The Energy Report: Adrian, in our last interview with you, while discussing the sustained commodity boom that you foresee, you said you were talking about the whole shebang—from precious and base metals to uranium, oil and gas to geothermal. You also included agriculture, noting that you expect agricultural assets to be among the best-performing assets over the next decade. Would you expand on that thought for us?

Adrian Day: Absolutely. As you may recall, we also talked about how China has been driving the resource market and will continue to drive it for the next decade. Even if China’s economic growth slows from 9.5%–5%, the demand for resources will still be very dramatic—much higher than now. As China becomes more industrialized, increasingly more people in its massive population will move up into the middle classes.

Middle class people want houses with electricity, running water and indoor plumbing. They want to have cars, as well as bicycles, which takes copper, aluminum, platinum, rubber, oil, etc. And as more Chinese go from eating the chickens and goats they raise in rural China to an urban environment, they lose their taste for goat meat and want beef instead. Cows consume more wheat than do goats. That’s just an example. The point is, the basic factors driving all the resources are also driving agriculture.

TER: As Wellington West Capital Markets’ agricultural expert, Rob, what underpins this rush toward potash companies, including the failed BHP Billiton Ltd. (NYSE:BHP; OTCPK:BHPLF) bid for PotashCorp (NYSE:POT; TSX:POT), the upcoming transaction between K+S Aktiengesellschaft (Fkft:SDF) and Potash One Inc. (TSX:KCL)?

Robert Winslow: Whether you’re looking at fertilizers or farm equipment, really what underpins all the agricultural (ag) cycle is the grain complex. If you were to pull up a chart of the corn, wheat and soybean prices, for example, you’d see that grain prices bottomed out in early June, down to around the cost of production in the U.S. Corn Belt. They started rallying from there, spurred a little by dollar weakness but also by the supply/demand situation globally. We’re in the neighborhood of 50%–55% above those June lows.

TER: Has the hike been more a function of growing demand or supply shortages?

RW: We had some supply shocks, particularly on the wheat side. In western Canada, it was very wet; in Russia, it was very hot and dry. As a result, two of the world’s three-largest wheat exporters saw their production cut by about 20%. That showed us how tight the stocks-to-use ratio became globally, which is the metric we use—it measures supply/demand for any given commodity.

TER: Could you elaborate on what that stocks-to-use measurement tells us?

RW: It tells us supply/demand levels are down to those last seen in 2007 and early 2008 when the grain complex rallied, as well. The bottom line is we get to a situation where we have insufficient inventory to protect us from supply shocks. That will drive up grain prices. As grain prices go, farm income goes. As farm income goes, so go expenditures on seed, fertilizer, chemicals, tractors, short-line equipment, you name it. The entire complex rides on the back of those grain prices.

TER: That would bode well for a company you told us about the last time we talked, Adrian. You described it as one of your favorites in the general resource area.

AD: Yes, Sprott Resource Corp. (TSX:SCP). If you buy Sprott, which is quite a liquid company, you get it at a discount to NAV. Net asset is about $5.20. The stock’s been trading at about $4.65. You also get great management—Kevin Bambrough and company—and a great balance sheet. As you know, Sprott has direct and indirect investments in different resource areas—buying whole companies, sponsoring companies or growing them. When the companies reach a certain level, ideally it’ll spin off a certain amount of the shareholding into a public company.

TER: You said it’s currently in gold, oil and gas, agriculture and fertilizer. Tell us about the last two on that list.

AD: The agriculture play is very interesting, a joint venture (JV) with First Nations—One Earth Farms Corp. First Nations owns more than a million acres of farmland. It’ll be a big business, one of the largest commercial farms in North America—really quite staggering. It’s still a private company, but it’s selling some shares in a secondary offering, raising $40M–$80M. If it brings in the maximum, it will take Sprott’s stake down to 24%. In a year or two, it’ll IPO. That’s what it’s trying to do—take a direct investment, build up the company and IPO it.

TER: News has been coming in pretty fast and furious on the potash front; and, Rob, you recently raised your targets on several potash juniors. Without discounting the demand factor, what can you tell us about the rationale behind that decision?

RW: The impetus for that was the bid by K+S for Potash One. On the back of that, we also raised the targets on Allana Potash (TSX.V:AAA), Intercontinental Potash Corp. (TSX.V:ICP) and Western Potash Corp. (TSX.V:WPX), as there’s a scarcity factor that needed to be embedded in the valuations of those companies. We’re seeing consolidation in the space, with the big players coming and buying up the juniors. When that happens, obviously, the value of those left standing—presuming they’re still quality assets—tends to go up.

TER: How did your targets on these three companies change?

RW: We raised Allana’s target $0.15 to $1.15 (and have since raised it again to $1.20) and we rate it as a strong buy. Intercontinental is $1.50/share and Western Potash is $1.05. Among the three, I have a more favorable view on Allana and Intercontinental than on Western Potash because the former two are advantaged juniors.

TER: What do you mean by “advantaged” juniors?

RW: They have some edge, a sustainable competitive advantage that makes them stand out from the crowd. For example, Allana’s potash concessions are in Ethiopia’s Danakil Depression.

TER: What makes that special?

RW: The potash deposit there may be as shallow as 150 meters or so, which suggests the possibility of an open-pit operation. That would cost less than sinking a shaft in Saskatchewan, where the company would likely have to go down to a depth of 1 km. That’s more than $1 billion just to get the shaft down. Parts of the Danakil Depression potash deposit appear to be 600–700 meters, so solution mining would be possible there also.

TER: Some of our readers may know, Saskatchewan supplies one-third of the world’s potash demand. But, apparently, Ethiopia has one of the world’s largest potash deposits—up to 150 million tons (Mt.) concentrated in the Dallol area.

RW: That area, in the Danakil Depression, has enormous potash potential. Water has been running down from the surrounding mountains for millennia, carrying minerals to this low-lying basin. Over time with heat and evaporation, it has produced this giant dish of salt. When you go far enough down into the layers, you reach salt containing a tremendous amount of potassium—that’s the potash. I’ve never seen anything quite like it; it’s remarkably hot and salty.

The Danakil Depression is among the hottest places on earth. I was there not long ago, and it was 114°F in the shade. The idea with solution mining is to inject a heated solution (or water) down into the salt bed, dissolve the salt, bring it up to surface, and then use wind or solar to evaporate it. At the surface, you can heat up your water quickly with solar panels. Considering all of that, operating costs are potentially materially lower than in a solution mine—or any other kind of mine—in Saskatchewan.

TER: That would clearly be a competitive advantage. Compared to conventional mining, solution mining means not only lower capex requirements but also operation scalability and a quicker timeline to production—not to mention less technical risk and environmental impact.

RW: There’s even more to the Allana story. It’s quite a bit closer to one of the largest importing nations in the world. Depending on the year, India ranks as the second- or third-largest potash importer in the world. If Allana gets this mine built and the proper infrastructure in Ethiopia to get it over to the coast, transport alone could be $20 or even up to $40 cheaper per ton. So, once the infrastructure is in place, the cost of those logistics on a run-rate basis would be significantly lower than they would be in western Canada. That’s another reason we like Allana. It’s also lower on a price-to-NAV valuation on our comp table.

TER: As a Canadian-domiciled company, one might expect to see French and English banners on Allana’s website but it has English and Chinese banners.

