Investors Guru Small Cap Stock Observer

(TSXV: EPO) Encanto Potash - Drilling Confirms Potash Resource Potential

All eyes have been keenly focused on the Potash sector as BHP Billiton's (NYSE: BHP) failed bid for Potash Corp (NYSE: POT) (TSX: POT) is showcased about in the Canadian press. The Potash sector as a whole has excellent fundamentals as potash has no commercial substitute. Potash is the primary ingredient in fertilizer, which increases crop yields and resistance to poor weather. World population continues growing rapidly, especially in India and China, with the supply of arable land decreasing year after year.

BHP has made it very clear they really like potash, and not just Potash Corp. Last year they bought Athabasca Potash for $341 million dollars, based on a resource alone of 465 million tonnes, and this year they announced they were going to spend upwards of $12 billion dollars to develop the Jansen mine in Saskatchewan. The question now is where BHP will look next, as it is surely exploring an alternative scenario if the Potash Corp bid falls through the cracks.

There are 3 potash juniors in the Saskatchewan basin that have been subject to much takeover talk in recent months, including Encanto Potash (TSXV: EPO), Western Potash (TSXV: WPX) and Potash One (TSX: KCL). Encanto is however the only junior without a sizeable 43-101 resource behind them. Their exploration program is currently underway and they've had some favourable results as they move towards their milestone 43-101 expected in early Q1 next year.

Encanto has been making news lately as they recently signed a binding joint venture agreement with the Muskowekwan First Nations. The company just released results from their second drill hole on the Mukowekwan project and the numbers are consistent and arguably better than some of Potash Corp's producing mines in the region. The grades and thickness are right on trend with Potash Corp's Rocanville and Allan producing potash mines, and Athabasca Potash's (now BHP's) Burr property.

Source: Industrial Alliance

Encanto is still in the exploration stage and will likely not garner much of an institutional following or any analyst coverage until it achieves its first resource. It has however made the resource watch list from Industrial Alliance Securities. 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 states that Encanto's upper belle plaine appears most favourable for economic development as it has returned consistent ore grades over mineable widths. He 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.

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