By: Richard Reinhard
February 2, 2010
ENCANTO POTASH CORP (EPO-TSXV)
UPDATE
Encanto has today released some excellent initial assay results on its
Muskowekan and Ochapowace projects, located near Regina, Saskatchewan,
Canada. There are 3 potash bearing members that define the Prairie
Evaporite Formation in Saskatchewan, namely the Patience Lake Member, the
Belle Plain Member and the Esterhazy Member. Results indicate that the
Muskowekan has two of these Members that carry potentially economic
grades of potash mineralization in this location.
Average weighted grades from the Muskowekan 02-09 hole ran 3.6 m of 39.9%
KCI for the Patience Lake Member, 2.4 m of 40.4% for the Belle Plaine
Member and 5.3 m of 19.6% for the Esterhazy Member. The Esterhazy Member
interval and grade is lower than what is generally regarded as necessary
for a commercial operation.
At Encanto's Ochapowace property, the first drill hole 16-23-17-04
results ran 6.0 m of 14.1% KCI for the Belle Plaine Member and 4 m of
19.2% for the Esterhazy. These are also less than what is generally
regarded as necessary for a commercial operation. However, detailed
interpretation of the 2D seismic acquired in the Ochapowace area may
justify further evaluation of this area.
On January 15 Encanto released some news from completed logging of some
old historical oil wells proximal to its project area. This logging
exercise picked up on these same 3 potash-bearing members. Logs clearly
outlined the thickness of these zones. These old oil wells are situated
several kilometres distant from the Encanto project area, but the logging
data is quite valid given the uniformity of the potash beds in
Saskatchewan.
Based on the claims map included with the logging report, the 36,000 acre
Muskowekan project area is calculated to be about 145.7 sq kms. The old
oil wells logged showed the Patience Lake Member to be on average 4.2 m
thick, the Belle Plaine Member to be 3.6 m thick and the Esterhazy Member
to be 2.4 m thick. Today's released results were 86%, 67% and 121% of
these thicknesses respectively, but grades were very good.
To give some potential scope and scale to Encanto's potential going
forward, we can apply some basic back-of-the-envelope math to the
Muskowekan project's promising results. Ignoring the narrow and lower
grade Esterhazy Member completely at this time, and using the old
historical oil well logs as the upper limit, and today's initial drill
results as the base case, we can create some comparables.
First, using the old historical oil well logs as the bullish case, and
using Muskowekan's 36,000 acres, we get 145.7 sq kms x (4.2 + 3.6 =) 10.2
metres of mineralization = 1.486 billion cubic metres. 1.486 billion
cubic metres x 1.9 tonnes per cubic metre = 2.82 billion tonnes of potash
mineralization. Industry standards call for the application of a 25%
reduction factor on inferred resources to account for underground
anomalies, leaving 2.12 billion tonnes of resource. And when solution
mining (meaning they inject fluids down into the potash beds, dissolve
it, bring it up in solution, and precipitate it out at surface), only
about 34% of the material can be removed. Applying this figure leaves 720
million tonnes of resource. Industry standards call for the application
of an 80% efficiency factor, leaving 576 million tonnes. Applying a 5%
further efficiency reduction leaves 547 million tonnes. So, in total,
these rough calculations would give Encanto a potential recoverable
resource of 547 million tonnes of potash mineralization.
Now we use the same procedure with today's actual 3.6 m interval for the
Patience Lake Member and 2.4 m for the Belle Plaine Member, again
ignoring the Esterhazy completely at this time. Plugging in a total of
6.0 m versus the 10.2 m used above results in a potential recoverable
resource of 59%, (6.0/10.2), of the earlier derived values, which works
out to about 322 million tonnes of KCI. Not a bad start - especially if
the 40% KCI grades carry. At an assumed production level of 2 million
tonnes per year, that represents a century and a half of production.
For comparison purposes, Potash One is the acknowledged leader among the
junior potash companies. They are on track to bring on the first potash
mine built in Saskatchewan in 40 years using solution mining. This
process has the advantage of being a less expensive alternative to going
underground (lower Capex), and is scalable. Potash One has a NI 43-101
compliant Measured and Indicated Mineral Resource of 251 million tonnes
of KCl grading 26% and an Inferred Mineral Resource of 852 million tonnes
of KCl grading 23.8%.
Conclusion
We have to keep in mind that these are only Encanto's initial results,
and that these potash bearing members, while generally very uniform and
reliable in nature, do swell and pinch, so more drilling results are
needed. But importantly, Encanto's grades of 39.9% and 40.4% KCI are very
good (just look at Potash One's grades in the mid-20% area).
Encanto's primary focus is to fast-track exploration of these prospective
potash properties and to develop an economic deposit. A 43-101 Technical
Report will eventually give analysts something to rely on which will
likely confirm a higher valuation for the share price, but president Jim
Walchuck and his team are doing a great job of bringing to light a
potentially new commercial potash resource.
Potash as a commodity has a great future, and the first nations control
key sections of highly prospective land, hitherto unavailable for potash
exploration and exploitation. A key factor in the success of any potash
venture is the ability to finance through to production. With the
assistance of Endeavour Financial, a proven value-builder within the
resource sector as many of my subscribers can attest, Encanto is
well-positioned to build acreage and assets accretive for its
shareholders.
For more information, please contact:
Vanguard Shareholder Solutions
Tel: 604.608.0824
Toll free: 1.866.918.0824
www.encantopotash.com
ir@vanguardsolutions.ca