RW: Of course, China is interested in potash all over the world, but a Chinese investor has put in a modest amount of capital and bought some equity in Allana, about $2 million. The company’s also negotiating with this investor to put up something like 35% of the capex to help finance the project. In turn, Allana has committed to give this partner discount-to-market prices on potash until it gets its capital back. The terms have yet to be finalized, but it’s an interesting way to finance the project. The day the Chinese actually put up $300M will be the day we’re excited. Right now, it’s not concrete; it’s just in negotiations. Even so, a lot of things separate Allana from some of the others.

TER: It sounds as if there’s minimal jurisdiction risk in Ethiopia.

RW: Ethiopia is not Canada. Having said that, it’s interesting; it’s almost paradoxical. Africa welcomes the Chinese with open arms. They’re the largest investors in Africa. They promise infrastructure. They’ll create jobs. They want to stimulate the economy. There’s a lot of collaboration between the African nations and China. I met with some government officials when I was there, and the government’s conviction is pretty strong. It wants to produce potash—the goal is to produce 2 Mt. annually by 2015. It’s racing toward potash production and is more focused than anybody else out there. The government’s going to spend money on infrastructure. It’s talking about an $8 billion rail system that, obviously, would facilitate getting potash to the coast for export. China probably will be constructing most of that railway.

TER: Wherein lies the paradox?

RW: You don’t see the Chinese doing a heck of a lot in Canada’s potash space, and I think that’s primarily because they don’t want to get egg on their face. Think of what we saw with BHP in its bid for PotashCorp. I suspect the Chinese view Canadians as slightly protectionist when it comes to some of these strategic resources.

TER: Right. You weren’t too hot on the BHP takeover attempt, anyway. In August, The Globe and Mail quoted you as saying that a successful takeover by BHP would “complicate the situation for Canadian junior potash companies in a number of ways, making access to capital somewhat more challenging for them.” Further to your comment about that protectionist sentiment, PotashCorp, after all, is the world’s largest fertilizer company by capacity, producing all three primary crop nutrients—phosphate, nitrogen and potash. As the world’s leading potash producer, it accounts for about 20% of global capacity—a national treasure.

RW: Yes, and frankly I think China would find it more difficult to get something done in Canada than it would in Ethiopia. As I said, Ethiopia’s government is looking for investment with open arms. That’s the paradox.

TER: China’s investment will do a lot for Ethiopia’s GDP, too—2 Mt. at $500/ton. What’s the story with Intercontinental?

RW: It’s early days yet, but it’s looking at producing a specialty fertilizer called potassium sulphate (SOP) by extracting potassium (K) from polyhalite. It has to mine the stuff—polyhalite’s an unusual mineral, but it has a lot of K in it—and bring it up to surface. But if it all pans out, Intercontinental could be among the world’s lowest-cost SOP producers.

Most SOP producers use the Mannheim process, mixing potassium chloride (KCl), or regular potash, with sulfuric acid in a big furnace. Some fancy chemistry goes on when it heats up, and SOP comes out the other end along with some byproducts. The SOP cost will fluctuate with the price of potash, but it can be costly.

In contrast, the conversion process that Intercontinental Potash proposes would use the polyhalite the company mines as its input instead of KCl. Suppose the polyhalite costs $60–$70/ton to mine and conversion takes it to $180–$200/ton to produce SOP. If you’re using the Mannheim process to produce SOP, you’re buying KCl at approximately $400/ton in the marketplace, which already puts you at a disadvantage compared to a competitor who can use a much-cheaper raw material input. That’s a really interesting project, and one of the lowest-cost producers in the world delivering a high-margin potash product makes for a really compelling story.

TER: Is potash garnering about $500/ton now?

RW: It depends on where it’s being sold. In Brazil, I believe it’s a little bit over $500. In parts of the Midwest, in the Corn Belt, it’s approaching $500. In Vancouver, I believe it’s $400. So it depends. Wherever you are in the world, there’s a slightly different price because you have to factor in the transportation cost.

TER: Getting back to your advantaged companies, why isn’t Western Potash in that category?

RW: We raised our target on Western Potash, too, but we’re less optimistic on its prospects given that it’s maybe the fourth or fifth junior in the Saskatchewan Basin. Over the past couple of years, BHP has acquired Anglo Potash Limited and Athabasca Potash Inc.; and now, Potash One is bidding for K+S. Already these three juniors are arguably further advanced than Western Potash. Plus, you’ve got the brownfields, the incumbents and the big players—PotashCorp, The Mosaic Company (NYSE:MOS) and Agrium Inc. (NYSE:AGU). They could well expand their capacity for potash in the basin in western Canada.

So, Western Potash is late to the game by comparison and the cost of capital is significantly higher than it is for the brownfields. This isn’t to say the stock price can’t go higher, because clearly it went through our target; but we’re somewhat tempered on our optimism. A lot of things have to go right for that Western Potash mine to be built and we’re just not persuaded it’s likely to happen.

TER: Back to you, Adrian. You’ve brought us up to speed on Sprott. What are some of the ag companies you like?

AD: We favor companies that actually produce somewhat more than do the explorers. So, some of those we like include farmers and agribusiness companies like Cresud (NASDAQ:CRESY) in Argentina, which raises wheat, corn, soybeans, beef and dairy cattle. Cresud exports a lot to China, which says an awful lot about China’s need for agricultural commodities. It has evolved from a country that met all of its own needs and actually exported agricultural products. Now, China has to import wheat from halfway across the world.

In addition to agribusiness companies that produce, we like Bunge Ltd. (NYSE:BG; NASDAQ:BG), which had its origins in Brazil and still has most of its assets there but is headquartered in New York now. Bunge buys, sells, stores, processes and transports crops to make staple foods, food ingredients and animal feed. Its corporate brochure contains an eye-opening statistic from the United Nations—that global food production will need to increase 70% by 2050 to feed a larger and more prosperous world population.

How to increase production has become the real issue in agriculture. Of course, one way is with fertilizer. We have to use fertilizer if we’re going to feed people; there’s no way around it. This is a well-known story, and the fertilizer companies are going to do remarkably well over the longer term. The fertilizer stocks got a little expensive in the wake of BHP’s bid for PotashCorp. Now that it’s been withdrawn, I would wait for a pullback.

Right now, my favorite potash is a great company—Mosaic. Germany-based K+S is another good company. Various fertilizers already comprise about 85% of revenues for K+S, which looks to expand its portfolio with the Potash One transaction soon. I also like Syngenta AG (NYSE:SYT), which is also based in Germany. If we’re going to feed people, we have to find a way to increase our core production not only with fertilizer but also with genetic engineering of seeds, etc. I know it’s controversial, but that’s the only way we’re going to do it.

TER: Any other companies?

AD: There are also explorers. For instance, Lara Exploration Ltd. (TSX.V:LRA) isn’t a phosphate explorer but it has some phosphate exploration in its portfolio. So, I like diversified companies that give me exposure to different areas.

TER: Adrian, you’re a commodities bull no matter how you cut it—in this case, with agribusinesses. And you’ve given some strong bullish signals on the ag sector too, Rob.

RW: We’re obviously bullish on grains and fertilizers. We’re bullish on grains because we think the supply/demand situation could remain tight for some time. USD weakness also tends to drive these commodities higher because they’re denominated in U.S. dollars. For example, it takes more dollars to buy a bushel of corn as the USD devalues. In our view, a number of factors support robust grain prices and, therefore, a strong ag sector for investors.

