Encanto going boldly where rivals can only dream

27th January 2017 By: Henry Lazenby - Creamer Media Deputy Editor: North America

VANCOUVER (miningweekly.com) – New potash player Encanto Potash is awaiting the imminent finalisation of a feasibility study on its Muskowekwan joint venture (JV) property, in Saskatchewan, before making a decision on next steps, including a construction decision.

The TSX-V-listed project developer turned the global potash market on its head last week when it announced that it had struck a definitive 20-year offtake agreement with an India-based farmers’ co-op for a minimum of five-million tonnes a year, cutting out the middle man and selling directly to farmers.

“We’ve secured the entire market share of India in our agreement. It has not been done before – no one has previously secured a company for a 20-year period. We are positioned to provide up to 1 800 jobs during project construction – more than the Keystone pipeline,” Encanto president Stavros Daskos told Mining Weekly Online in an interview Friday.

Daskos also noted that the partnership with the co-op had opened other avenues of collaboration, and to that end, the company had already started earmarking thousands of acres of agricultural land for pulse crop production for export to India. The agreement goes as far as to facilitate Indian agricultural producers exporting their products to international markets.

“This is clearly a defining agreement for our company and the industry. India imports 100% of its potash [about four-million tonnes a year] and is susceptible to cartel-like practices from producers that can hurt its national food security. Establishing long-term offtake agreements are difficult and require a great amount of time and understanding of a country's food security policies and how they interface with the dynamics of a supply environment controlled by a small number of entities,” Daskos stated.

According to Daskos, India has a defined recipe for doing business with the country, and as long as one accommodates their requirements, it is relatively simple to do business with the nation.

“This is the guaranteed sale of potash for 20 years – why waste your time in other markets when you can capture one of the most important markets as a whole?” he stated.

India is currently in a rapid growing phase, much like China was about ten years ago.

“Our agreement provides India with food security, as it frees them from the price fixing tactics deployed by the remaining potash cartels. The country will now be able to capitalise on its mainly agricultural and beef exports, with a steady supply of crop nutrients for two decades at stable prices.”

Daskos did not want to peg the company valuation on the proposed 2.8-million-tonne-a-year Muskowekwan operation alone, but said he was awaiting the imminent release of a feasibility study being undertaken by Amec Foster Wheeler, that would update the numbers and resource statement, before the company would look at bringing in any other JV partners.

Importantly, Daskos said Encanto had taken measures to ensure that no senior potash company can swoop in and take over the company and leave the Muskowekwan project and people out to dry. “We have taken deliberate steps to preserve the Muskowekwan project and ensure that it gets developed, as our partnership with the First Nation, as well as the Canadian and Indian federal governments hinge on it,” he explained.

Daskos noted that the last three potash juniors to approach final feasibility stage were bought out before they could make it to production, while one other had recently sold control. Encanto looks to be among the first new potash mines in Canada in more than 40 years.

“We will now wait and look at the updated numbers before taking next steps. About 2 000 people will now share in the wealth creation that is about to take place on the First Nation reserve, enabling a better quality of life for them.”

Encanto and its Muskowekwan First Nation partner have developed 162-million tonnes of recoverable potassium chloride in compliant proven and probable reserves, with a total of 35.4-million classified in the measured and indicated resource categories. At an extraction rate of 2.8-million tonnes a year, the resource will support a solution mine life of more than 70 years.

After mulling over the feasibility results, Encanto will then look to secure external supply to make up the balance of the offtake order for 20 years. However, if that is not a possibility on favourable terms to the Muskowekwan people and Encanto, it will look at options to expand the mine capacity to five-million tonnes a year.

Daskos said the Muskowekwan project was expected to produce first product within about 36 months of the company taking a construction decision.

Encanto’s latest agreement adds to the existing two-million-tonne-a-year, 20-year agreement with India’s largest trading company, Minerals and Metals Trading Company.