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Junior
Potash Companies Now The Focus
By : Richard Mills ¤----¤ |
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As a general rule, the most successful man in life
is the man who has the best information All eyes were recently focused on the senior Potash
sector as BHP Billiton’s failed bid for Potash Corp was showcased in
the Canadian press. Today there is news that will, in this authors
opinion, refocus investors attention further down the potash food chain. Potash One suitor offers $4.50 a share K+S Aktiengesellschaft and
Potash One Inc. have entered into a support agreement pursuant to which K+S
will make an offer to acquire all of the issued and outstanding common shares
of Potash One at a price of $4.50 per share in cash for total consideration
of approximately $434-million (311 million euros). 82.2-per-cent premium to Potash One's share price of
$2.47 on Aug. 16, 2010, the day prior to Potash Corp.'s rejection of BHP
Billiton's unsolicited proposal. BHP has made it very clear they really like potash -
not just Potash Corp. Last year they bought Athabasca Potash for
$341 million dollars, based on a resource of 465 million tonnes.
This year they announced they were going to spend upwards of $12 billion
dollars to develop the Jansen mine in Saskatchewan. The question I’m presently
considering is where BHP, and others, will seek their next deal now that the
Potash Corp. bid has failed and K+S has made an offer for Potash One. Recent news flow from the potash sector has been
dominated by BHP’s rejected $39 billion bid for Potash Corp and now K+S’s bid for Potash One. But a Canadian potash
junior, Encanto Potash (TSX.V - EPO), with a market
cap of $46 million, has been quietly drilling and reporting grades and
thicknesses that perhaps moves one of its potash projects in Saskatchewan,
Canada further down the development path to becoming a mine. Many resource investors find potash exploration data
difficult to interpret. While definition drilling on a typical gold
deposit might be spaced at 50 meter intervals, Encanto
and Potash Corp drilled about every 3.5 kilometers. That’s because potash, being an organic
product, is mined from deposits left behind when ancient sea beds evaporated.
This left the potash laying like blankets on a
made bed, very flat and evenly laid out deep underground. Very few countries have accessible economic-grade
potash, but when you do find it, it tends to be in ocean-size quantities. The
Prairie Evaporate formation hosts all known Saskatchewan potash mines, and Encanto’s projects are surrounded by producers.
Recently Encanto reported
assay results from the Lestock 7-2-27-15W2 well.
This is the first well in Encanto’s four-well
evaluation program on their Muskowekwan property in
Saskatchewan. EPO’s first drill hole returned results of 3.43 meters of
40.06 per cent potassium chloride (KCL) in the Patience Lake member, 5.10
meters of 37.75 per cent KCL in the Belle Plaine
member and 2.06 meters of 37.51 per cent KCL in the Esterhazy member. On November 22nd 2010 Encanto
reported the assay results from the second well of the Encanto
four well evaluation program and the third hole in
total.
The thicknesses and assay grades from this hole are
consistent with the results from the original two wells which were drilled on
the Muskowekwan property
The third (15-14-27-16W2) and fourth (15-16-27-15W2)
well locations are currently being cored. Assay values from those cores
should be available sometime in December, to be followed up with a resource
estimate in Q1 2011. The grades and thicknesses encountered in
EPO’s first well are right on trend with Potash Crop’s Rocanville and Allan producing potash mines, and
Athabasca Potash’s (now BHP’s) Burr
property. Also the new data clearly suggests that the Encanto Property encompasses the same ancient seabed as
the existing Mosaic mine, which has an annual production capacity of 10.4
million pounds. Adam Machionni, mining
research analyst at Industrial Alliance has initiated coverage and states
that these results “confirm ‘their’ view that the
prospect holds the potential to host a resource in the order of several
hundred million to over one billion tonnes of
potentially underground mineable potash ore.”
Marchionni also states that that Encanto’s
upper Belle Plaine appears most favourable
for economic development as it has returned consistent ore grades over
mineable widths. Marchionni also believes that
although there is considerable work required to define the mineralization and
potential for the development of a mine on the prospect, the risk reward profile
is highly attractive. Consider:
Conclusion “Just when we need more soil to feed the 10
billion people of the future, we’ll actually have less—only a
quarter of an acre of cropland per person in 2050, versus the half-acre we
use today on the most efficient farms.” David Montgomery, author of the 2007 book Dirt:
The Erosion of Civilizations Fertilizers are going to become increasingly
important to improve crop yields. There’s certainly longevity to the potash
story and as more and more investors become aware of it the most leveraged
companies could very well deliver spectacular gains for their shareholders.
Potash should be on every investors radar screen. Is it on yours? Richard Mills Richard is
host of www.aheadoftheherd.com
and invests in the junior resource sector. His articles have been published
on over 60 websites including - Wall Street Journal, 24hGold, Kitco, USAToday, Safehaven, SeekingAlpha, The
Gold/Energy Reports, Gold-Eagle and Financial Sense. If you're interested in
learning more about specific junior gold/silver stocks and the junior
resource market in general please come and visit his site at www.aheadoftheherd.com
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