TER: Thank you very much, gentlemen.

A British-born writer and money manager who graduated with honors from the London School of Economics, Adrian Day has made a name for himself searching out unusual investment opportunities around the world. As president and CEO of Adrian Day Asset Management, he generously shares his thoughts, opinions, insights and analyses via Barron’s, Forbes, Bloomberg Markets, Kitco, Casey, The Stock Advisors, Dick Davis Digest, MSN Money, Financial Times, The Daily Reckoning, The Herald Tribune, The New York Times and, of course, The Energy Report—among others. A frequent speaker at international seminars and a regular guest on CNBC and The Wall Street Journal Radio Network, he has been interviewed by Money, Straits Times, Good Morning America and others. He also writes the quarterly Portfolio Review newsletter for clients, serves as editor of Adrian Day’s Global Analyst and has authored three books on global investing: International Investment Opportunities: How and Where to Invest Overseas Successfully and Investing Without Borders and the just-published Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks, which is now available in hardcover and e-book formats.

As an analyst with Wellington West Capital Markets Inc. in Toronto, Robert Winslow, CFA, covers 16 companies wearing his “Agriculture and Special Situations” hat. Before joining Wellington West, Rob served as an equity research analyst with Orion Securities Inc. (Toronto), strategy consultant with Bain & Co. (Toronto and Brussels), and senior engineer with Caterpillar Inc. (Dallas). Rob earned his master’s in science degree in engineering at Texas A&M, and his MBA from Cornell.

Want to read more exclusive Energy Report interviews like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:
1) Karen Roche and Brian Sylvester of The Energy Report conducted this interview. They personally and/or their families own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report or The Gold Report: Allana Potash and Lara Exploration.
3) Adrian Day: I personally and/or my family own shares of the following companies mentioned in this interview: Sprott. In client accounts that I manage in addition to these stocks, we also own. I personally and/or my family am paid by the following companies I mentioned in this interview: None.
3) Rob Winslow: I personally and/or my family own shares of the following companies mentioned in this interview: Allana Potash.

The extraction process is low cost/high margin and battery grade lithium carbonate can be extracted. The cost-effectiveness of brine operations forced even large producers in China and Russia to develop their own brine sources or buy most of their needed raw materials from brine producers.
These brines are considered primarily potash deposits with lithium as a by-product.

The above diagram was designed to show that several commercial products can be recovered from typical brine and that the recovery takes place in a series of steps over the entire evaporation process. Note that the final product in each step may require processing in a specialized plant. Also please note that the actual sequence of process steps may vary from brine to brine, and as such, the process steps shown above may not be in the correct order for any specific brine.
The key factors that determine the quality, economics and attractiveness of brines are:

• Potassium content
• Lithium content
• Presence of contaminants ie magnesium (Mg)
• Porosity
• Net evaporation rate
• Recoverable by-products
• Infrastructure – or lack thereof
• Country risk
• 100% control over production
• Low capex, low production costs, high margin products

Contributing to efficient solar evaporation and concentration of the Puna Plateau brines are:

• Low rainfall
• Low humidity
• High winds
• High elevations
• Warm days

Dajin Resource Corp. DJI – TSX.v
Cash: $2,500,000.00
Debt: $300,000.00Shares Outstanding: 61,223,967Fully Diluted: 75,201,032
Dajin controls a 100% interest in mineral concessions in Salta and Jujuy provinces of Argentina that cover regions known to contain brines rich in lithium, potassium and boron.
These concessions total approximately 101,000 hectares in various drainage basins including 81,000 hectares of salar and Tertiary paleo-salar in the Salinas Grandes/ Guayatayoc salt lake basins.
Dajin has recently received, from Safari Energy Inc., a Calgary based geophysical consultant, the interpretation of 417.6 line kilometres of 2D seismic lines shot on and around Dajin’s Salinas Grandes/Guayatayoc project.
The data indicate stacked salt deposits (the basin may be more than 800 meters in depth and contain several salt layers as much as 150 to 200 meters thick) deposited in sedimentary/structural basins which have potential to be collection zones for denser, higher grade brines.
The potential exists for the older, deeper, brines that flood the sedimentary and structural basins to contain substantially greater concentrations of lithium and potassium than the current near surface brines due to the more extreme climatic conditions when these older salt deposits were precipitated.
High lithium concentrations, up to 1,600 parts per million (ppm), in near surface brines are present in specific regions of the Salinas Grande salt lake – Dajin believes these high lithium concentrations are due to the recharge of the salt lake by the seepage of these older deeper brines along faults penetrating the sedimentary/structural basins.

Based on geophysical factors eleven drill sites were selected for initial delineation and evaluation of possible reservoir quality lithologies. Phase 1 consists of 6 holes

“The commencement of this drill program is one more positive step forward for Dajin to test its target of a substantial economic resource of potash, lithium and borates in one of the largest brine basins in Argentina.”  Brian Findlay, President Dajin Resource Corp.
Mr. Findley went on to point out that as a consequence of Dajin’s 100% ownership in the concessions the company will have no payments or work commitments to previous owners and no royalties to pay to third parties.

Conclusion
Ahead of the Herd’s first Lithium stock went from .05 to .80, our second Lithium pick was recently bought out by the world’s largest pure lithium producer for $1.25 a share.
Dajin Resource Corp. has an exciting story to tell and is involved in two of today’s dominant global investment themes – Lithium for the electrification of our transportation system and Potash to feed the world. This story should be on every investors radar screen.
Is it on yours?
Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com
If you’re interested in learning more about the junior resource market please come and visit us at www.aheadoftheherd.com.
Membership is free, no credit card or personal information is asked for.***Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.***Legal Notice / Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report. Richard Mills owns shares of Dajin Resource Corp.
Dajin Resource Corp TSX.V – DJI is an advertiser on his website aheadoftheherd.com.

Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

The United Nations estimates that the world’s population will reach 7.7 billion by 2020 and 9.3 billion in 2050. Another United Nations estimate says that only 30% of the arable land in use in the 1950’s will be available per person in 2050.

“Just when we need more soil to feed the 10 billion people of the future, we’ll actually have less—only a quarter of an acre of cropland per person in 2050, versus the half-acre we use today on the most efficient farms.” David Montgomery, author of the 2007 book Dirt: The Erosion of Civilizations

Fertilizers are going to become increasingly important to improve crop yields.

2010 is going to be the remembered as the year of the fertilizer deal. BHP Billiton acquired Athabasca Potash for C$341 million. Vale paid US$3.8 billion for the South American fertilizer assets of US commodity supply chain company Bunge and at the same time acquired a 16 per cent stake in Fertilizantes Fosfatados of Brazil. The recent $38 billion all-cash bid for Potash Corp (POT-TSX) by BHP Billiton (BHP-NYSE) a mere two days after I published “Potash Sector Heating Up…Again” has stirred up the fertilizer sector and reminded the investment community of potash’s uniquely attractive economic fundamentals.

There are two junior potash developers in Saskatchewan, and one in Brazil, on my radar screen.

Amazon mining Corp. (TSX.V – AMZ) was founded by Brazilians in 2005. The company is focused on the development of its Cerrado Verde project. Cerrado Verde is source of a potash rich rock from which Amazon plans to produce a slow-release, non-chloride, multi-nutrient, fertilizer product. Brazilian soils are generally poor in potash and Brazil only produces 10% of its current potash needs.

