UPDATE 1-Encanto Potash in talks with India's Rashtriya

Mon Jan 14, 2013 9:55pm GMT

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* Says Rashtriya seeking advisor on potash sales deal

* No sales agreement struck - Encanto

Jan 14 (Reuters) - Encanto Potash Corp, a small Canadian mining company, said on Monday that it is in talks with India's Rashtriya Chemicals and Fertilizers Ltd, but has not struck any agreement for future potash sales.

After markets closed, Encanto said Rashtriya is seeking to hire an adviser to review a deal that would see a consortium led by Rashtriya buy 2 million tonnes of potash in the future from Encanto, which is raising capital to build a Western Canada potash mine.

Encanto is one of several Canadian companies that own permits and leases to mine the crop nutrient in the resource rich Canadian province of Saskatchewan. The companies, who also include Karnalyte Resources Inc and Western Potash Corp , have proposals for mines, but not the capital at present to build them.

Last week, Karnalyte said India's Gujarat State Fertilizers & Chemicals had agreed to buy a stake of nearly 20 percent in the company and commit to buying at least 350,000 tonnes of potash annually once its Saskatchewan mine is built.

India is one of the world's biggest consumers of potash to boost crop yields, and is completely reliant on imports.

Encanto has an agreement with the aboriginal Muskowekwan First Nation to build a mine somewhere on a site of more than 58,000 acres. Rashtriya is owned by the Indian government.

Saskatchewan is home to some of the world's leading potash producers, Potash Corporation of Saskatchewan, Mosaic Co and Agrium Inc.

Shares of thinly traded Encanto shot up by more than one-fifth in the last two trading sessions on the TSX Venture Exchange.

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