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Digging up new opportunities: Junior mining in Saskatchewan

Photo provided by Gensource Potash.

Saskatchewan is consistently ranked as one of the most attractive mining jurisdictions in the world. In 2021, the province landed as number one in Canada and number two in the world, according to the Fraser Institute’s recently released Annual Survey of Mining Companies. We have the metals and minerals being sought around the globe, such as uranium, potash, copper, gold, base metals and diamonds.

Shock to the system

Russia’s shocking war against Ukraine has revealed how quickly established global supply chains and trade flows can be disrupted. “Commodity markets are in an upheaval because of the situation in Ukraine,” says Mike Ferguson, CEO of Gensource Potash, a Saskatoon-based company. “The war has caused a general supply chain squeeze.” Several major shipping companies have suspended deliveries to and from Russia. Caught in the squeeze are commodities like diamonds, uranium, potash, nickel and even wheat. In 2020, Russia was the world’s largest exporter of wheat.

There is a huge need to fill supply chain gaps and restore trade flows. A recent Bloomberg story reported that Canada has been approached by foreign powers about its potash and uranium supplies. “Between them, Belarus and Russia produce up to 40 per cent of the world’s potash supplies. That’s a huge percentage and it’s not a nominal change that can be made up for by other market players,” says Ferguson. The availability of potash was immediately impacted.

Time to shine

Ferguson says this is a seminal moment for the Saskatchewan mining industry. “It would take years for confidence to be rebuilt such that people would allow their supply chains to be hooked so firmly to Russia.”

The Cameco’s and Nutrien’s of the world will no doubt increase production, but junior mining could also play a part in easing the squeeze. “Junior companies play a critical role in the discovery and advancement of mineral projects in Canada,” says the federal government.

Enter the juniors

Junior mining companies are involved in early-stage mineral exploration that remains in the pre-production phase. Gensource Potash is one such junior mining company that’s been operating in Saskatchewan since 2014. “The typical junior mining model is to develop and sell. A company like ours would develop a project, prove the economics, do the geological work to prove the resource is in the ground, and then sell that project off to one of the major companies in that industry,” says Ferguson. “That company would come in, construct the site and operate it.”

According to the Government of Saskatchewan, exploration expenditures in 2019 were $264 million, and the survey (conducted before the COVID-19 pandemic), indicated exploration spending intentions of $242 million in 2020.

Taking it to the next level

Gensource is not following that model. Their model is about being efficient and scalable as well as vertically integrated. Gensource has partnered with German-based Helm AG and its US subsidiary, Helm Fertilizers, which has agreed to purchase one hundred per cent of its product. “We’re looking to be a producing entity. We are creating the next North American fertilizer producer centred in Saskatoon. We’re not looking to sell this project, we’re planning to own it and operate it and produce potash and then expand it and grow with it,” Ferguson explains.

Saskatchewan is home to the largest potash industry in the world, producing about one-third of annual global production with nearly half of the world’s known reserves.

Gensource is in the process of completing its financing, which Ferguson says is not that easily accomplished in the province. “Saskatchewan is a great place to develop projects. There are no real obstacles other than financing.” Gensource ended up having to go to London and Toronto for large-scale financing for construction. But the early stages of the company and the project were all financed by local business partners and local individuals.

The company hopes to begin project construction this summer. Their approach relies on incremental modules of production from modular units that take about two years to construct. That timeline puts them into mid-2024 to see their first product. “The last project built in the province was the K+S Potash Bethune mine. Our Gensource project team is the same team that put that project together and sold it to K+S. We started the project, and it took $5 billion and 10 years to construct that facility. To implement one of our modules in two years is a very quick path to production,” Ferguson says.

Pre-selling one hundred per cent of its product over a period of 10 years removes all the market risk for Gensource, and it nixes the need to have a sales team roaming the country hunting for buyers. If Helm disappears, Gensource has a problem. Ferguson says financiers look closely at this, but the company acquits itself well as a major international player.

The province offers incentives for mineral exploration including the Targeted Mineral Exploration Incentive, the SK Mineral Exploration Tax Credit, access to public geoscience information, and some industry-specific PST exemptions for qualifying projects. Gensource had no direct support from government but appreciated the province’s relatively linear environmental approval process.

Working together

While junior mining in the province is competitive, there is support to be found within that community, Ferguson notes. “People do talk and its relatively supportive in terms of how each of these projects is developed. Success with one project leads to a good reputation that can help in the success for next project. People are generally pleased to see all projects be developed and move forward because of the way it helps the overall industry,” Ferguson
says.

On the rise

Exploration activity in the province slowed in 2020 due to COVID-19, but mineral exploration expenditure levels have rebounded in 2021 and are expected to further increase in 2022, according to Saskatchewan’s Energy Minister. A survey by Natural Resources Canada indicates that mineral exploration expenditures in Saskatchewan in 2022 are expected to total over $360 million, a 35 per cent increase compared to 2021. Exploration into green energy in the province is being conducted by Prairie Lithium and Proton Technologies. Royal Helium is mining helium for medical and hi-tech uses.

In demand

“This is an important time for Saskatchewan,” Ferguson says. “Current circumstances have created a need around the world for resources like metals and fertilizers. We have the gold, the potash and the wheat, of all things—our grains are going to be in high demand. This is really Saskatchewan’s time to stand up and start providing these additional resources.”