for those of u getting a little nervous - READA repost from 2009
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Encanto Potash Corp. Fast Track to Production
Encanto Potash (EPO-TSXv) is backed by one of the most successful merchant banks in the resource sector. Their board of directors has established connections into Asia. And they have the ability to fast track their environmental and permitting work. I believe this new potash explorer can leap frog their way into becoming one of the leading potash developers in Canada. And if I’m right, their stock could easily triple or more over the next two years.
Fast Development Means Fast Capital Gains.
Saskatchewan is the planet’s number one source for potash with over 50% of the world’s reserves. It also has some of the lowest mining costs in the world. Given those tidbits of information you’d think there would be lot’s of potash mines is Saskatchewan. There aren’t. In fact there hasn’t been a new mine built there in about 40 years. This is despite historically high prices for potash and unprecedented world demand. With the world population growing at 75 million per year, the urgency for greater crop production that is facilitated by potash makes this
product as important as water for the survival of mankind.
Yet new mines have not been built.
Here’s the rub. The capital costs of building a mine can run upward of a billion dollars. And included in this exorbitant amount of capital are the lengthy environmental and provincial permitting procedures. Only the richest of the rich mining companies could afford to develop a potash mine. However the top resource companies like BHP Billiton, and the current potash producers, already have significant potash reserves, so any new mine development created from junior exploration companies will likely be financed by countries, not companies.
The big three leading countries with huge potash supply needs, coupled with exploding population growth, are China, India and Brazil. Buying potash as the end user is expensive – because the global potash market is basically a cartel which is why potash is SO profitable!! It makes much greater sense for a country like China to provide the cash for their own potash resource. But it takes a special talent to sell a mining deal to a country.
We heard recently that the billionaire mining entrepreneur Robert Friedland has plans to help Potash One raise capital to build their mine by way of his extensive business dealings in Asia where he is directing operations through his Singapore offices.
Encanto plans to look to Asia as well and China specifically to partner up with a country whose need is great and has the cash to make a potash mine a reality. China consumes 23.1% of the world’s potash but only mines 3.1% of the production.
To facilitate negotiations with potential international partners or buyers Encanto also has their own heavy hitter in John Reynolds. Reynolds has been acting as a Director of the company since 2006 and is also a senior strategic advisor with the law firm Lang Michener, LLP where he
advises clients on international business. Reynolds was also a Canadian Member of Parliament for several years (briefly as leader of the Official Opposition) and was a member of the Queen’s Privy Council of Canada.
With his current position as a member of the Board of Directors in the Asia Pacific Foundation of Canada, and his knowledge of the interrelationships between corporate strategy and government policy in the global economy, he is uniquely qualified to steer Encanto toward a foreign investor for a Saskatchewan potash mine.
Reynolds also has practical knowledge of governmental policy involving the interplay between land use, economic development and First Nations issues.
Make no mistake. Encanto isn’t just another junior building up a resource in Saskatchewan.
Check out their management board which I’ll outline in a moment. They are uniquely positioned to quickly move forward in establishing a compliant resource in 12-18 months.
As I mentioned from the outset, fast development means fast capital gains. Traditionally, getting a potash mine developed to the feasibility mining stage takes a considerable amount of time and cash. This is why virtually all prospective potash mining exploration properties have been staked but little or no development has been done from the vast majority of claim holders. Most of these
claims are just being tied up on speculation but they are going nowhere and never will.
Looking at the potash market, Encanto management saw the potential of developing a mine. Literally, multi-billions in profits can be had over the life of a mine. However as mentioned, the prospective land claims are tied up. And even if you could get a claim you still need to spend
considerable time and money permitting the mine and following environmental and other provincial government bureaucratic regulations before getting to the final feasibility stage.
The Encanto management saw a potential win-win scenario with the vast First Nations lands held by the various First Nations bands in Saskatchewan.
So here’s what they did. They tracked down Ross Moulton, a geologist whose work has taken him around the globe including working the oil and gas sector in Saskatchewan.
He is currently vice-president exploration of Sentinel Rock Oil Corporation and Canadian Phoenix Resources Corp. Over the years Ross worked on a number of projects located on native First Nations lands. Many mutually rewarding projects were done with the cooperation of various First Nations bands.
With his solid track record and relationships established, Ross was a natural fit as VP of Exploration of Encanto in order to seek out high potential potash deposits on First Nations land.
