Converting MOP prices into pricing for Verde's product.I have just been doing some work on what these high MOP prices should mean for Verde.
I see the situation as this:
1. The reference price for Verde’s product is based directly off the MOP price. More specifically, is it based off the MOP CFR Brazil price (this is the price of MOP delivered to port in Brazil) + cost of transport inland to the farmer.
2. So the equation is, Verde ref price = MOP CFR Brazil + transport inland
3. So currently Verde ref price = C$1,580 (US$1,250) + C$60 (US$50, this is the best quote I could find). So currently Verde ref price = C$1,640.
4. Verde’s product has 1/6 the potassium content of MOP, and I believe it is priced directly off this metric. So currently Verde should be selling a tonne of product at around C$1,640 (their reference price) / 6 = C$273.
5. This C$273 price per tonne of Verde product is obviously on a CIF bases, i.e. that includes Verde paying the transport cost to get the tonne of product to the farmer.
6. So next question, what is the price for Verde to deliver a tonne of product to the customer? Through 2021 is was between C$40 and C$45 per tonne. Let’s increase that due to the increase in oil prices to say C$60. So on a FOB bases, i.e. revenue per tonne to Verde once you’ve taken out transport cost, Verde should now be selling product at C$272 (CIF price they receive) – C$60 (cost of transport per tonne) = C$212.
7. Just to repeat that, currently Verde should be receiving OVER C$200 FOB per tonne of product sold, after transport costs have been accounted for.
8. This price is against Verde receiving in the last quartre C$81 CIF / C$53 FOB per tonne.
This is incredible. A couple of additional points. Yes, I have not included sales discounts that may apply in some circumstances. But, I have also not included the positive pricing dynamic of the BAKS product, the uplift Verde get from mixing in additional nutrients.
Bottom line, as they scale up through 1m tonnes of production, to 3m tonnes, to 10m tonnes(?), Verde will be making huge cashflows. For one thing, guidance is going to be revised upwards for sure. And they will no doubt beat their own revised guidance.
I’m new here. But this is incredibly exciting.
GLTA