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Investing in Canadian Potash Fertilizer Producers - Encanto Potash Corporation

By Edited Jan 26, 2016 0 0

Invest in junior potash exploration companies

Potash Corporation is the biggest firm in the potash sector. They have had spectacular success resulting in a market valuation of over $51 billion. There are other junior potash producers in Saskatchewan, Canada. These companies control lands which contain potentially lucrative potash deposits. Some are located near the proven region that is currently mined by Potash Corporation.

One such company is Encanto Potash Corporation, (stock symbol EPO in Canada). The company was created to work with First Nations Peoples in Saskatchewan. The lands have been shown to contain many millions of tons of potash. Encanto is a junior potash exploration company at present. They are working at tasks necessary to confirm the size, purity and precise location of potash deposits. Upon the completion of information gathering, they company will be able to plan for the mining operations necessary to bring the potash to market. A new drilling program is planned to commence in early 2011.

With adequate potash resources identified, Encanto Potash Corporation hopes to establish a working mine. This is likely to be a fairly expensive undertaking. Potash in Saskatchewan is buried underground. It must be mined and brought to the surface. There is usually too much overburden material to allow economical pit mines to be established. Proper attention must be paid to the environmental concerns of a mine. Safety for staff, wildlife and the environment must always be considered. Still, Encanto Potash Corporation is an exploration company and has people well aware of the requirements needed before commercial operation can start. The operating mines in Saskatchewan provide a realistic example of how future operations might be constructed.

Potash fertilizer is a valuable commodity as farms enjoy substantially improved crop yields after potash is applied to farmland. In areas where intensive agriculture has depleted soils, the addition of potash is practically mandatory. Potash contains a high concentration of elemental potassium, an element required for the development of all living cells. Natural potassium levels may be low in farmland so the addition of potash rectifies the imbalance.

Since farmers around the world have realized the benefits of potash for increased production, they have created higher demand for potash fertilizer in recent years. This has resulted in price increases for the commodity. Recent forecasts have indicated that the potash price is expected to remain strong for some time. This allows junior potash companies such as Encanto to develop revenue projections for cost benefit studies. The determining factor is the amount of potash controlled by the company and the costs associated with the successful extraction of the resource. Other mine planning factors to consider are the depth of the potash deposits, the location of the mine with respect to roads, railroads and electrical services and more. Again, the established operating mines, such as at Potash Corporation, provides the junior potash companies with successful operations to emulate.

Since potash is now a valuable commodity and the world's largest producer has been very successful of late, there is a lot of interest in junior potash companies. This has had the effect of driving stock prices up, generally, for the entire sector. In fact, several junior potash companies have seen substantial increases to their stock prices due to potential development of their resources. These junior companies must be considered highly or moderately speculative. The diligent investor is advised to research the available information for Encanto Potash Corporation before buying any stock. The company has a web site that lists details of the company's policy and their potential potash reserves. Investors should be aware that the exploration phase can take a considerable amount of time and money before a company is able to extract any potash. This means that the company expends funds long before any revenue is available. In order to obtain money required for exploration, Encanto Potash Corporation obtained $5.5 million in December 2010 through the issuance of additional stock to investors. This money will be used to fund various activities in 2011. As progress is made with explorations, investors should expect that they company will issue more stock in order to obtain more funds. By proceeding in this manner, the company may reduce the need to borrow funds from the money market thereby saving interest charges.

As with many corporate endeavors, the exploration for potash is not a guaranteed success. Even with many tons of proven potash reserves, there may be substantial costs encountered by companies wishing to extract the potash. Many regulations govern the process from the start of exploration to the eventual shipment of the resource. Meanwhile, costs for basic supports such as fuel, electricity, staff time, etc, must be paid well before the potash company can earn revenue. Investors hoping for substantial, early gains may be disappointed. Such gains have occurred for some companies, but they must be considered unusual. A steady progression of exploration by the company with stock prices reflecting the reality of potential revenue measured against future costs must be more reasonably expected by the investor. With proper management of the exploration phase by companies such as Encanto Potash Corporation, coupled with favorable regulatory actions, investors may hope for substantial gains in capital value over the long term.

Ultimately, the potash fertilizer resource is destined to be very important for world agriculture for a long time. The future prospects for exploration and production companies should also be good. Potash is important, perhaps vital, for farm production. The demand for crops continues to rise with the increase in world population. As more people turn to vegetarian lifestyles, more crop production is necessary. Feed for livestock relies on agricultural crop production. Most of the farms benefit from the application of potash fertilizer to arable land. Marginal lands are rendered productive with the addition of potash. The importance of potash, therefore, is extremely significant. Potash is found in various deposits around the world but many are not economical at this time. Junior potash exploration companies such as Encanto Potash Corporation have actively embarked on activities necessary to prove potential and bring new mines into operation. The fact that Encanto operates in a stable economical climate and in areas near proven potash production facilities, gives investors hope for substantial gains. As mentioned, however, investments in junior potash exploration or production companies must be considered speculative. Investment in senior companies such as Potash Corporation may be considered "Blue Chip" but price levels are much higher than those for junior companies since there is less risk to accept.



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