STOP PRESS: Condor Resources Pushes Through The Million Ounce Mark At La India, And Is Now Aiming For Two Million O | October 19, 2011 Some Of The Biggest Names In Potash Are Now Lining Up To Speak With Encanto, Following The Completion Of Prefeasibility Work At Muskowekwan By Chris Cann A place on the Encanto Potash dance card is probably pretty hard to come by these days. The Toronto-listed potash developer recently turned its plans for a massive potash operation at the Muskowekwan property from big talk into a very real possibility. And so, as is usually the case when a junior is faced with a large-scale development with capital expenditure numbers in the billions of dollars, it’s time to start courting wealthy suitors.
Encanto released the results of pre-feasibility work at Muskowekwan in August. The study looked at two different kinds of operation – conventional mining and solution mining. For those not familiar with the latter, it involves pumping hot liquid into the ground to melt the potash into a solution which is then pumped back to the surface.
Besides the benefit of safety in the solution technique – there is no need for an underground workforce – the overall numbers also look impressive when set against a conventional operation. The required up-front capital for a 2.5 million tonnes per year solution mine comes in at just over US$2.4 billion, while a conventional mine would cost more than US$2.7 billion for a smaller two million tonnes per year operation.
What’s more, the mine life runs out to a possible 56 years under the solution mining scenario, and only 39 years using the conventional method. The only win for conventional mining is that the solution option extracts the potash at a lower grade, which pushes the operating costs up slightly.
But the outcome is clear. The net asset value using the solution method amounted to US$2.86 trillion, while the internal rate of return came in at 26.6 per cent. The net asset value using a conventional mining method is somewhat less, at US$2.35 trillion, while conventional mining would generate a lower internal rate of return too. So, a solution mine it will be.
Those extraordinary numbers offer some idea of the scale of this project and an insight as to why there is so much interest. But the story doesn’t stop there. Encanto has recently completed drilling over an area adjacent to Muskowekwanand roughly equal to it in size. According to business development consultant Gary Deathe, who has been working closely with Encanto, this is likely to double the resource base at the project.
Assays are due back in the not-too-distant-future and Deathe expects an updated resource to be published by early in the New Year. The additional acreage is subject to a Treaty Land Entitlement vote that was to take place in late November but this is thought to be a formality.
Precisely how a doubling of resources will change the parameters of the operation will depend largely who Encanto ends up bringing into the project. But there are two clear options. One is to increase the throughput and production significantly. The second is simply to extend the mine life out by another 50 years. The fact that Muskowekwan is so flexible gives Encanto plenty of room for manoeuvre in its negotiations.
Deathe would not be drawn on speculation as to who the likely partner will be, but he did confirm the suspicions that are already out in the market - that interest is intense. The project is of a size and scale that the suitors might come in all shapes and forms. Encanto’s future partner could be a government body attached to India or China. Or it could be a corporate buyer like BHP Billiton.
But whoever it is, Deathe said that the project will definitely be developed and won’t simply serve to fatten someone’s resource base. “The only caveat for us is the partner has to put it into production, not into reserves”, he said. “The First Nations’ main payout is on production and they’re scheduled to make about C$30 million a year or more on production. That is our number one goal.”
Deathe doesn’t expect the partnership negotiations to be a drawn out process, given that there are several front-runners all keen to lock something in ahead of their competitors. For its part, Encanto has no reason to put the brakes on.
With that in mind, it’s easy to speculate that full scale feasibility work and a partnership agreement might be announced in the first half of next year. From that point on, it will take about 30 months to build the operation and get it started. Add in to that mix a potash price that is on the rise, even as other commodity prices drop away, and the potential of other projects in the portfolio to add further value, and it seems clear that Encanto is set for a very interesting 2012.
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$1.30 Sentiment: ST Buy Disclosure: Held
