POTENTIALLY DISRUPTIVE LOW COST ECONOMICS IS A WINNER FOR FARMERS & INVESTORS
Brazil Is Fastest Growing Potash Market
But Imports 98% of It!
A few weeks ago, Brazil Potash got a big endorsement from an unusual place – its BIGGEST competitor.
Brazil Potash is an up-and-coming potash producer with a mine under construction in Brazil. Nutrien (NTR-NYSE) is the largest potash producer in the world.
In Q3 investor presentation, Nutrien included the following slide.
Source: Nutrien Q3 Presentation
Nutrien said the cost of producing potash for the Brazil market—the fastest growing in the world—has gone WAY, WAY up. And it’s going to get worse, as logistics – transportation costs – have become a big burden for foreign potash producers.
Which means that if you can produce potash locally—which by definition means MUCH LOWER transport costs—well, you should make A LOT of money.
That is just what Brazil Potash plans to do. They said in their prospectus that their pending Autuzes mine in Brazil could produce up to 2.4 million tons of potash annually, which could meet up to 20% of Brazil’s potash demand.
It’s such a good idea evidently that Mayo Schmidt, former CEO and Chairman of Nutrien has joined Brazil Potash as Chairman of the Advisory Board!
Potassium (potash) is one of 3 essential nutrients needed for growing plants. It promotes photosynthesis, increases protein formation, makes the plant stronger and gives plants resiliency to fight against stress.
Every year, many millions of tonnes of potassium is pulled from the soil from growing crops and needs to be replenished. There is always going to be the need for more potash.
Today, the biggest potash producers, in fact virtually ALL potash producers, come from the Northern Hemisphere. Production from Latin America represents just a sliver of overall supply.
Source: Nutrien Investor Presentation
There is just a single potash mine in Brazil – Taquari-Vassouras. That mine is owned by Mosaic, who will give the mine a small increase in production in 2024 from 350,000 tonnes to 400K.
In other words: Latin America has a shortage of local potash supply. But that is about to change when Brazil Potash’s Autazes mine lifts off into production.
LOCATION-LOCATION-LOCATION
The Autazes project is located along the Amazon Potash Basin, in NW Brazil, about 100 miles from the city of Manaus.
The project is located near the Amazon River system, only 5 miles from the Madeira River.
Which is a BIG advantage!
Brazilian government data (SECEX) from January 16, 2024, shows that Brazil exported about $166.6 billion of agricultural products in 2023, and Brazil ranks first in production for many of the world’s highest-demand and potash-intensive crops, like soybean and sugarcane.
Yet today Brazil imports 98% of its potash!
Even closer to home, neighbouring Mato Grosso state, which is just “a short distance” away, consumes 20% of potash in Brazil. It is a market ripe for the mine supply of Autazes.
The goal of Brazil Potash is to become the supplier-of-choice to Mato Gross and all Brazilian farmers.
That starts with their path to market – which is low-cost river barges followed by trucks.
The total transit time from the Autazes Project to Brazilian potash customers is expected to be—2.5 days.
Potash shipments from Canada and Russia average 107 days! So…2.5 vs 107.
That’s 43 times less than it takes other major potash producing suppliers in Canada and Russia to customers in Brazil. CHA CHA CHA!
Think about that – Two and a half days versus 3 and a half months!
Look at the bar-chart below to see the cost of shipping potash across the ocean—it’s a HUGE amount of the overall cost.
Source: Brazil Potash Prospectus
Foreign producers are transporting potash from 8,000 to 12,000 miles by train and dry bulker. Brazil Potash is using a barge and a truck.
That is a MASSIVE reduction in the cost of transportation. Brazil Potash estimates that the average cost of MOP from Autazes will be less than half of imported potash.
In fact, in their Prospectus, Brazil Potash estimates their “cost to mine, process and deliver potash to Brazilian farmers will be lower than the transportation cost alone for imported potash”!
And the scale is only going tip more in their favor.
Consider that at Nutrien’s analyst day in June, they said that in Brazil, “the short-run marginal producers delivered cost has risen by approximately $50 per ton over the last 5 years.” – in other words, just the rise in transportation costs to Brazil—is over half the cost to produce MOP at Autazes.
It seems almost assured that Brazil Potash is set up to become the LOW-COST producer of potash for the South American farmer. In commodities, the lowest cost producer ALWAYS wins.
A WORLD-CLASS MINE
Brazil Potash expects Autazes to produce roughly 2.4Mt of potash (MOP) once operating at full capacity – enough to satisfy 20% of Brazil’s needs.
