Encanto hits jackpot with direct-selling offtake agreement with Indian farmers’ coop

TORONTO (miningweekly.com) – The potash market on Thursday reverberated with the news that junior project developer Encanto Potash has struck a definitive 20-year offtake agreement with an India-based farmers’ co-op for a minimum of five-million tonnes a year, cutting out the middle man and selling directly to farmers.

The company’s TSX-V-listed stock nearly doubled on the news as investors scrambled to get in on the action.

“This is clearly a defining moment for our company and the industry. India imports 100% of its potash and is susceptible to cartel-like practices from producers that can hurt its national food security. Establishing long-term offtake agreements are difficult and require a great amount of time and understanding of a country's food security policies and how they interface with the dynamics of a supply environment controlled by a small number of entities,” Encanto president Stavros Daskos stated on Thursday.

The National Federation of Farmers’ Procurement, Processing and Retailing Cooperatives of India (Nacof) is the Asian country's national farming cooperative and represents farmers across 25 out of 29 states. The Nacof has a 2016/17 budget of $7.67-billion to spend on its primary goal of entering into contracts and collaborating on buying, producing, manufacturing and marketing raw materials, finished products and by-products and entering into joint marketing and exchange agreements with cooperative institutions, public sector undertakings or any other agency in India or abroad.

UNDERCUTTING STATUS QUO
India-based buyers have been loath to sign offtake agreements with established suppliers in recent years as low potash prices drove spot market buying, amid depressed demand. The Encanto strategy is to focus solely on addressing the current and future needs of India over the next two decades.

According to the marketing arm of major Saskatchewan potash producers Agrium, The Mosaic Company through subsidiary Mosaic Canada Crop Nutrition, and Potash Corporation of Saskatchewan, the opening potash inventory levels in all major export market regions are lower than last year's, providing a strong base level for demand into 2017.

Potash consumption in India had reached about six-million tonnes in 2010/11, and according to the Chemicals and Fertilisers Ministry, the aim is to return to this level as potassium, found in Encanto’s muriate of potash (MoP) product, is required in large amounts to sustain and grow the crop-based industry.

The comparatively high retail cost of MoP and other potash-based fertilisers in India prompted many farmers to favour the use of fertilisers biased towards higher nitrogen content, owing to their lower cost, Encanto explained.

Nacof and Encanto believe a secure and stable supply of MoP at reasonable prices will incentivise India’s farmers to progress to a balanced fertilisation programme, where the growth rate in consumption of potash-based fertilisers will be higher than the growth rate of consumption of alternate fertilisers. Part of Encanto’s immediate strategy is to also source potash from existing producers pending the commercialisation of its own flagship Muskowekwan project, underlying nearly 25 000 ha on Muskowekwan First Nation lands, in Saskatchewan.

According to Encanto, the Indian government has set a target of doubling farmer’s income in the next five years, and continues its efforts to educate Indian farmers on the long-term benefits and potential increases to crop yield that can be achieved from a balanced and strategic fertilisation programme. Soil health assessments being provided by the Indian government, and sustained marketing targeted at farmers, will play an important role in helping to prevent over-use and misuse of urea fertilisers.

The latest agreement adds to the existing two-million-tonne-a-year, 20-year agreement with India’s largest trading company, Minerals and Metals Trading Company.

FOOD SECURITY
Encanto, which is developing the Muskowekwan project in partnership with the First Nation, said the Nacof strategy changes the economics of the industry as it is focused on the security of India's food supply and increasing India’s agricultural exports for the next 20 years.

The agreement is the result of 20 months of negotiations between the stakeholders to structure an agreement that meets all of of the parties' interests and objectives.

The agreement will also allows the Muskowekwan First Nation to generate its own source of revenue and helps the Muskowekwan people with training, jobs and opportunities which enable a path forward towards a better future.

Encanto noted that there remain other possible initiatives with Nacof relating to the procurement and marketing of other Canadian products in India, targetting the agricultural, mineral, grain/seed, aqua/horticultural, forestry and food/animal sectors through the company’s intention to form a trading company.

Encanto and its Muskowekwan First Nation partner have developed 162-million tonnes of recoverable potassium chloride in compliant proven and probable reserves, with a total of 35.4-million classified in the measured and indicated resource categories. At an extraction rate of 2.8-million tonnes a year, the resource will support a solution mine life of more than 70 years.

India is ramping up its minerals investment offshore, having previously agreed to enter the Canadian uranium market with a C$350-million, 7.1-million pounds uranium supply contract inked with Canadian producer Cameco.