PADCOM receives final approval to commence commercial production at Manitoba’s first potash mine

Potash and Agri Development Corporation of Manitoba Ltd. (PADCOM) has received final approval to commence commercial production at Manitoba’s first potash mine.

On March 3, 2023, the Director of the Mining, Oil and Gas Branch of the Manitoba Department of Economic Development, Investment and Trade accepted and approved PADCOM’s mine closure plan and financial security. The Government of Manitoba has confirmed that PADCOM can now begin operations.

The mine is located in the Hamlet of Harrowby, approximately 16 kilometres west of the Municipality of Russell-Binscarth, Manitoba. The area is in a resource rich location, surrounded by other successful potash mines across the provincial border in Saskatchewan.

The mine will initially produce 50,000 to 100,000 tonnes of potash per year, which PADCOM expects will increase to up to 250,000 tonnes per year or more over an expected life of up to 100 years. The operation’s facilities have a small physical footprint and PADCOM intends to use a more environmentally friendly mining process, along with Manitoba Hydro’s virtually emission-free, renewable, efficient, and cost-effective hydroelectric power.

“A typical underground mine for potash produces about a thousand pounds of carbon for every tonne of potash. When we’re up and running fully, with Manitoba’s electricity, we’ll be at 21 to 36 ounces, so we’ll be classified as a near zero-emission fertilizer, the first ever in the world,” commented Daymon Guillas, President of PADCOM.

The initial project area consists of a mix of Crown mineral lands and private mineral lands leased by PADCOM, which are joined or pooled together to form a unit operation pursuant to the terms and conditions of a potash “unit agreement” or “pooling agreement”. Such types of agreements are common in potash and oil and gas operations involving horizontal drilling techniques and production methods. They facilitate unit operations whereby Crown mineral lands in a described area are merged, consolidated or integrated with other Crown mineral lands or with private mineral lands, or both, in a described area for the purpose of being operated as a unit for:

  • the development or production of minerals in a described area;
  • the implementation of a program for the development, conservation or management of the minerals or the co-ordinated management of interests in the minerals; and/or
  • the calculation of royalties excepted and reserved to the Crown and any other persons owning private mineral lands.

Guillas successfully financed PADCOM’s operations and the construction of the mine without resorting to dilutive equity financing by securing alternative financing through sales of gross overriding royalty (GORR) interests in the unitized project operations to a small group of investors. As an additional benefit and enhanced form of security for the investors, the GORRs were structured as “interests in land,” which when duly registered in the appropriate registers against title to the mineral rights comprising the project area attach to, and run with, title to the mineral rights. Courts have repeatedly held that such royalties constituting interests in land survive changes in ownership of a project and, unlike the claims of secured creditors, cannot be vested off title in insolvency proceedings without the interest holder being paid the fair market value thereof or otherwise consenting to the vesting out of their interest.

Following a community development model, PADCOM has also developed a partnership with Gambler First Nation, which intends to invest for a 20% equity stake in the project.

MLT Aikins is pleased to act for PADCOM on all of its legal matters. Winnipeg partner Tom Provost leads the MLT Aikins team of lawyers advising PADCOM on all legal aspects of the company’s operations.

MLT Aikins serves as a trusted legal adviser to a wide variety of mining and agribusiness companies, providing legal advice tailored to the business and practical considerations of clients across Canada. Learn more about our Mining & Natural Resources and Agriculture & Food practice groups.