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Raytec

Raytec Metals – A potash play ready to take off

Scenes of unrest, food riots, long queues and the ringing of policymakers’ alarm bells are making headlines in the world press. Fuelled by global economic growth, and the emergence of China and India as rising economic powers, world food demand has now reached unprecedented levels – and so have food prices, enhancing the investment case for companies with exposure to the agricultural sector. No wonder the share prices of potash companies have been making new highs.

With assets located adjacent to claims held by BHP Billiton (including those BHPB acquired from Anglo Potash Ltd), Canadian Venture and Frankfurt-listed Raytec Metals Corp. (TSX.V: RAY, Frankfurt XZT, OTC: RAYMF) is an emerging potash player. Raytec is engaged in the exploration and development of some 300,000 acres of potash claims in Saskatchewan, Canada.

The location, itself, should instil interest; Saskatchewan is the hub of the world’s potash deposits and accounts for over fifty percent of the world’s mineable potash reserves and 37% of capacity. Not surprisingly, Saskatchewan is the home for several potash mines, including those owned by the Potash Corporation of Saskatchewan (TSX, NYSE: POT). Other industry leaders with assets in Saskatchewan include Agrium (TSX: AGU, NYSE: AGU) and Mosaic Co. (NYSE: MOS).

Raytec’s investment case rests on the rising demand for potash, which is driven by the agriculture super-cycle. Over ninety per cent of global potash production is used as fertilizer to assist farmers in growing crops to feed and fuel the world. Potash fertilizer is essential for plant growth and there is no substitute. The rising affluent section of the population in fast-growing economies such as China, Brazil and India is driving the demand for more food, including better quality, high protein food such as meat; Potash Corporation of Saskatchewan estimates that a third of each new dollar earned by people in these countries is spent on food, particularly protein-rich food.
 
Over 170 million tonnes of additional meat, per annum, has been consumed worldwide throughout the last forty years. Much of the growth has actually come from the developing countries; for instance, growth in meat consumption in developing countries during this period has been 5-6% per annum, compared with just 2% per annum growth in developed countries - a trend that is expected to continue.

If one seeks comfort in the availability of producing mines in the neighbourhood, Raytec’s assets are in close proximity to Agrium’s Vanscoy Mine (1.8 million metric tonnes of potash p.a.) and PotashCorp’s Cory mine (1.4 million tonnes potassium chloride p.a,). More assuring, however, is the acquisition of Anglo Potash by BHP Billiton, with a handsome premium.

Raytec has a 100% interest in Exploration Permit Applications KP441, KP455, KP466, KP467 and KP468 (referred to as ‘the KP441 claim group’) totalling 198,720 acres of contiguous ground within the extensive Middle Devonian Prairie Evaporite formation of south-central Saskatchewan. Once the KP452 claim (acquired at the same time as the KP441 claim group) and its 92,000 acres are added, Raytec’s total land package reaches 300,000 acres.

Raytec’s current focus is on the KP441 claim group. The new NI43-101 report on the KP441 Potash claim estimates a total indicated resource of 148.02 million metric tonnes, grading 23.44% potash (K2O) - equivalent to 34.7 million tonnes of K2O - and an additional inferred resource of 229.16 million metric tonnes, grading 20.40% K2O (for a total of 46.76 million tonnes K2O). Recoverable in-place potash equivalent tonnes (using standard deductions and an overall recovery of 36%) amount to a net recoverable indicated resource of 12.49 million tonnes of K2O, and a net recoverable inferred resource of 16.83 million tonnes of K2O. The granting of exploration permits on potash claims is expected in July 2008.  
 
Readers will be pleased to know that the resource estimates above cover only 17% of the KP441 claim, or just 5% of the total land claim, thus leaving potential to further increase the total estimate. The company also has plans to make further acquisitions in order to grow the land package and resources. These acquisitions are expected to be greenfield projects rather than advanced stage projects, to gain advantage from the high value additional opportunities generally associated with the former.

Raytec also has three iron ore projects in Ontario and two uranium exploration joint ventures in Saskatchewan. Its diversified portfolio, with exposure to other equally attractive metals, further accentuates the company’s investment case. Raytec intends to develop its iron ore assets in order to establish a confirmed resource estimate, which will command a premium. The corporate strategy is to remain focused on its potash projects, and divest its iron ore and other assets - either through a spin-off or by inviting a third party for development.

In fact, Raytec is expected to commence a verification drill programme in fall 2008, and then complete an NI 43-101 compliant resource estimate for its El Sol Iron Ore Project. El Sol was drilled, initially, in 1950s and was previously owned by Tex-Sol, who undertook some drilling and geophysics work prior to the sale. Raytec expects the cost of completing a 43-101 compliant resource estimate to be approximately $1.0 Million.

A work programme is scheduled to commence at the Gunflint iron ore property, which will also lead to an NI 43-101 compliant resource estimate. As with its potash projects, Raytec is seeking to acquire additional iron ore properties, all to be developed and spun off into a separate entity at some stage.

Though not a priority, Raytec’s interest in the Key Lake West & East properties provides exposure to uranium as well. Both properties are located in the prolific Athabasca Basin in Saskatchewan, close to the Key Lake Mine and Millennium deposit, and consist of 17 mineral claims totalling 123,945 acres. Both projects are JV endeavours, with 7 claims to be developed in joint venture with the Tirex Minerals Corp and the remaining 10 to be developed with the Solitaire Minerals Corp.

Confirming its commitment to the agriculture sector, Raytec acquired a 15% stake in Sulphur Solutions Inc. (SSI), a privately held Alberta company. SSI, itself, has an attractive business model. The company buys elemental sulphur (a waste material which is a by-product of gas production activities) from oil and gas companies. The company then uses its patented technology to produce micronised sulphur, which is subsequently processed into a premium fertilizer product branded ‘Rapid Release’.  Rapid Release has been designed to be highly dispersible in the particle size that is most effective for sulphate production; its purpose is to address sulphur deficiencies in soil and improve plant nutrient availability.

SSI plans to introduce multiple elemental sulphur processing and sulphur fertilizer production plants over the next few years.  The facilities will be portable and located at the site of elemental sulphur production to take advantage of reduced operating costs associated with transporting the sulphur to an off-site processing facility and existing permits for sulphur storage and handling. Raytec’ investment in SSI further raises its profile as an agriculture company.

As larger companies seek an exposure to the burgeoning potash sector, exploration companies - such as Raytec - become attractive acquisition targets; Anglo Potash’s acquisition by BHP Billiton is a case in point. Raytec’s management is open to such overtures and is well on its way to proving its worth with its ongoing drill programme.

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