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Encanto Potash Speeds Up Permitting And Progress In Saskatchewan Through Alliances With First Nations

By Charles Wyatt

http://www.minesite.com/nc/minews/singlenews/article/encanto-potash-speeds-up-permitting-and-progress-in-saskatchewan-through-alliances-with-first-nation/1080.html

First, a short history of Encanto Potash as a listed company. It’s short because it was only two months ago that Canadian-listed Angus Ventures closed its acquisition of Encanto Potash Corporation and took on its name as well as its assets. At the same time Raytec Metals agreed to sell all its interests in potash, which included the Spar and KP452 properties, to the new combined company. In return Raytec got 20.68 million shares in Encanto at a price deemed to be C25 cents per share, so a value of C$4.96 million was put on these potash assets, equal to Raytec’s original acquisition cost plus costs incurred at the date of the deal. In addition Raytec has agreed to spend C$6.5 million on its own and Encanto’s potash properties by the end of this year, and for this it will earn a 51 per cent interest in the properties. The final chapter in this saga is that Encanto can buy back this 51 per cent interest for 26 million shares, a move which would give Raytec a 29 per cent holding in the enlarged Encanto.

The result is that Encanto has a useful shareholder as well as a highly prospective portfolio of potash properties in Saskatchewan, which Canadians term the potash capital of the world. The timing of Encanto’s arrival on the potash scene is excellent, as the fertiliser industry has recently gone through one of those periods of madness that afflict commodities from time to time. Prices had risen too high on the back of the biofuel fiasco, a high oil price, and the general crescendo which came to an abrupt halt in 2008. Farmers had slashed their demand for fertilisers and a number of producers went out of business. But there is only a limited amount of time for which the use of fertilisers can be reduced to this extent, before crop yields are reduced significantly. Sanity will gradually return to this market, supported by rising demand. Potash is a major ingredient in most commercial fertilisers.

The current position is that fertiliser prices have fallen back from their peak. Meanwhile, fertiliser use is becoming more efficient, through the use of computerised spreaders. The United Nations Food and Agriculture Organization expects demand will be 60 per cent higher by 2030, with most of the increase coming from developing countries. Not a bad time, as Chief Executive Jim Walchuck points out, to be building a portolio of potash properties which can be brought into production sequentially.

The initiative for Encanto emanated from a group associated with oil and gas drilling in Saskatchewan and Alberta. They had noticed from their own drill cores just how consistent the beds of potash in the region were, in terms of both width and grade. What they also noticed was that the oil and gas operators who signed land deals with First Nations Bands had much more constructive relationships than those who dealt with the provincial authorities. The provincial authorities were riddled with unnecessary and time consuming bureaucracy whereas by dealing with First Nations the permitting process was simplified in a major way. Once a sensible deal has been agreed with the local band , it is then ratified by Indian Northern Affairs Canada (INAC) and there are no arguments from farmers or municipalities to hold things up. What matters is that the prospects are in the right place and the leaders of the local First Nations band are supportive.

The basic deal with the First Nations in this instance is that Encanto retains a 100 per cent interest in the various prospects, but a three per cent royalty will be payable to the First Nation band owning the land when production starts. The royalty is above the going rate, so provides plenty of incentive for the First Nations to come on board as it will pay off big-time on any project going through to production. Anyway, the oil and gas operators put together 29 letters of interest on properties prospective for potash with the First Nations and then whittled them down to five. These were then taken down to Vancouver where a successful business man named Jim Hutton partnered with the operators and the deals started, with Endeavour Capital acting as adviser to Encanto.

The first four potash prospects on which Encanto is focusing are all within a radius of about 80 kilometers and are close to railway and highway infrastructure - vital when dealing with a bulk commodity such as potash. These four are the Ochapowace and Chacachas prospects, covering a combined 78,000 acres and near existing mines, the Day Star prospect and the Muscowpetung prospect. All are in a prime potash territory which typically hosts three significant potash-bearing beds. So far Encanto has obtained Indian Northern Affairs Canada (INAC) permits on the Ochapawace, Chacachas and Muscowpetung prospects and permits are pending on the Day Star and Muskowekwan prospect. The act of carrying out surveying, seismic and drilling establishes Encanto as the principal in the alliance when things progress to the feasibility stage.

The deal with Raytec also brought in two potash properties which are not involved in First Nations Alliance - Spar and KP452. These are basically one and the same, as Spar consists of five exploration permit applications, and KP452 is simply an extension. Spar is the most advanced prospect in Encanto’s portfolio as it has a NI 43-101 resource estimate of 12.49 million tonnes of K20 (potassium oxide) and a further 12.24 million tonnes inferred. Altogether the claims cover 180,000 acres close to claims held by BHP Billiton Diamonds, so all may not be lost if the potash grades are not economic. A potash project has to be big to be worth spending all the money required for development. This is why Jim Walchuck is carrying out a combination of 2D seismic and drilling to assess the economic potential of the potash-bearing beds. The combination of drilling and 2D returns maximum information over a maximum area at minimum cost.

Until now it looked as if Spar would be on pole position, but last week Jim announced that another Exploration Participation Agreement had been signed with the Muskowekwan First Nation on ground where oil drilling has already confirmed the presence of potash beds. It now looks as if this may overtake Spar, as Encanto reckons that the land package of 43,000 acres is big enough to support a mine if data gleaned so far stands up to examination by 2D seismic and drilling. As soon as the permits are in hand drilling will start, and it looks as if it will only take a fortnight for INAC to issue them. Compare this with the interminable delays involved getting things through provincial authorities and it is easy to see why Encanto sets such store by these First Nations alliances. The Chief of this band, after all, has a Masters degree in economics, and is not likely to hand over assets to a company that he does not believe is capable of adding significant value.

Encanto has therefore started life at a canter. Given that the potash market is still in a degree of disarray it looks to be an ideal time to be building resources. The First Nations alliances should enable the company to catch up quickly, and potential partners will appreciate that a lot of thinking has gone into its progress thus far. Encanto has agreements with seven First Nations bands to assist them in developing potash resources on their lands, which cover an aggregate area of over 76,000 hectares in south-eastern Saskatchewan. Initial drilling results on the latest prospect will be available well before Christmas and a resource estimate is expected in the fall of 2010. These, combined with an improving background for potash, should keep the shares on the move.