Agriculture

In an interview with Potash Investing News, Gary Deathe from Encanto Potash commented on the nuances of the potash industry as a whole, and those that are unique to Saskatchewan.

By Leia Toovey- Exclusive to Potash Investing News

High-quality, economically mineable potash deposits are geographically concentrated, with Saskatchewan holding about half of world reserves and 35 percent of global capacity.

Until recently, the major potash miners such as Mosaic (NYSE:MOS) and Potash Corporation of Saskatchewan (NYSE:POT) have dominated the province’s holdings. According to Encanto Potash‘s (TSXV:EPO) Gary Deathe an influx of juniors and speculators in Saskatchewan has meant that there are no mineral exploration licenses open for new claims. So, if a company wants to license a claim, the only options are through a merger, acquisition or a purchase of an already claimed license.

The founders of Encanto first became interested in potash in 2008 when the skyrocketing price of potash grabbed their attention. The company decided then to shift its focus from oil and gas to potash exploration. Early in its research, Encanto found out that there were no big land packages available for potash exploration open to claim, therefore, it used its existing relationships with First Nations to gain other First Nations introductions and to form MOU’s and joint ventures in potash. Through its partnership with the First Nations, the founders formed  Encanto, a new potash exploration company that was able to get land claims in the province, claims that are still open to expansion. The company is currently working with the First Nations to develop these potash resources located on their lands.

Potash production for a junior minor

For a junior, potash production is a very difficult undertaking due to its high capital cost. One estimate puts the cost to develop a conventional 2 million metric ton greenfield mine and mill in Saskatchewan at more than US $4 billion.

For Encanto, Deathe explained that despite being formed in the midst of the financial crisis, the company “has a large, financial backer; however, when the crisis hit [it was] a small company that did not need much capital.” Presently, according to Deathe, “Encanto has been offered financing even when they have not been looking, or really needed it.”

Potash market strong fundamentals

Like so many other potash industry experts have been saying for months, if not years, Deathe was quick to point out the solid economic fundamentals supporting the potash market. “The demand for potash will increase exponentially as the world population grows by an estimated 75 million people a year while potable water and arable land decrease,” said Deathe. In addition, the increase in wealth of the emerging economies will put more pressure on output per acre of arable land, because as people see their wealth increase, they demand a more protein rich diet.There is extra incentive to apply potash with high, and stable soft commodity prices.

Deathe also noted that while the other commodities have recently shown some weakness, potash has not. “While the demand forecast for potash is well known, the supply situation is not,” added Deathe.

Deathe fully expects Encanto to develop a mine, however, at this point he cannot give a price date of when to expect an operational mine from Encanto. At this time a production decision has not been made, so picking a date of production is a a “crystal ball situation, ” says Deathe.  He was quick to point out, that Encanto has more incentive than most potash explorers to make it to production, because, their First Nations partners will see the most benefits when they have a producing mine.

Demand for potash

As the demand for potash rises, more and more companies will turn their interest to Saskatchewan’s vast potash wealth. In order to gain a significant land position in Saskatchewan a company will have to purchase an existing license or another company, therefore, Deathe expects M&A in the sector to heat up. This is a trend that can already be seen with BHP Billiton’s (NYSE:BHP) failed bid for Potash Corp, BHP’s purchase of Athabasca Potash, as well as K+S Ag’s (ETR:SDF) purchase of  Potash One.

 

Securities Disclosure: I, Leia Toovey, hold equity interests in Potash Corporation of Saskatchewan

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