The growing world population means food production needs to increase, and fertilizers are essential inputs to greater production. However, the potash industry has been on hard times since the financial crisis in 2008 that has led to a decrease in the price of potash; this was compounded by the implosion of the potash cartel by the Russian-Belarusian producers in 2013. That had been keeping supply relatively limited; the fertilizer sector has not yet recovered from these blows.
A unique player in the sector is Verde AgriTech Plc (NPK:TSX; AMHPF:OTCQB), which is advancing the Cerrado Verde project in Brazil. The potassium-rich deposit hosts a blend of minerals, including magnesium, silicon, iron and manganese, that serves as both a fertilizer and soil conditioner. In addition to the 68 minerals and trace elements it provides, it increases the soil's ability to retain water and nutrients. Verde's main product is branded Super Greensand.
Verde's mineral resource begins at surface and contains over 1.4 billion tonnes in the Measured and Indicated categories and 1.8 billion tonnes Inferred, based on a NI-43-101-compliant mineral resource estimate from 2014. Production has begun, with 20,000 tonnes estimated in 2017, and 100,000 tonnes targeted in 2018.
According to the company, Verde's products make crops more resistant to pests, diseases and drought, and offer essential nutrients. They are approved for organic agriculture. Super Greensand, the company stated, "has no chloride and no salinity, ensuring that crops will not suffer from chloride toxicity. The product can be adopted by all niche markets that apply potash premium sources with further benefits such as eliminating the need for multiple applications per harvest."
Verde announced in May that it had begun a prefeasibility study to expand its Super Greensand production. According to the company, "the expansion project will be implemented in multiple phases and will rely on internally generated cash flow to fund subsequent expansions, all of which will significantly reduce upfront capital costs. This scalable and modular approach is feasible thanks to the open-pit nature of Verde's mineral resources and simple production flow sheet, which only requires crushing and milling."
Cristiano Veloso, Verde's president and CEO said, "with Verde now in production and selling, we look forward to ramping-up our production and establishing ourselves as a prominent player in Brazil's agricultural scene."
In addition to supplying the Brazilian market, Verde is eyeing organic farming in the U.S., and the cannabis market in the U.S. and Canada. In June, Verde signed a deal with a North American distributor focused on the organic and cannabis market. The distributor has exclusive rights to the Pacific Northwest region and non-exclusive rights for the rest of the country. The distributor has agreed to minimum volumes for the next four years.
The distributor is also targeting salinity sensitive high value crops in addition to organic and cannabis. The company stated almonds in California are main target: "American almond production is worth about 6.4 billion dollars annually and over 80% of it is grown in one of the most salinity damaged areas of the United States. Salinity usually accumulates in soils after reiterated application of salt-heavy fertilizers in regions that are not washed by rains, such as irrigated agriculture in arid regions."
In July, Verde announced the closing of an oversubscribed private placement for proceeds of CA$1.8 million. This financing included a CA$800,000 investment from Palisade Global Investments Ltd., a private merchant banking and investment group with a strong focus on resources.
"With little downside risk left now that Verde Agritech is cash flowing, we are excited to invest knowing all the growth potential in this company. We are also quite impressed in how Verde's management has navigated through the last five years of bear market with zero dilution," said Sean Zubick, chief operating officer and partner of Palisade Global Investments.
Polestar Capital LLC is a long-term investor in Verde; Raj Sharma, founder of the firm, told Streetwise Reports that as a result of the market setbacks in potash, Verde scaled back its plans and has taken a more grassroots approach. "The world needs fertilizer to meet the increasing demand for protein," Sharma said. "Verde has a substantial potash asset, no debt, low need for capital and a doable plan at current potash price levels. When the potash market recovers, Verde could have massive upside potential, yet its downside from here is limited." Verde's management, Sharma said, "is serious and understands the market well."
Technical analyst Clive Maund in July wrote on clivemaund.com that Verde has "done a sizeable funding which will enable it to ramp up production from the current 20,000 tons to 300,000 tons, with the eventual goal of raising production as high as 25 million tons." He explained that "part of the raised funds will be used to improve the road to the mine, enabling greatly increased traffic of product. A permit is required, but this is in process and since the mine is located in a rural area there is not expected to be a problem with it, and it should be obtained sooner rather than later. A point to note also with this company is that the ramping up of production does not involve complications like drilling—once the road is improved, more and bigger trucks roll up and cart away more potash."
Analyst Nick Hodge noted in Nick's Notebook in July that "traditional potash is a salt and Verde's product is not. Verde's product is approved for organic applications, helps retain water in the soil, retains beneficial ammonia, and fosters beneficial microorganisms. Traditional potash does none of those things." He explained that "because traditional potash is in salt form, it has to be applied multiple times throughout the year because if done all at once the salt would make the soil barren. Because it only has to be applied once, Super Greensand actually saves farmers money."
In addition to trading on the Toronto Stock Exchange, Verde has a dual listing on the OTCQB Venture Market in the U.S., trading under the ticker AMHPF. The share structure is tight with 38 million shares outstanding, 43 million shares fully diluted.
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Additional disclosures about the sources cited in this article
Nick's Notebook, Verde AgriTech, July 11, 2017
Nick Hodge does not own any shares of Verde, was not paid by the company, and the company is not an advertiser.
CliveMaund.com, Verde AgriTech, July 11, 2017
Clive Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. Mr. Maund does not own securities of Verde.