In other words, the addressable market in Brazil alone is 5x what Autazes will be able to supply, at least to start.
The resource is muriate of potash (MOP), also known as potassium chloride (KCl). MOP is the most common natural occurring form of potash.
Like most potash resources, the Autazes deposit is deep underground – about half a mile below the surface.
Brazil Potash has drilled 43 exploration holes into the project. So far, what they have found is a deposit that is 2.3 – 13.1 feet thick.
A pre-feasibility study was done on the deposit in October 2022. Based on that study, Brazil Potash expects to mine up to 9.4 Mt of run-of-mine potash ore per year, producing 2.4 Mt of MOP on average. The processing plant, which they plan to build on-site, will have capacity of up to 2.7 Mt MOP.
The mine is expected to have a life of 23 years at this rate based on drilling only a VERY small portion of this potentially massive potash basin.
The proven economically recoverable reserves of the mine is 69 Mt of KCl at a grade of 28.9% MOP. There is another 122 Mt of probable reserves grading 27.5%.
Source: Brazil Potash Prospectus
Brazil Potash has explored only 5% of the basin!!!
GETTING TO PRODUCTION
Getting to market is the advantage. Getting to production is the challenge.
As with most rural, Latin America mines, there is a local indigenous population, called the Mura, that must be considered. They seem to be on the side of the mine, having previously voted with over 90% in favor of the Autazes Project.
In August, Brazil Potash got ALL the 21 necessary construction licenses from the Brazilian Amazonas Environmental Protection Institute.
What’s left is the operating license. They will need it to produce and sell potash. Following that, they will receive a mining concession from the Brazilian Ministry of Mines and Energy.
The preliminary environmental license was awarded in 2016, but then left in limbo for the following 6 years while objections went through the courts to decide if all aspects of the license had been done in compliance.
Finally, in October 2023, with all the appeals satisfied, the court allowed that the license was valid and reinstated.
But, they admit there could be bumps. From the Prospectus: “we believe that it would not be unusual if certain Brazilian regulatory agencies challenge the regulatory authority of certain other Brazilian environmental agencies over environmental licensing of mining projects”.
A LONG RUNWAY OF GROWTH
Potash demand is only expected to grow.
Source: Brazil Potash Prospectus
The biggest driver of worldwide potash growth is expected to be Latin America. The biggest driver within Latin America is expected to be Brazil.
CRU Group expects Brazil potash demand to grow at 6.8% from 2023 to 2027.
In Q3, Nutrien said they expect 70-72 million tonnes of potash to be shipped this year. About 24% of that will be consumed in Latin America.
Source: Nutrien Q3 Investor Presentation
On their Q3 call Mosaic said they expect “near record shipments” of potash in 2024 and record-breaking shipments in 2025.
BUILD IT AND THEY WILL COME
To get the mine this far, Brazil Potash has already raised $240M through equity and debt. The project is now near construction ready.
The $32M+ that Brazil Potash expects to raise from the IPO will go towards initial construction expenses.
Source: Brazil Potash Investor Presentation
This is not enough to bring the project into production. To bring Autazes into production is going to cost A LOT more – to the tune of $2.5B.
Source: Brazil Potash Prospectus
That includes the construction of the mine shafts, processing plant and port.
Part of the funding for Autazes will come from a royalty agreement with Franco Nevada. While the exact terms are still undetermined, FNV purchased an option for 4% of gross revenue from Autazes in return for $1M. That is $1M for the option – the purchase price of the royalty will be based on a 12.5% pre-tax IRR at the time the option is exercised.
There is also a 2% royalty that will be paid to the Brazilian government.
VALUE FOR THE INVESTOR
The IPO is scheduled for 2.4M shares. These will be issued at between $15 and $18.
The most recent share issuance (while they were still a private company) was at $16.
Source: Brazil Potash Prospectus
All this makes Brazil Potash an excellent way for investors to play the next leg of the agricultural revolution. And to get in near the beginning for what could be the next major potash producer.
Note: BRAZIL POTASH has reviewed and sponsored this article. The information in this newsletter does not constitute an offer to sell or a solicitation of an offer to buy any securities of a corporation or entity, including U.S. Traded Securities or U.S. Quoted Securities, in the United States or to U.S. Persons. Securities may not be offered or sold in the United States except in compliance with the registration requirements of the Securities Act and applicable U.S. state securities laws or pursuant to an exemption therefrom. Any public offering of securities in the United States may only be made by means of a prospectus containing detailed information about the corporation or entity and its management as well as financial statements. No securities regulatory authority in the United States has either approved or disapproved of the contents of any newsletter.
Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity. He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.
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