Their leading exports – sugar cane, soy beans, orange juice, coffee, tobacco, beef, poultry and corn – all require potash rich environments. Brazil is one of the few countries left with potential to materially increase arable land and that has an abundance of freshwater (Brazil, Canada, China, Colombia, Indonesia and Russia  have half the world’s supply of freshwater. Asia has the lowest water supply per capita) – increasing the size of the country’s agricultural land base will drive further potash demand.

Independent Engineering work began on the Preliminary Economic Assessment (“PEA or Scoping Study”) for the Cerrado Verde project in July, 2010. The work is being completed jointly by ECM.S.A – Projetos Industriais and SRK Global Mining Consulting, results could be as early as October.

Amazon is in the midst of lab scale testing of preliminary ThermoPotash products. To date, the company has received excellent results from solubility tests and nutrient availability tests. Tests are also being conducted to demonstrate ThermoPotash’s resistance to leaching (The combination of acid soils and torrential rains in Brazil reduces the efficiency of traditional chloride based potassium because it dissolves too quickly) and how effective ThermoPotash is on reducing limestone requirements to reduce the acidity of soil.

The Company has entered into an agreement with the University of Lavras, Minas Gerais, Brazil, to complete a full slate of tests required to register the ThermoPotash product as a fertilizer in Brazil. The goal is to complete the requirements and register the product in Q3 2011.

An interesting development to Amazon’s remarkable story is the discovery of Natural Gas close to their Cerrado Verde project – a development that might have economic implications and bears watching.

“We are pleased to see that the discovery of natural gas will also be a boon to the agricultural sector because it will lower costs for the local production of potash. We are undertaking talks with Amazon Mining in order to reach an agreement that will ensure the flow of benefit in the near future.” State Secretary Mr. Ribeiro

Analyst coverage includes:

• Clarus Securities
• Kaiser Bottom-Fish Online

Saskatchewan is the largest potash producer in the world, typically accounting for 30 percent of total production. The value of Saskatchewan potash sales was $3.1 billion in 2009

Encanto Potash (TSX.V – EPO) is steadily working towards its maiden 43-101 resource calculation. And EPO’s flagship property, the Muskowekwan, is on trend with all the major players in the potash basin.

Last week EPO published its initial interpretations of the 65 square kilometre 3D survey over project area. The data supports findings from its original 2D survey indicating that the potash bed is continuous and structurally intact.
Saskatchewan’s competitive advantage is the exceptional extent and quality of its ore reserves. The high-grade ore lies in basically flat beds, allowing the use of highly efficient mining techniques. The province’s industry is widely considered to have the lowest production costs in the world.

EPO’s first drill hole at its Muskowekwan property in Saskatchewan returned values of 25.2% K2O (39.9% KCl) over 3.6 metres in the Patience Lake potash bed, and 25.5% K2O (40.4% KCl) over 2.4 metres in the Belle Plaine potash bed. Drilling in the lower Esterhazy Member returned values of 5.3 metres of 12.4% K2O (19.6% KCl).

According to a research report dated August 30th 2010 from Industrial Alliance, EPO’s first drill hole shows depth, grade and thickness on par with both Potash Corp’s Rocanville and Allan producing mines and Athabasca Potash’s (Now BHP Billiton) Burr Property in the feasibility stage, recently bought out by BHP for $341 million.

The 2010 drill program, beginning in the next couple of weeks, will verify grade distributions throughout the property.  EPO expects an initial resource estimate around Christmas or just into the new year.

According to Boyd PetroSearch, less than 10% of the 69 square mile 3D survey shows anomalies in seismic response, indicating that the potash could be continuous over 30,000 acres.

Western Canada’s potash deposits occur in the Middle Devonian Prairie Evaporite formation at depths in excess of 900 m. Start up costs can run in access of $2b. Very few junior companies will have the experienced management team and the requisite financial backing necessary to pull off building a conventional underground potash mine. Encanto Potash has the backing of the Endeavor Financial Group so access to capital should not be a problem. First Nations involvement and having the projects on their traditional territory lessens the number of stakeholders in negotiations and consultations.

Western Potash Corp. (TSX.V – WPX) has a NI 43-101 compliant Mineral Resource Estimate for its Milestone property in southern Saskatchewan.

The estimate consists of 41 million tonnes of Measured Resource (contained KCl), 133 million tonnes of Indicated Resource, and 560 million tonnes of Inferred Resource.  The resource estimate at Milestone was prepared by Agapito Associates Inc. (“AAI”) of Grand Junction, Colorado.

Mineral resources for the potential solution mining intervals (Patience Lake, Belle Plaine, and Esterhazy Members, excluding interbeds, are estimated to be as follows:

• Measured Resource: 409 Mt in place sylvinite grading 31.0% KCl, or 19.6% K2O (41 Mt of recoverable KCl, or 26 Mt recoverable K2O)
• Indicated Resource: 1,382 Mt in place sylvinite grading 30.8% KCl, or 19.45% K2O (133 Mt of recoverable BClKor 84 Mt recoverable K2O)
• Inferred Resource: 7,034 Mt in place sylvinite grading 30.9% KCl, or 19.5% K2O (560 Mt of recoverable KCl, or 354 Mt recoverable K2O)

The just published Preliminary Economic Assessment (PEA) confirms that the Milestone resource shows significant positive economics and that the asset is of sufficient size and grade to support solution mining for more than forty years at a production rate of 2.5Mt/yr. The Study recommends immediate commencement of a pre-feasibility study based on the attractive economic assessment in the PEA.

Solution mining takes advantage of the fact that mineral solubility in water improves with increasing temperature. Since temperature increases with depth, deeper potash deposits become candidates for solution mining. In line or primary solution mining, water is sent down a pipe to the deposit and circulated to dissolve halite (sodium chloride) and sylvite (potassium chloride); the solution is then pumped to the surface. In secondary mining, a halite-rich brine is injected into the deposit, selectively dissolving the sylvite and leaving the mineralized halite behind.

Solution mining benefits:

• Development costs are significantly lower
• Development timelines are shorter
• Production is easily scalable
• Mining risk is significantly decreased

WPX management is studying the possibility of consolidating the pre and final feasibility processes, and producing and publishing only a final feasibility suitable for reaching a production decision and for attracting project debt finance.

Analyst coverage includes;

• Salman Partners
• BMO Capital Markets
• Wellington West
• Scotia Capital
• Fundamental Research

“We are pleased that the Scoping Study confirms that the Milestone Potash project is an economically robust, stand alone project capable of delivering significant value for our shareholders. Not only does the Study show that the project is technically feasible and economically positive, it also shows that our favorable formation temperatures contribute to reduce our production costs by approximately 10%. We believe these features identify Milestone as one of the largest and best Tier 1 potash, greenfield, solution deposits, still available in the world today, that are ready for development… The receipt of this positive Scoping Study is a significant milestone on the path towards building Saskatchewan’s most efficient potash solution mine”Patricio Varas, CEO and President

Conclusion

“Companies involved solely in exploration of potash are likely take-out candidates, either by diversified mining companies seeking a way into the potash industry or by countries looking to lock-in supply.” Jacob Bout, fertilizers analyst for CIBC World Markets, Global Potash Supply – A Focus on Saskatchewan Exploration

An investor would almost have to think a massive surge in earnings by POT and AGU,  the USD 45 billion loan backing BHP Billiton’s USD 39 billion bid for Potash Corp being signed last Friday and a possible rival offer from China’s state-owned chemical conglomerate Sinochem (China is the world’s most populous country at 1.3 billion people but with just 9 per cent of its arable land is the world’s biggest user of potash – an annual demand of 10 million tonnes) all bode well for the few small junior companies with big potash resources.