Herein lies the fast track advantage for Encanto. They have established three major prospects on First Nations lands. Though proper mining and environmental practices must be adhered to, the level of governmental bureaucratic red tape is lessened considerably when working on First
Nations lands, thus taking less time and money to move a project forward.
Another key member of Encanto’s board is Rodney Hope, VP of Saskatchewan First Nations Business Development who is also Secretary Treasurer and Director of Encanto and Secretary Treasurer of Daredevil Energy Ltd.
Encanto has taken a unique approach in partnering with the First Nations which will save them both time and money.
The Projects – First Nations Alliances
· Ochapowace/Chacachas Prospect – 78,000 acres (31,565 hectares)
· Day Star Prospect – 15,900 acres (6,434 hectares)
· Muscowpetung Prospect – 50,000 acres (20,234 hectares)
Encanto is currently working with five First Nations Alliances on development agreements, including the Ochapowace, Chacachas, Day Star, Muscowpetung and Muskowekwan First Nations Alliances.
Encanto Potash has obtained INAC (Indian Northern Affairs Canada) permits on three of its development agreements. These agreements are with the Ochapowace, Chacachas and Muscowpetung First Nations Alliances. In the future, ownership of these permits will transfer to the First Nations’ who will then partner with Encanto Potash to develop the resource.
Encanto also currently has two MOUs with INAC Permits pending with Day Star and Muskowekwan First Nations Alliances. These INAC agreements are based on Canada’s INAC permit process. It allows Encanto and First Nations to do surveying, seismic work, and drilling. In these agreements, Encanto Potash is established as the principal in working with First Nations in developing a future mine.
These agreements permit Encanto Potash to conduct survey and seismic work, exploration and drilling on First Nations land. Within these agreements Encanto Potash is established as the principal in working with First Nations in the future development of a mine.
The company is currently focused on exploring for potash in three southeastern Saskatchewan prospects, which include working with the Ochapowace, Chacachas and Day Star First Nations Alliances.
Together with the Ochapowace and Chacachas First Nations Alliances, Encanto Potash will explore for potash over an area of 78,000 acres (31,565 ha) inside their boundary. The property is located east of Regina, the capital of Saskatchewan, and in close proximity from Potash Corp’s Rocanville mine.
The Day Star First Nations band and Encanto Potash have a pending agreement for potash exploration on approximately 15,900 acres located about 120 km north of Regina. Encanto has a 100% working interest under these agreements with a 3% royalty payable to the First Nation once production begins. As this royalty could represent perhaps $30 million a year to the band, each of the groups are more than motivated.
However only one project will be selected to move forward to mine development. And this may include two properties that are in the process of being acquired through a deal with Raytec Metals.
Raytec Properties
Recently a letter of interest was announced whereby Encanto would acquire 100% of Raytec Metal’s potash deposits in Saskatchewan in exchange of 5.17 million shares of Encanto (priced at 25 cents per share. Raytec also provides $6.5 million in cash for which they receive a 51% interest in Encanto’s potash properties. Encanto also has the option of later buying out their 51% interest by issuing them 26 million more shares (priced at 25 cents).
When the deal closes at the end of the month, Encanto will have about $8.5 million with which to complete seismic studies on all their properties of interest, as well as drill holes to establish grade.
Raytec has two potash properties called KP452 and the Spar. The key property is the Spar which has a 43-101 report indicating a potash resource of 12.49 million tones and a referred resource of 12.24 million tonnes.
Their KP452 claim block is located approximately 42 kilometers southwest of the Mosaic Company-Compass Mineral Group's K-1 and K-2 potash-salt mines. It is also located 53 kilometers west of Potash Corp. of Saskatchewan's Rocanville potash-salt mine. An exploration
permit has been granted to the company by the Saskatchewan Ministry of Energy and Resources in July 2008. The permit grants Raytec the right to explore approximately 36,113 acres of prospective potash ground.
On July 7th Raytec received the final 2D seismic interpretation on the Spar. The purpose of the
seismic survey was to define additional potential potash mineralization to the previously defined indicated resource. The seismic showed that the minable area of potash is up to 97,000 continuous acres and several targets where outlined. A four well exploration program is recommended to further define the grade, thickness and type of potash mineralization.
One Property will be Chosen
One property will be chosen amongst the group which will show the highest potential for a mine. As Ross said to me in Vancouver earlier this month, “We know the potash is there. The question is how much?” Once the 2D seismic studies are complete around the end of August, the
properties will be drill tested to determine the width and grade.
Potash is very consistent geologically – a few holes on a 1.5 kilometre grid with along with 3D seismic can create large reso urce and strong shareholder value quickly.
