental Research note said.

Fundamental Research also said that Western Potash was "significantly undervalued" compared to peer group potash projects such as Potash One's Legacy and the Wynard property owned by Karnalyte Resources (TSE:KRN).

Potash One was acquired by Germany's K+S AG for $454 million in March of this year.

In early November, Western Potash unveiled a prefeasibility study that confirmed that its 100 percent-owned Milestone project showed significant positive economics, with initial capital expenditure of $2.76 billion, and unit operating costs of $62.35 per tonne.

The project's net present value is $4.14 billion, while the internal rate of return is 22.7 percent.

The study, carried out by AMEC Americas, showed that the asset was of sufficient size and grade to support mining for more than forty years at a production rate of 2.8 million tonnes per year. The annual production rate can also be expanded through a higher level of capital expenditure, the company said.

Milestone is located approximately 30 kilometres southeast of Regina and 80 kilometres southeast of Mosaic's (NYSE:MOS) Belle Plaine Mining Lease, home to one of the largest producing potash solution mines in the world.

In June, Western Potash defined NI 43-101-compliant resources at Milestone that consisted of a measured potash resource of 64 million tonnes, 180 million tonnes of indicated resources and 701 million tonnes of inferred resources.