Highlights

  1. Lion Energy recently formalized a deal to sell its potash assets to Encanto Potash Corp. Lion now owns 14.8% of Encanto Potash Corp.
  2. Lion has further entered into a joint venture agreement with Encanto where Lion will invest $6.5 million to increase its position in the combined entity.
  3. Encanto Potash has a land position of prospective potash ground with potential for both Conventional and Solution mining.
  4. Spar Property contains an NI 43-101 compliant indicated resource of 12.49 million tonnes K2O and inferred resource of 12.24 million tonnes of K2O.

Overview

The Spar permits are located within the extensive Middle Devonian Prairie Evaporite formation of south-central Saskatchewan. The claims are immediately adjacent to claims currently held by BHP Billiton Diamonds Inc. Saskatchewan Ministry of Energy and Resources data indicate that the lands are underlain by both the Patience Lake and the Belle Plain potash members. An Isopack thickness map of the Patience Lake member evaporite shows thicknesses under the Spar Property equal to those at mines in close proximity. These include Potash Corporation of Saskatchewan's Cory (located approximately 25 kilometres to the south) and Patience Lake (located 33 km to the southeast) mines, and Agrium Products Inc.'s Vanscoy potash and salt mine (located approximately 34 km south of The Spar Property).

(Click to Enlarge)

On August 20, 2009 Lion Energy finalized the sale of all potash assets to Encanto Potash Corp. Lion agreed to transfer all of its interests in its Spar and KP452 potash properties in Saskatchewan to Encanto, or its subsidiary, in exchange for 19,846,525 common shares of Encanto. Lion will also incur $6.5-million in expenditures on the combined Lion and Encanto potash properties by Dec. 31, 2009, to earn a 51-per-cent interest in the potash properties. Encanto will have the option to repurchase the 51-per-cent Lion interest in the potash properties for a further 26 million shares of Encanto. If the option is exercised Lion Energy will have a total of 45,846,525 shares of Encanto.

History

Two phases of exploratory drilling have been conducted on the Spar Property permit area in the past:

  1. In 1946, Sohio Exploration Ltd. drilled three stratigraphic exploratory wells in the north and central parts of the area. The historic drill hole information from this is unknown.
  2. In 1969, Canadian Exploration Ltd. drilled six potash exploration holes within a 10-kilometre square area near the southern extent of KP441. Two of these holes were within the permit area, and the other four were located on adjacent claims currently held by BHP Billiton Diamonds Inc. The two drill holes that were drilled on the KP441 permit are located approximately 3.2 kilometres apart and intersected several significant potash-rich horizons. Historic analyses from the most significant intersections in these two holes are presented below:

Historic drill hole 16-6-39-7W3:

  1. 3.06 metres grading 28.77 per cent K(2)O, 50.77 per cent NaCl, 0.28 per cent MgCl(2) 4H(2)O, 2.96 per cent insoluble (from 928.3 m to 931.36 m depth)
  2. 6.49 metres grading 12.24 per cent K(2)O, 43.37 per cent NaCl, 0.29 per cent MgCl(2) 4H(2)O, 4.05 per cent insoluble (from 940.58 m to 947.07 m depth)

Historic drill hole 16-18-39-7W3:

  1. 6.64 metres grading 14.49 per cent K(2)O, 50.73 per cent NaCl, 0.45 per cent MgCl(2) 4H(2)O, 6.41 per cent insoluble (from 920.37 m to 927.02 m depth)

(Note: Potash (K(2)O) grades were calculated by applying a 0.6318 conversion factor to the historically reported sylvite (KCl) values. MgCl(2) 4H(2)O is the mineral carnallite. NaCl is common salt.)

2008-09 Work Program

In 2008 Lion announced the results of a NI43-101 compliant resource calculation compiled by Agapito Associates, Inc. on the Spar Property Potash Disposition Application.

  1. Recoverable in-place potash equivalent tonnes, assuming using standard deductions and an overall recovery of 36%, are calculated to a Indicated resource of 12.49 MMT of K(2)O and an Inferred resource of 12.24 MMT of K(2)O.

This resource estimate was determined based on the two holes drilled by Canadian Exploration Ltd. in 1969. The holes are located approximately 3.2 kilometres apart in the southwest corner of the KP441 disposition. The resource covers an area of approximately 17% of the KP441 disposition.

Lion followed up on this positive NI 43-101 by engaging the services Kinetix Inc. to conduct 2-D seismic work on the Spar property. The seismic data identified a large area on the Spar property that has a stable Prairie Evaporite environment where potash mining could occur. The report estimates that the size of the total minable potash area on the KP441 potash permit is up to 97,000 continuous acres and outlines several primary drill targets.