There’s certainly longevity to the potash story and as more and more investors become aware of it the most leveraged companies could very well deliver spectacular gains for their shareholders. Potash should be on every investors radar screen.

Is it on yours?

Richard (Rick) Mills

rick@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about the junior resource market please come and visit us at www.aheadoftheherd.com.

Membership is free, no credit card or personal information is asked for.

***

Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares of any company mentioned in this report.

Amazon mining Corp. (TSX.V – AMZ) is an advertiser on his website aheadoftheherd.com.

Encanto Potash (TSX.V – EPO) is an advertiser on his website aheadoftheherd.com.

Western Potash Corp. (TSX.V – WPX) is an advertiser on his website aheadoftheherd.com.

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As a general rule, the most successful man in life is the man who has the best information

Potash producer Agrium (AGU-TSX) just announced earnings of US$506-million in Q2, or US$3.20 a share – a healthy 37% increase over Q2, 2009. AGU’s revenue rose 7% to US$4.37 billion as sales volumes soared 860% year over year (yoy). The company’s share price rose 3.6% after its second quarter earnings sailed past expectations.

“We anticipate North American crop nutrient demand to be strong in the second half at both the grower and retail level, due to firming crop prices, weather-induced constraints on nutrient application this spring … and the current low inventory level of crop nutrients in the U.S. retail system.” Agrium Chief Executive Mike Wilson

Potash Corporation (POT-TSX) also announced bullish Q2 earnings of $472-million, or $1.55 a share, a 253% increase over Q2, 2009. POT’s share price rose four percent on the news.

“With growing demand for food and supportive crop economics farmers have been motivated to begin addressing nutrient deficiencies in their soils.” Potash Corp CEO Bill Doyle

Potash is a major source of potassium. Potassium is found in every plant cell, it helps plants:

• Grow strong stalks
• Resist stress – weeds, insects, disease and changes in temperature
• Improves water retention
• Strengthens roots and stems
• Assists in nutrient transfer
• Activates vital plant enzymes
• Ensures the plant uses water efficiently
• Helps keep the food you buy fresh

China, India, Southeast Asia, Brazil and North America account for over 50 percent of the world’s population and 70 percent of total fertilizer consumption – over the past 20 years consumption has increased by 85 percent in these countries.

Brazil is an agricultural superpower and accounts for seven percent of world potash consumption. Brazil is the largest South American consumer of potash (its fertilizer market represents 65% of all South American consumption) and has a consumption growth rate of 7.6% per year. The countries soils are potassium-deficient and require potash to remain productive – 90 percent of their potash requirement is imported.

China’s (28 percent of world fertilizer consumption, historically 75 percent of potash is imported) current grain production is over 41 million tonnes. By 2030 grain demand is expected to triple to 156 million tonnes – meeting this increased demand will have to be accomplished by huge potash rich fertilizer applications. Domestic consumption of meat has risen nearly seven-fold in 30 years, while fruit and vegetable consumption is 10 times what it was just 30 years ago. China’s per capita water renewable resources are well below the global average.

India has 17 percent of the world’s population and only 11 percent of the world’s arable land. It’s renewable water resources are, per capita, well below the global average. India has no potash of its own and is the world’s biggest potash importer – the countries potash use is increasing at over 5% yoy.

Southeast Asia has a combined population of 517 million and while they have abundant water resources the countries making up this region all collectively suffer from a shortage of arable land. Indonesia, Malaysia, Vietnam, Thailand and the Philippines account for seven percent of world fertilizer consumption and have no indigenous potash.

The US and Canada are major suppliers of food to the world and are among the most efficient agricultural producers. They consume 14 percent of world fertilizer production.

Potash demand is increasing yoy. To meet this increasing demand it’s been estimated that two million new tonnes of potash are required each and every year – the equivalent of one new mine being built every year.

And potash is still being significantly under-utilized in many countries. It’s been estimated that the world’s leading emerging economies Brazil, Russia, India, and China (collectively known as the BRIC’s) will require an additional 28 million tonnes of potash annually to maximize fertilizer application rates – the equivalent of 14 new potash mines. Potash inventories in June 2010 were reported to be 34 percent lower than June 2009.

Since 1950, the world’s population has gone from 2.5 billion people to 6.7 billion. No less than 75 million people a year are added to this number, the world’s population is expected to exceed 9 billion by 2050 – according to the United Nations. This will lead to an increased need for staple crops for human and livestock consumption. The United Nations Food and Agriculture Organization (FAO) projects that more than 85 percent of this additional demand will come from densely populated, developing countries – Asia and Africa.

From the peak of 1.814 billion acres in 1981 total harvested area of world grains is down 6.8 percent. Arable land covers just 3% of the world’s surface. Based on historical data arable land decreases by 25 million acres annually – it is estimated that one hectare (one hectare equals 2.47 acres) of productive land is lost every 7.67 seconds.

This shortfall between grain demand and supply has led to a significant decline in global grain inventories.

Major droughts in the world’s bread baskets (major crop growing regions) are exacerbating this problem and causing serious crop failures, prices for wheat on the Chicago Board of Trade in the last month have risen by 20%  - concerns about the condition of wheat crops in Europe and drought  (the worst drought in more than 30 years, highest temperatures in 130 years and raging wildfires) in Russia has led to a significant increase in wheat prices in July – Russia is one of the world’s top exporters of grain responsible for 10% of global output.

Kazakhstan is one of the world’s top five grain producers and the countries production will be cut by a third, seven million tonnes, because of the same drought that effects Russia.

The Ukraine is the world’s third largest grain exporter and has also been hard hit by the drought. Production and exports are forecast to be down by 20 percent in 2010 with possible more downward revisions coming.

Needless to say all these considerable challenges are causing some strain on world food markets. Commodity analysts are predicting sharp price hikes for essentials such as bread, pasta and grain-fed poultry.

The world’s options for increasing food production are limited by the supply of land and water. Either we must a) place more of the world’s land under cultivation or b) increase yields on existing acres, or, much more likely, both of the above.

It seems to this author that a huge increase in the application of potash-rich fertilizers will have to happen – the increased use of plant nutrients is the most effective way to increase crop yields in the face of:

• An increasing global population
• Water shortages
• Decreasing arable land
• Improved and diversified diets

Conclusion

Fertilizers replenish the nutrients in our soil after harvest. These nutrients are mostly taken up by and removed with the harvested crop. These nutrients must be replaced, given back to the soil, in order to ensure next year’s crop. This replacement of nutrients is not an option, sure farmers might skip a year, even two, but…

“Failure to feed the fields is a trend that can’t last for long. While the global recession severely impacted fertilizer demand, the science of food production has not changed. The significant volumes of potash and phosphate that have been mined for crop production must be replaced to sustain the productivity of the soil.” Potash Corp.

