Verde Agritech Ltd T.NPK

my post from april 14

[purse]

 

Mining way back at around $1.00 a share because John Kaiser

said we should. And then we ended up going to Brazil

to see first-hand just how significant that country has become

in the production of agriculture.

Don Coxe and others that suggest the big worry these

days is feeding everyone, should also go to Brazil and see

huge areas of the country where they get not one, not two,

but three crops a year. And with all that rain, it’s big production

of crops, but the only problem is with all that rain...it

leaches the soil and you need fertilizer. You need lots and

lots of fertilizer.

Which is why we were down there in the first place was to

see first-hand the Amazon story. While Amazon is getting to

be much too blue-chip for a story for us to usually cover, we

can’t ignore a report just put out by Jaret Anderson of Salman

Partners. I mean it is easy to simply sluff-off the headline—

Amazon Mining Top Pick and gave it a target which is

not much of move from current price. I’m sure you think the

same thing we did when we first saw the target, because it

doesn’t exactly change your lifestyle, does it?

Eventually though, we got to reading the details involved

and instead of us giving us an interpretation, why don’t we

just put in the points that Anderson did and see if it appeals

to your greed.

His report is entitled, “How Blue is the Sky at Cerrado

Verde?”

? We have begun to sharpen our pencil recently regarding

the potential upside of Amazon’s Cambridge process.

The Cambridge process could allow the company to

produce a conventional potassium chloride (KCl) or

potassium sulfate (SOP) and could potentially generate

up to four billion dollars of value for Amazon shareholders.

? We have previously put forward an NAV of $42.12 per

share in the event the Cambridge process is successfully

scaled up. Based upon recent meetings with Amazon

management in Belo Horizonte, Brazil and conversations

with staff tasked with the scale-up of the Cambridge

process, we believe this figure could materially

understate the potential of the project.

? Our original Cambridge NAV was based on a two million tonne per year operation at an operating cost of US$250

per tonne. We are coming to the view, though, that a successful Cambridge process could result in a plant designed

to satisfy all domestic potash demand in Brazil and that cash costs could be closer to US$200 per tonne vs. our

more conservative US$250 per tonne assumption.

? In a world where the Cambridge process scales up well and runs as efficiently as Amazon’ engineering team believes

it can, the project has the potential to generate more than US$1 billion of free cash flow per year. Assuming a

five million tonne per year project and a cash cost of US$200 per tonne, we arrive at an NAV of $125.85 per share.

Fantástico.

? This figure is the blue sky scenario where everything falls into place in Amazon’ favour and is by no means our

base case assumption. Our $11.50 target assumes a 10% chance of success with the commercial scale-up of the

Cambridge process. We note though that Amazon’ in-house engineering staff believe their odds of success are

closer to 75%. We continue to rate the shares a TOP PICK with a 12-month target price of $11.50 per share.

Notice that with those points, with those truly outlandish targets, that the Cambridge process is new, hasn’ been

done anywhere before and there is always a chance it might not work.

There is always risk in these kind of things, but my goodness, what if it does work and what if some of these numbers

are half-way right...now that would appeal to your greed...wouldn’ it?

We caught up with Jed Richardson, the ex-Sprott mining analyst and VP of Amazon who does admit that the current

Cambridge scheme is still a science experiment that works in the lab, but it will be year-end before they know if they’e

got a good chance of it working in the real world.

Meanwhile, his look on the market is interesting...wouldn’ be surprised to see a market sell-off (the typical sell in

May) but he has two interesting buy recommendations—ore on those later.