Encanto Potash close to $700m/year Indian deal

Encanto Potash (TSX-V:EPO) stock is up 20% in two days after details of a possible deal with India's Rashtriya Chemicals and Fertilizers Ltd. (RCF) surfaced on a government website.

The Vancouver-based company is advancing a potash project  in Saskatchewan that could produce up to 2.8 million tonnes of potash a year for the next 50 years.

Construction costs are pegged at $2.4 billion and the mine could start producing by 2017.

The proposed agreement with the Indian concern calls for an offtake agreement  for 2 million tonnes of potash at an 8% discount to market price – worth roughly $736 million a year.

similar deal was inked by another potash junior – Karnalyte Resources – to provide India with the fertilizer ingredient from a proposed new mine in the Canadian province last week.

Encanto on Monday also published details of an agreement with a Kuwaiti concern to raise $7 million and appoint two new directors.

Canpotex, the offshore marketing arm for the big three North American producers  Mosaic (NYSE: MOS), Agrium (NYSE:AGU), Potash Corp. of Saskatchewan (TSX:POT), at the end of last year signed a deal with a Chinese importer at $400 a tonne for the first six months of the year.

Chinese and Indian consumption drove the potash price from $100/tonne in 2004 to above $900/tonne in the run up to the 2008 recession when the boom went bust and prices rapidly fell back to $350/tonne.

After trading in the $500–$540 a tonne range for most 2011, the price of the soil nutrient steadily declined last year to average around $460–$470 a tonne.

Mid-year Potashcorp and others began to idle mines to curb supply that had run ahead of slackening demand, particularly from India, which stopped the price from falling further in 2011.

The big three North American producers, together with Russia's Uralkali's (LSE:URKA) and Belarus's Belaruskali which also jointly distribute,  produce some 70% of the world's potash – a key ingredient in fertilizers.

Global demand is between 50–60 million tonnes per year.