Today fertilizers are responsible for between 40 and 60 percent of the world’s food supply. The United Nations Food and Agriculture Organization estimates that the total world demand for agricultural products will be 60 percent higher in 2030 than it is today.

“They key to really understanding what’s driving this globally is the pressure on food production and the shifting diets that you’re starting to see in China and other areas in southeast Asia. In terms of what’s driving our business, that is it. The volumes, I think, reflect the fact that there’s tremendous pressure on potash globally. It’s a very tight market and it really all comes back to the intense pressure on food production around the world. Farmers are trying to bring their yields up and really, fertilizer is a critical part of that.” Denita Stann, Potash Corp’s director of investor relations

Unlike many resources, potash markets are never disrupted by political interference. Food shortages trigger social and political instability and all governments fear a hungry populace. So the future for potash giants like Agrium and Potash Corp. looks good. But these are mature companies (combined market cap: $43 billion) which have already experienced major growth spurts. An investor would almost have to think a massive surge in earnings by POT and AGU bodes well for the few small junior companies with big potash resources. Potash should be on every investors radar screens.

Is it on yours?

Richard (Rick) Mills
rick@aheadoftheherd.com
www.aheadoftheherd.com

If you’re interested in learning more about specific potash juniors and the junior resource market in general please come and visit us at www.aheadoftheherd.com.

Membership is free, no credit card or personal information is asked for.

***

Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard Mills does not own shares in any company mentioned in this report and none are sponsors on his website aheadoftheherd.com

Today’s world food supplies run on razor-thin inventories.

While the food riots of 2008 have all but disappeared from our short-term memories, the threat of them returning grows stronger with every passing day.

According to the World Bank, food prices increased 83% between February 2005 and February 2008. In April 2008, when the United Nation’s World Food Programme warned that a “silent tsunami” of hunger was sweeping the globe because of soaring food prices, it was more than just a clever sound bite tossed off by a bureaucrat: It was a warning that the world’s poor were being squeezed as increasingly higher portions of their family incomes were being spent on the food they required for their very survival.

Improved fertilizers will be a key to the solution of this problem. And they won’t just promote crop growth – savvy investors who fertilize their portfolios will be pleased with their profit harvest.

From 24/7 Wall Street:

Here is the big issue for Potash Corp. and for its competitors… pricing. There has been international dumping at what seems to be under market prices (sometimes well under) and it has affected real prices. Contracts in India and China have come in far under what was modeled each time this occurs. It seems that investors and economists got used to the notion that the old commodity bubble days were here to stay or that they would return immediately once the economy got off the ground.

Click Here for the Full Piece

Source: Interviewed by Karen Roche, Publisher, The Gold Report 01/26/2010
As if the fairy godmother flicked her magic wand, once drab and droopy Saskatchewan has blossomed into the belle of the ball—and the healthiest economy in Canada. According to Tom MacNeill, undeniably one the province’s most ardent fans, the transformed province will keep heads turning for the next century. Chairman and CEO of 49 North Resources Inc. (TSX-V:FNR), Tom is reaching out to line up suitors and fill out dance cards to finance a lot of early-stage opportunities in the now-flourishing resources sector that’s leading the economic revolution. It wasn’t magic, though, that sparked the revolution and morphed Saskatchewan from laggard to leader. In this exclusive Gold Report interview, Tom tells us how what once proved Saskatchewan’s economic undoing is now ironically proving a boon. There’s one reason. The socialist sentiment that reigned for generations kept capital out and kept Saskatchewan’s rich resources pretty much buried in the ground. Previous regimes discouraged development to the point of expropriating businesses and driving prospective producers away. They’ve changed their tune, and Tom couldn’t be more gung-ho about it. He’s thrilled to be facilitating the inflow of investment capital to further dynamic junior resource projects in everything from base metals to gold.

The Gold Report: Your website’s home page points out that Saskatchewan has everything the developing world needs except for the capital markets to support projects. You created 49 North specifically to fill that gap. Can you update us on 49 North, progress you’ve made in the last three years and challenges you’re facing over the next couple of years?

Tom MacNeill: Actually I think the greatest challenge is behind us—the state of world capital markets. They are now less volatile. It’s true that Saskatchewan has everything the developing world needs. We’re geologically blessed with the best of both worlds. Half of Saskatchewan lies in the Western Canadian Sedimentary Basin, with all the hydrocarbons and sedimentary resources you could imagine. The northern half of the province is underlain by the Precambrian Shield, so we also have just about every hard rock mineral asset known to man that can be exploited economically.

The only downside is that we never had a capital market that caused a great deal of development in those resources. As some people know, we are the birthplace of socialism in North America. In the 1940s we elected the first socialist government ever in any North American jurisdiction. We made some extraordinary choices—to some degree along the path that Barack Obama is taking the U.S. these days—in that we had tremendous government oversight of all facets of life, including resource exploration and development.

Government hooks in business spook away a regular capital market. Much like Hugo Chavez expropriating assets in Venezuela today, it tells the rest of the world “stay out” because there’s too much sovereign risk. We did that to ourselves. We went through a whole period where we ruined our economic activity because we thought socialism was the neat thing. We came out of it, but we’re still living the hangover.

That means that we have an opportunity suite unparalleled in the world because we simply didn’t develop it even though we knew it was there. The inroads that 49 North has been making are to develop a capital market. Several hundred companies are exploring for various resources in Saskatchewan now, and while I’m developing local interest and awareness, there’s a tremendous investment opportunity for people external to the province.

TGR: Do you see the direction in which Obama is taking the U.S. as additional opportunity for capital markets in Saskatchewan? Or might Saskatchewan catch socialist fever again from south of the border?

TM: No, we won’t. Been there, done that. We know what happens when you have government oversight in resource development. With resources the backbone of our economy; we’re not going to screw up a second time. We watched Alberta develop from a base of 800,000 people to a population of 3 million people while we stayed stagnant at one million people over the last 50 years. It’s not going to happen again. Saskatchewan is immune now because of our previous experience, so to some degree that will make us very attractive to capital worldwide.

Canada has always been mining- and resource-friendly. The U.S. is becoming more and more restrictive. Put a green stamp on something and everybody loves it; put a mining stamp on it and everybody hates it. That’s becoming a very challenging environment, so we see a tidal wave of money flowing into Saskatchewan to take advantage of opportunities we have kept in the ground.

TGR: You’re in the catbird seat of having all these untapped resources.

TM: And we couldn’t be happier about that. I’m a second-generation resource developer. I watched the struggles my father had in this province from the 1950s onward, and I watched the transition. We are in the best place of any jurisdiction in the world. We have virtually zero sovereign risk because of our previous experience, tremendous undeveloped resources, more roads per capita than any jurisdiction in the world because we have all the infrastructure that socialists like to build. Power lines and gas lines run everywhere. Even our left-wing friends in previous administrations started developing good policy and resource royalties. We’ve set the playing field such that we’ll be the belle of the ball for the next 100 years.

We’ve got it all and we’re happy to be a part of early-stage development. That’s what 49 North is about, pointing fingers at good projects. We invest in third-party projects through equities or other instruments, but we also develop our own. We’re absolutely tickled about the opportunities ahead.

TGR: You develop your own projects?

TM: Yes. Because we have a corporate structure, we can actually develop our own projects, which we do. We don’t just develop things in Saskatchewan, either. We have a strong focus on Saskatchewan, but we look anywhere in the world.