The question remains – which property? Each of the First Nations Bands they’ve talked to would love to be them. After all, they’ve potentially got $30 million in royalty payments a year riding on the hope they have the most prospective property. The advantage the bands have is that
Encanto can fast track the mine development to the prefeasibility stage in 18 to 24 months whereas getting the permitting in place for Crown land can take 3 to 5 years.
With Raytec already coming in with a resource of 24.73 million tonnes on the Spar property. They might be the early leader.
Management
Jim Walchuck, P.Eng – President, CEO, Director – Formerly president and CEO of Tournigan Gold Corp; Manager Mining for Barrick at the Bulyanhulu Gold Mine in Tanzania from 1999 to 2002; Manager of Mining and then Manager - Corporate Operations for Royal Oak Mines. This was preceded by a 5-year term as Chief Mining Engineer for Tarkwa Goldfields in Ghana. A member of the Professional Engineers of Ontario for 28 years, Mr. Walchuck holds Bachelor Degrees in both Science and Engineering.
Gordon Keep, Director - Exec VP of Fiore Financial Corp, a private merchant banking firm; formerly Managing Dir Corporate Finance at Endeavour Financial, an integrated merchantbanking firm
James Harris, LLB, Chairman - Corporate, securities and business lawyer for over 20 years;since January 2003, non-executive Chairman of the board of directors of Entrée Gold Inc.,
John Reynolds, Director - Since 2006, a senior strategic advisor with Lang Michener, LLP; from 1997 to 2006 Member of Parliament for West Vancouver – Sunshine Coast
Rob McMorran, CFO, Director - President of Malaspina Consultants Inc., a private company providing accounting/administrative services to junior public companies, since 1997.
Tyler Cran, Director - President of Andorra Energy Corp., Chairman of Oilsands Development Corp., a company developing real estate in Fort McMurray, Alberta
Jim Walchuck, P.Eng – President, CEO, Director – Formerly president and CEO of Tournigan Gold Corp; Manager Mining for Barrick at the Bulyanhulu Gold Mine in Tanzania from 1999 to 2002; Manager of Mining and then Manager - Corporate Operations for Royal Oak Mines. This
was preceded by a 5-year term as Chief Mining Engineer for Tarkwa Goldfields in Ghana. A member of the Professional Engineers of Ontario for 28 years, Mr. Walchuck holds Bachelor Degrees in both Science and Engineering.
Ross Moulton, P.Geo – VP Exploration - Professional geologist, vice-president exploration of Sentinel Rock Oil Corporation and Canadian Phoenix Resources Corp., junior oil and gas exploration
Rodney Hope, VP Saskatchewan First Nations Business Development – Secretary Treasurer and Director of Encanto and Secretary Treasurer of Daredevil Energy Ltd.
Rob McMorran, CFO, Director - President of Malaspina Consultants Inc., a private company providing accounting/administrative services to junior public companies
Leonard van Betuw – Geophysical Advisor, currently President and CEO of Kintex. Broxburne Consultants Ltd. – Saskatchewan First Nations Advisors
Valuation
Moving toward a prefeasibility study with a 43-101 estimate in hand significantly increases the market capitalization of potash stocks. Even in a market slump for resource stocks like we currently have, a company like Athabasca Potash (API) is sporting a $188 million cap as they near their PFS this fall.
Assuming that Encanto exercises its option to buy back the 51% interest from Raytec by way of $6.5 million worth of shares, they would have around 161 million shares out.
Assuming they are comparable to API with significant measured and indicated resources with a good grade, in 18-24 months time when they say they will have their PFS done, their stock should be around $1. That’s a triple.
Not a bad speculation but the really big bucks will come in securing a deal that will finance the mine. This is where John Reynolds comes in with his expertise, and most likely, China’s eagerness to buy into a mine.
Summary
This is a very unusua l potash play.
First we have a situation here where a potash mine will be chosen out of the best location in amongst hundreds of thousands of acres, either on First Nations Lands or perhaps Raytec’s properties. Secondly, projects located on First Nations lands will move very quickly to prefeasibility
since neither the Saskatchewan government nor the public will need to give input into a mining decision. Encanto already has their “social license” with their First Nations agreements.
On the Spar property, they have a resource and a permit already. Whatever scenario, this should provide a potential triple in share appreciation within a couple of years.
Thirdly, the big money will come upon the successful negotiation of a partner who has the cash and need to move the project forward. John Reynolds has the skills to do this and my bet is that the Chinese government is the key target.