Brazil currently consumes about 7.8 million tonnes of potash annually. But consumption is expected to increase by 5.3% per year, according to Verde estimates.
Corey Dias, Institutional Research Analyst with Toronto-based MGI Securities, a subsidiary of Jovian Capital Corp. (TSX: T.JOV, Stock Forum).
Focus: Fertilizer stocks, mainly in the potash area
Can you give us your perspective on what is happening in the market right now?
“Markets are a bit rocky right now due to worries about the U.S. economy and the outlook for growth in China. Investors are also concerned about the situation in Greece. They also worry that if the Greek economy is unable to cope with austerity measures demanded by the eurozone and International Monetary Fund in return for a $170 billion bailout package, it could affect the viability of the Euro.”
How do you think that this will play out over the next few months?
“It is unlikely that we will see any improvement between now and mid June.”
Can you give us the names of some of the companies that you are following right now?
Passport Potash Inc. (TSX: V.PPI, Stock Forum). Dias has a buy rating on the stock with a target of $1.05. Trading at 24 cents this week, Passport Potash has a market cap of $40.6 million, based on 169.3 million shares outstanding. The company recently announced a new NI 43-101-compliant resource estimate for its Holbrook Basin project in Northern Arizona. Dias says he likes the company because of its strong management team and the fact that the resource is close to surface and should be amenable to conventional mining techniques. Negotiations with the Hopi tribe should open up more land for drilling, and a potential expansion of the existing resources.
Verde Potash Plc. (TSX: V.NPK, Stock Forum). Dias also has a buy rating on Verde, which traded at $5.68 this week, leaving the company with a market cap of $209.5 million, based on 36.9 million shares outstanding. Verde is led by Brazilians and is developing the Cerrado Verde project in Brazil, a source of potash-rich rock from which the company plans to produce a potash fertilizer product. Dias likes the company because it is located in one of the world’s most attracting markets for potash. Brazil currently consumes about 7.8 million tonnes of potash annually. But consumption is expected to increase by 5.3% per year, according to company estimates. Verde is planning to produce potash from Glauconite, a green-coloured iron potassium mineral which lies near the surface. High production costs (relative to costs in the Saskatchewan potash sector) are expected to be offset by Verde’s proximity to the Brazilian market.
Rio Verde Minerals Development Corp. (TSX: T.RVD, Stock Forum). The company is also focused on the acquisition, exploration and development of fertilizer products in Brazil. Its flagship Sergipe potash project is located in northeastern Brazil near the coast. Dias likes the fact that the Sergipe project is adjacent to Vale SA’s (NYSE: VALE, Stock Forum) Taquari-Vassouras mine, currently the only producing potash mine in Brazil. “There is an opportunity for a takeout if the company proves up a resource,’’ Dias said. Rio Verde is also developing the advanced-stage Fosfatar Phosphate project in a bid to generate cash flow until Sergipe reaches the production stage. Located in northern Brazil, Fosfatar is expected to be in production by the first quarter of 2013, producing 150,000 tonnes of Thermophosphate annually.
Trading at 32 cents this week, Rio Verde has a market cap of $29 million, based on 91.2 million shares outstanding. The 52-week range is 59 cents and 25 cents.