TGR: Given such abundant natural resources, how does 49 North prioritize which resources?

TM: Everything tends to move in tandem. But we do get specific. A couple of years back we kicked out most of the uranium exposure in our portfolio and haven’t really gone back into it heavily because I don’t think it’s quite time. Probably late 2010 or early 2011 will be time to do that. I guess what I’m saying is that we look at the commodity, where it is in the cycle, the macroeconomics around it and what the projects are.

We use a lot of macroeconomic factors to figure out what we want to do. After that we answer other important questions. What do we think about the short term and short-term pricing? What’s the capital market going to say about this? Can we finance the project moving forward? Is it the right time in the cycle? It’s usually not the right time to bring a copper project on stream if copper is at $8 because you’re near the end of that cycle. Just about everything I can imagine has seen what I’d consider the short-term bottom in its commodity price, so now is a good time to be putting things back on the books. Right now we’re focusing on light oil in Saskatchewan—we’ve been doing that for the last six months—and base metals projects. It’s time for that.

TGR: We’re at the bottom of their cycles so you’re starting to invest in them?

TM: I think we’re near the bottom. But having said that, I don’t try to pick a perfect bottom. Any time from a year ago to two years from now is a good time to put together a project for most commodities. I’m usually spending money when everybody else is shunning a particular commodity or project or area. In some ways what we do at 49 North is either countercyclical or ahead of the cycle. As an early-stage junior resource guy, the place I live in is the 10-cent equity that we take to $3 to $5; not the $15 stock that goes to $50 because all of a sudden there are 100 years of production ahead.

TGR: In terms of being countercyclical and focused on junior resources, what are some interesting junior resources plays that investors should look at?

TM: Definitely pay attention to potash. It’s absolutely a necessary nutrient for growing crops. You can’t do without it. There’s no way to artificially manufacture it. Saskatchewan’s salt beds contain 50% of the world’s mineable supply, so Canpotex (Canadian Potash Exporters) has become the largest supplier in the world. Pay attention to excellent local developers like Athabasca Potash (TSX-V:API) and Potash One Inc. (TSX-V:KCL).

TGR: Is Saskatchewan’s dominance threatened by Amazon Mining Holding Plc (TSX-V:AMZ), which is drilling on a big potash play at their Cerrado Verde project in Brazil?

TM: Not at all. More power to them. Demand growth will continue. We’re just realizing shortages in potash in the market now, so we’ll see supplies tighten up even further. In my lifetime the population of this planet has doubled, growing from 3 billion to more than 6 billion. A lot of these people are moving up the economic ladder, which means more protein in their diets, which is creating an exponential increase in potash demand. So more potash production is a good thing. You get much better crop yields if you apply the recommended amount of potash to the soil. The more that is mined, the more that is put on fields, the better the harvests are, and the better we can feed the growing population.

TGR: What other opportunities do you see for investors in those masses moving into the middle class?

TM: Any advancement in civilization is great for commodities. China overtook the U.S. as the world’s largest consumer of automobiles in 2009. They are building more cars for all these people. To build cars, you need everything from rubber, lead, zinc and tin to hydrocarbons for the plastics. You need base metals. Hybrids or electric cars need rare earth elements. They need roads, so they need asphalt. Roads need bridges when they come to a river, so they need concrete. That means limestone and kaolin and iron and thermal coal. And coking coal to make the steel to build the bridge.

So infrastructure development in Asia and elsewhere, in the BRIC countries—Brazil, Russia, India and China—will drive the commodity cycle going forward. That’s an unstoppable force. That is tremendous for virtually all commodities. It’s even better for Canada because we’re a commodities country and it’s the best for Saskatchewan because we’ve got just about everything. We’re ready to supply it to the world.

TGR: Earlier you said you’re focusing on base metals. Could you talk a bit about opportunities you’re seeing for companies in base metals in Saskatchewan?

TM: We really have had hardly any base metals production in Saskatchewan ever. In eastern Saskatchewan, most of the mining’s been at the border or on the Manitoba side and policy never promoted Saskatchewan base metals. 49 North’s focus on base metals is due to the fact that we have such extraordinary resources here that have never been developed. We’re looking no further than our backyard to find some of the best copper showings in the world.

We have incredible projects that are 43-101 quality that have never moved forward. We’re doing it simply because nobody else is. There’s another old adage that if you can’t make money at $2 copper, you shouldn’t be in the copper business. Well, we have nearly $4 copper right now, right? So there’s a lot of demand for base metal resources and we’ve never exploited any properly in Saskatchewan. It’s about time we did. We have a wide open field here. It’s like going to a contest and finding out you’re the only entrant. Might as well do it; you’re going to win.

TGR: Can you share with us some of the interesting base metal plays that you’re involved in?

TM: We’re talking about such absolute early-stage projects that we don’t even have a name for the various property packages. They’re not in a corporate structure yet.

TGR: Is gold also prominent among Saskatchewan’s resources?

TM: Absolutely. Saskatchewan has one producing gold mine. In fact, it was founded by my father. It’s the longest-running gold mine in Saskatchewan history. I think they’ve poured about 800,000 ounces. It’ll likely go for the next 25 years, if not longer, because they have two other deposits they’re bringing on stream. There’s an entire gold belt in Saskatchewan that, again, has never been seriously developed because of the lack of a capital market.

TGR: What mine did your father found?

TM: It’s Seabee Gold Mine, under the Claude Resources Inc. (NYSE/AMEX:CGR) banner, and Claude has two other deposits within trucking distance that they’re bringing on stream. Claude also has the Madsen deposit in Red Lake, Ontario, which by my estimation is an analog to the Goldcorp (TSX:G) (NYSE:GG) mine there. The deeper they go, the richer it gets. Some deep drilling suggests that’s the case at Madsen as well.

To put a positive spin on going without a local capital market, one of the neat things is that resources stayed in the ground so opportunities are not hard to find. They say that the best place to find a gold mine is to look from the head frame of an existing mine, and that’s true. If you look at Goldcorp’s Red Lake gold camp in Ontario or any significant gold camp in the world, there’s always multiple mines around an initial one.

As I said, Saskatchewan has one long-running gold mine, and I believe seven other producers over the history of the province. Two are coming on stream. Golden Band Resources Inc. (TSX-V:GBN) is bringing a series of deposits into production shortly and Linear Gold Corp. (TSX:LRR) has the Box deposit in northern Saskatchewan that will be coming on stream.

So it’s like base metals. It’s all there. We’ve always had the potential in Saskatchewan; we’ve just never had enough money spent on it to properly develop the gold industry. The more holes you poke in the ground, the more you find, the more capital it attracts, and the more likely you’re going to have another mine and another and another.

TGR: Any others that you have your eye on?

TM: Otis Gold Corp. (TSX:OOO) in Idaho. Otis has several very interesting projects, but the current one—where historical drilling shows 11 grams over 9.5 meters—really gets me interested. That’s why we’ve been putting Otis in our portfolio and will continue to do so. I want to see how they do with their Kilgore Gold Project because the market’s ready for resources with big tonnage that also come with zones of pretty hot running ore. That means you can define a high-grade resource and treat it almost like an independent underground mine, but also block out a bunch of stuff in the 1- to 5-gram range that really makes it a big tonnage operation. We’re excited about that one and curious to see how they do over the next year in the drill program they have underway.

