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Published May 17, 2011, 02:33 PM

ND potash deposits drawing investor attention

BISMARCK, N.D. — New legislation that would tax and regulate potash mining in North Dakota has prompted a surge of interest among investors and producers from around the world, state officials say.

By: Trevor Born, Associated Press

BISMARCK, N.D. — New legislation that would tax and regulate potash mining in North Dakota has prompted a surge of interest among investors and producers from around the world, state officials say.

Five people or companies have leased rights to mine the fertilizer ingredient beneath more than 4,000 acres of land in northwestern North Dakota. The state Land Department, which handles inquiries on state mineral leases, has been deluged with requests since the Legislature approved a 2 percent tax on potash mining last month.

“I've been getting a lot of calls with people asking, ‘What's going on in North Dakota, and how can we get in on this deal?’” said Drew Combs, the agency's director of minerals management. “They've been coming from all over the world, especially Canada and the U.K., people just wanting information on how they might get involved.”

Potash is a potassium-rich salt which is used to make crop fertilizer. The Canadian province of Saskatchewan, which borders northwestern North Dakota, is the world's biggest producer, selling its output to China, India, the United States and other countries.

North Dakota geologists estimate the state has about 50 billion tons of potash. New Mexico, Utah and Michigan were the only states to produce it last year, according to the U.S. Geological Survey. The three states accounted for less than 1 million tons of potash production in 2010.

Last year, Dakota Salts LLC, a unit of London-based Sirius Exploration PLC, received the first potash drilling permit in the state since 1976. It lobbied for the tax rate and was the company that asked the state to auction off the rights to mine under the 4,000 acres of land.

However, Dakota Salts did not bid in the April auction of state-owned mineral rights. A company spokesman, J.T. Starzecki, said the company decided it wants to finish its study of the area before deciding on future plans. Leasing bids averaged $25 per acre, compared to an average of $115 during an October lease sale, the Land Department said.

Thal Poonian, an investor in Ladner, British Columbia, leased the most land, spending $56,000 for the rights to mine underneath 2,288 acres. Poonian declined to discuss his business plans.

Brad Fay, a Bismarck energy investor, leased almost 900 acres in April's auction. He said it's too early to guess how lucrative potash mining will be in North Dakota, but he's encouraged by the booming enterprise in Canada. An Australian company, BHP Billiton Ltd., withdrew an offer last year to buy Potash Corp. of Saskatchewan, the world's largest fertilizer maker, for $38 billion after it was rejected by the Canadian government.

“You don't have to look too far north to see what's possible for the industry,” Fay said. “I thought it would be interesting to be part of the play.”

Kevin Murphy, who owns several mining companies, leased 164 acres. He said he's changing one of his companies, Nevada-based ConvenientCast, from working with silver and other minerals to focusing solely on potash. He said he has leased potash mining rights in Utah and would like to increase his North Dakota holdings.

“Potash is in high demand and will continue to be in high demand,” Murphy said. “The world's population isn't getting any smaller.”

Spokesmen for Potash Corp. and another large fertilizer maker, K+S Group, based in Germany, said they're focused on Canadian ventures and not considering an expansion in North Dakota.

All of the leases are in Burke County, which borders Canada and sits atop the same geologic formation from which most of Canada's potash is extracted. But the material is much closer to the surface north of the border, where it can be accessed more cheaply with traditional mining techniques.

Companies that mine potash in North Dakota would have to use a process called “solution mining,” which involves pumping fluid into holes drilled deep into the ground, dissolving the potash, and bringing it back to the surface.

Ted Hawbaker, who farms near the Canadian border in Burke County, said he's worried that the mining could hurt farmland in the area, especially if a pipe carrying the potash-containing solution were to break. Hawbaker said mineral rights beneath some farmland that he rents were leased during April's auction.

“If they get a leak, that salt and water would leak into the surface and subsurface, and would ruin the surface,” Hawbaker said. “We don't know what it would do to whatever drinking water or livestock water sources are nearby.”

Lynn Helms, director of the state Department of Mineral Resources, estimates that North Dakota potash mining is unlikely to begin in earnest for five years. The five-year state leases will give companies time to drill test holes and set up small mining operations, he said.

Helms and a group of state officials, including Attorney General Wayne Stenehjem, Agriculture Commissioner Doug Goehring and Ed Murphy, the state geologist, toured a potash processing plant and nearby solution-mining wells in Belle Plaine, Saskatchewan, earlier this month.

The men were in Saskatchewan to attend an oil industry conference in Regina, almost 30 miles to the east. Stenehjem and Goehring are members of the North Dakota Industrial Commission, which will regulate the industry.

“We just wanted to see an operating facility,” Murphy said. “We certainly want to be prepared.”

Combs also attended the conference and took the tour, which kept him out of the office for three days. When he returned, he said, there were 27 emails waiting with potash questions for him.