Encanto Potash Corp. [EPO-TSXV] has successfully finalized a historic offtake agreement with the National Federation of Farmers’ Procurement, Processing and Retailing Cooperatives of India Limited (NACOF).
The agreement provides for the supply of a minimum of 5 million tonnes per year for a guaranteed period of twenty years for muriate of potash (MOP). Food security obtained via procurement of an alternative supply of MOP and eliminating middlemen for Indian farmers is a fundamental objective for NACOF.
NACOF is India’s national farming cooperative established by the Joint Secretary and Central Registrar, Cooperative Societies under the Ministry of Agriculture, Government of India and representing farmers across 25 out of 29 states in India. NACOF has a 2016-2017 annual budget of US $7.67 billion and one of their primary goals is to enter into contracts and collaborate for the purchase, production, manufacture and marketing of raw materials, finished products and by-products, and also enter into joint marketing and exchange agreements with Cooperative Institutions, Public Sector Undertakings or any other agency in India or abroad.
Encanto President, Stavros Daskos, stated, “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.”
In 2011-12 limited potash was imported by India as a result of India’s strategy against the pricing practices of producers. The reduced supply, a shift in foreign exchange rates and reductions in government subsidies all contributed to an increase in the retail price for MOP in India which reduced demand. The recent decline in price for potash and government efforts to promote the use of more potash based fertilizers set the stage for increased demand in India. The Encanto Potash Corp strategy was to focus solely on addressing the current and future needs of India over the next 20 years.
Historically, potash consumption in India had reached around 6 million tonnes in 2010-11, and their aim, per the Ministries of Chemicals and Fertilizers, is to return to this level as potassium is required in large amounts to sustain and grow their crop based industry. The comparatively high retail cost of MOP and other potash-based fertilizers in India prompted many farmers to favour the use of fertilizers biased towards higher nitrogen content due to their lower cost. NACOF and Encanto believe a secure and stable supply of MOP at reasonable prices will incentivize India’s farmers to progress to a balanced fertilization program where the growth rate in consumption of potash-based fertilizers will be higher than the growth rate of consumption of alternate fertilizers. Part of Encanto Potash Corp’s immediate strategy is to also source potash from existing producers pending the commercialization of its own flagship Muskowekwan project.
The Indian government has set an objective to double the 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 fertilization program. Soil health assessments being provided by the Indian government and sustained marketing targeted at farmers will play an important role to help prevent over-use and misuse of urea fertilizers.
The Encanto / Muskowekwan First Nation / NACOF strategy changes the economics of the industry as it is focused on the security of India’s food supply, increasing India’s agricultural exports, the interests of the Muskowekwan First Nation (MFN) and the interests of Encanto’s stakeholders for the next 20 years. NACOF and Encanto have come together with the MFN to take a critical step for the Muskowekwan project on the MFN reserve lands and to secure India’s demand for the future.”
Through a JV with Muskowekwan Resources Ltd. on its flagship property, Encanto has a project land package which totals approximately 61,000 largely contiguous acres. A February 2013 Pre-Feasibility Study confirms proven and probable KCI reserves totaling 162 MMt grading 28% (average) which supports primary and secondary mining for over 50 years at an assumed annual rate extraction rate of 2.8 million tonnes.