TGR: One of your top 10 holdings, Pinetree Capital Ltd. (PNPFF.PK), is interesting in that it’s almost like 49 North.

TM: The work that Sheldon Inwentash (Chairman and CEO) and his crew do is similar in a lot of ways. We did a stock swap with Pinetree, so they hold 49 North paper as well. That promotes deal flow through the two enterprises. We offer early-stage opportunities for Pinetree in western Canada and especially Saskatchewan, and part of what we gain from holding Pinetree is tremendous exposure to a bunch of junior and intermediate uranium explorers, as well as a great portfolio of other opportunities.

TGR: But you also have uranium in Saskatchewan.

TM: A lot of Pinetree’s holdings are companies exploring for uranium in Saskatchewan, which holds the largest uranium resource in the world. In fact, we supply 20% of the world’s reactor-grade uranium. The Athabasca sandstone basin is one of our blessings. It has the highest-grade uranium in the world. A couple of the mines regularly bring out ore that is 25% uranium. Hathor Exploration Limited (TSX-V:HAT)—which in my estimation has one of the best near-term potential productive resources in the world—has had intersections as high as 80% uranium over multiple feet.

TGR: So you have gold, base metals, oil, uranium, potash. What have we missed?

TM: We haven’t talked much about infrastructure materials. Saskatchewan has a host of those, too. A world that demands commodities, which I see going forward extraordinarily over the next 25 years, needs limestone and kaolin for cement. We have limestone. Whitemud Resources Inc. (TSX-V:WMK) has a tremendous kaolin resource and is at very early days of developing it. Saskatchewan has probably the largest contained helium resource in the world. Up in the Precambrian, we’ve got just about everything you can imagine. Great Western Minerals Group (GWMG) has one of the world’s largest rare earth deposits. That’s what’s so beautiful about Saskatchewan. We’re incredibly underdeveloped. We have only a million people in a geographical area larger than the U.K. So we’re frontier country. You name it, we have it. We’ve just never had a capital market to take advantage of it.

TGR: And you have the enthusiasm.

TM: Hey, I’ve been in this business my entire life and I’ve stuck to the junior resource end. It’s fun. It’s populated with very interesting characters. It’s also very lucrative. I like riding a story from initiation, whether from a nickel or dime to a few dollars or even $10. Occasionally you’ll catch a ride that takes 10 cents to $20. That’s a thrilling world to be in, but you have to be a lifer. You have to know what you’re doing. That’s usually management first, resource second. Unfortunately, people usually bet on the commodity without realizing that management may not know anything about it.

TGR: Because socialist leanings kept Saskatchewan resources tremendously underdeveloped, where is good management coming from?

TM: Most of the exploration actually is done by companies headquartered elsewhere—typically Vancouver or maybe Toronto. Suppose one of them drills a hole in the ground, hits a few meters of something and needs $10 million to develop the resource. If they can’t raise the money around here, they raise it elsewhere, drill the holes, and take their 10-cent stock to $1. They thus create $90 million worth of wealth, but that wealth doesn’t reside in Saskatchewan. It goes back to Vancouver or Toronto or wherever the money was raised and stays there.

So one of the reasons 49 North was created was to get locals involved and say, “Let’s raise the money here. Then we will have that $90 million for the next project that needs it, and then the next and the next.” That’s been the missing ingredient in the cake that is Saskatchewan—the local capital market. So my agenda in creating that here, by definition, creates a tremendous opportunity for external investors outside the province to piggyback on what we’re doing inside. Almost all of the capital in the hard equity raise we did in June came from outside of the province.

TGR: When we started, you said your greatest challenge was behind you. Is your next challenge just finding the time and the people to get all these projects done?

TM: It’s the people. Here’s an example to help me illustrate that point. Rallyemont Energy, a private company sponsored by 49 North, formed last year, will likely go public very soon. They’ve garnered a tremendous heavy oil land position in Saskatchewan. From historical drilling, they know they have oil. The project probably needs about $20 million. Then they’ll need $200 million to develop it. We can’t raise that kind of capital locally, but we have the institutional connections to get the job done.

In Rallyemont’s case, they have a tremendous management team, so we can do that, but with other companies, this is where we run into problems. The local company needs local expertise. We’ve been shipping people out of Saskatchewan. We educate them here and they move away, so it’s hard to find good management. We need to bring some people back to Saskatchewan and that’s beginning to happen already.

Even so, finding five more Rallyemont-caliber management teams here would be a stretch, so one of the biggest challenges is populating the companies to develop these resources with capable people. With 49 North acting as a sponsor, we have the capital market and there’s no shortage of good projects. Now we need the people to go with them.

TGR: Before 49 North came along, a local capital market was the missing ingredient in your “cake that is Saskatchewan.” Now, the missing ingredient is abundant management talent.

TM: Absolutely. We have no problem finding world-class resources.

TGR: Any last words for our readers today?

TM: A high-level advisor to the Chinese Sovereign Wealth Fund and I had a discussion not long ago, and my observation to her was that we have incredible projects, but they need billions of dollars worth of financing to move forward and we don’t have that kind of money. Her response was that China’s problem is the exact opposite—trillions of dollars and not enough projects to supply the country’s demand for resources.

To make a long story short, the developing world, especially China, knows what Saskatchewan has to offer. Over the next 25 years—or any other time period going forward—we’re going to see our resources developed. One of the reasons I’m so excited about the opportunities here is that we have first-mover status. 49 North gets to be in the very early-stage seed capital that can be so lucrative. We have driven our net asset value from $1.25 to approximately $4.50 over the past year and the market has not yet caught on. At the current level of discount our shares trade at, we view our own stock as one of the best value plays around.

TGR: You have a wonderful story and we appreciate you taking the time to share it with us.

Like many others in commodity country, Tom MacNeill of Saskatoon is a resources guy. Four years ago, based on a sentiment shift suggesting that Saskatchewan was open for business, he established 49 North Resources Inc. basically an incubator fund to raise capital for early-stage projects to develop resources throughout the province. Officially, he serves as President, CEO and Director of 49 North; unofficially he also can arguably lay claim to the Saskatchewan Head Cheerleader title too. A graduate of the University of Saskatchewan (economics with a geology minor) and a Certified General Accountant (CGA), Tom also completed the Canadian Securities Course (with honors) in 1987 and is a Chartered Financial Analyst (CFA). With 25-plus years of experience in resource investment and corporate finance, his work history includes positions as an investment advisor with a major Canadian brokerage firm, management accountant within the mining industry, Chief Financial Officer of a Canadian trust corporation, and extensive resource portfolio management. Since the early 1990s, his focus has been exclusively toward Canadian junior exploration, development and mining opportunities with particular emphasis on Saskatchewan’s increasingly important resource sector.

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DISCLOSURE:
1) Karen Roche of The Gold Report conducted this interview. She personally and/or her family own none of the companies mentioned in this interview.
2) The following companies mentioned in the interview are sponsors of The Gold Report or The Energy Report: Goldcorp, Otis Gold Corp., Amazon Mining
3) Tom MacNeill—I personally and/or my family own shares of the following companies mentioned in this interview: Athabasca, Claude Resources, Hathor, Great Western Minerals, 49 North. I personally and/or my family am paid by the following companies mentioned in this interview: None

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