a small part of the feasibility studyFYI,
19.6 Market Opportunities SOP is consumed in relatively small volumes across many disparate markets, often with a seasonal aspect to shipments. Based upon information contained in the market studies, CPM’s initial strategy is to place the maximum amount of SOP into California and the Pacific Northwest. Market analysis indicates that the largest opportunity for domestic market penetration exists in these regions. CRU assesses that within the United States, there exists a relatively high concentration of SOP demand in two states: California and Florida. The abundance of demand in these two states makes them natural markets of interest to any potential SOP producer. However, there also exists sizable demand for SOP in states such as Washington and Oregon where cultivation of fruit and vegetables is a significant driver of local SOP demand. According to Parthenon, there are approximately 776,026 short tons (704,000 metric tonnes) of domestic consumption opportunity, with California being both the largest domestic consumer of SOP and having the largest opportunity for market growth. Domestic SOP usage for crops is estimated at 295,419 short tons (268,000 metric tonnes), while total SOP usage was listed at 384,068 STPY (348,421 MTPY) (Parthenon Group, 2013). Parthenon indicates that approximately 1.07 million short tons (972,000 metric tonnes) of additional opportunity exist at full penetration into domestic SOP markets (Parthenon Group, 2013). Once the domestic market has been fully explored, CPM intends to expand into Mexico, Central America and South America. The combined Central and South American region is the second largest import market in the world and is home to established consumers in Mexico, Peru and Brazil, as well as a growing consumer base in Colombia and Ecuador. CPM is strategically located to compete in these areas.
19.7 Pricing There is no benchmark pricing for potassium sulfate since it is a specialty fertilizer produced in small volumes relative to MOP. Due to the relative scarcity of primary producers, and to Mannheim production that requires MOP as an input, SOP exhibits a recent historical premium of 50% or more over MOP. According to Parthenon’s analysis, many suppliers and retailers view the Unites States’ market as being in equilibrium at the current SOP price, though supply-demand dynamics and/or other factors can affect price (Parthenon Group, 2013). CRU assesses that it is unlikely to see tonnages in the millions-range of new primary SOP capacity being built and anticipates that an operation with production capacity in the 330,693 STPY (300,000 MTPY) range should be able to place product into the market with a well-executed market strategy while maintaining an international price premium (CRU Consulting, 2017). According to Company research, three primary factors influence the price premium of potassium sulfate over potassium chloride. They are, in order of importance: 1. The marginal cost of production (secondary production) required to satisfy global SOP demand. 2. The nature of the market for high-value crops to which potassium sulfate is typically applied. 3. Sulfur prices. CPM plans to sell the majority of its product into United States’ markets. Accordingly, the following are sources that have been consulted for pricing data as of the time of publication of this Technical Report: • United States SOP-only sales price of $572 USD/st ($631 USD/mt), from the SOP market study prepared by CRU (CRU Consulting, 2017). • Average United States market SOP price range of $575 to $582 USD/st ($633 to $641 USD/mt), quoted by Green Markets as of December 15, 2017 (Kennedy Information, LLC, 2017). • Average selling price over the past five quarters of $578 USD/st ($637 USD/mt), based on prices published by Compass Minerals. For the purposes of financial modeling, CPM has used a starting price for SOP of $571 USD/st ($630 USD/mt), based on the above referenced data. This price is inflated within the Economic Model on the same basis as all other financial data during the period of operations. CPM is currently pursuing off-take agreements with various partners for Standard product. It is likely that early off-take agreements will incur some level of discounting; thus, the quantity of supply offered in the early offtake agreements will be limited. Concurrent with the pursuit of these agreements, CPM is investigating opportunities to establish long-term arrangements for Water-Soluble and Granular product in those markets where the greatest net-back potential exists. Once initial off-take objectives are accomplished, CPM will explore additional opportunities in other markets, including the possibility of branding, selling via smaller packages, and pursuing maximum sales of Water-Soluble grade.
Regards,
Fearlessgg