New Page 1
By: Mineralstox.com
If you own a wheat field and the price of bread goes up, your land is likely
to increase in value. This is the position that potash juniors like Encanto
(TSX-Venture:EPO) find themselves in as industry leader Potash Corp (NYSE:POT) just
announced a 46% rise in Q1 profit, earning $449.2 million compared with $307.4
million in Q1 2009. It was the second-largest first-quarter profit in company in
Potash Corp’s history.
Potash is a macro story for which the mini-caps are benefiting. Potash is the
key ingredient in fertilizer – and there is no commercial substitute for potash.
The world population is increasing by 75 million people per year – at the same
time, there is less and less farmable land. That should keep potash prices and
potash stocks high for many years.
Population experts predict that by the year 2050 the earth will be inhabited by
9 billion people - an increase from 6.8 billion people in 2010. The majority of
this growth is occurring in the developing nations.
As incomes in these developing nations grow, the workers demand a more
protein-rich diet, which means they eat more meat. This has an amplifying effect
on the demand for fertilizer, because it takes about 10 kilograms of grain to
produce one pound of meat.
“Every crop harvested is equivalent to taking money out of the bank and the
record crops in recent years have resulted in large nutrient withdrawals from
the soil”, said Potash Corp CEO and President Bill Doyle, “taking out more than
you put back is not sustainable and farmers must return to the practice of
making deposits to keep their soils productive. Most distributors emptied their
bins in 2009 and now are coming back to producers for potash, phosphate and
nitrogen to meet their customers' needs.”
There are 150 companies world-wide that use potash as a major agricultural
component. China and India and Brazil are the largest importers of potash. Asian
nations produce only 13% of their potash demand. The United States is one the
largest net consumers of potash, it produces only 23% of the potash it consumes.
Owning a potash deposit in Saskatchewan, Canada is like owning ice in
Antarctica. It’s where most of the stuff is. In fact 53% of the world potash
reserves are in Canada.
EPO grades and thickness compare favourably to Athabasca (TSX:API) which was
bought out by BHP (NYSE:BHP) a few weeks ago for $341 million. EPO has market
cap of $35 million – so it appears to have a lot of room to run. In fact it is
one of the few juniors left that is a likely target for take-over.
Encanto has partnered with the Muskowekwan First Nations, and is rapidly moving
towards an initial resource calculation. Early assays returned values greater
than 25% K2O or 40% KCl over mineable widths in two separate potash beds. The
company plans to drill four to six infill holes at Muskowekwan for its initial
resources calculation due in Q3/Q4 2010. Seismic results from an extensive 3D
program at Muskowekwan are due in June 2010.
Saskatchewan potash beds are normally very consistent over tens of kilometres.
As a result, only a few widely spaced drill holes are required to create a large
potash resource – low cost exploration to create a high value resource.
Encanto is developing these properties with the full community support of First
Nations. It has 100% potash mineral title to all of the properties and the First
Nations have a 3% GORR (Gross Over Riding Royalty) upon production. So all
stakeholders’ interests are aligned.
The cash register at Potash Corp does not lie. POT recorded $715.1 million in
gross margin for Q1, on significantly increased sales volumes of potash. This is
good news for a small nimble company like Encanto who are in the process of
proving up a compliant resource.
