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Verde's Brazilian potash play

Richard (Rick) Mills
0 Comments| December 12, 2011

Today I’m speaking with Cristiano Veloso. Cris is the founder, President & CEO and a Director of Verde Potash Plc (TSX: V.NPK, Stock Forum) (formerly Amazon Mining Holding Plc). 

Mr. Veloso is a Brazilian entrepreneur born and raised in South America’s mining capital, Belo Horizonte. Cris has a business management and law degree and worked for two of the most prominent companies in Brazil, CEMIG and Banco do Brasil, before starting Verde alongside a successful group of geologists.

Rick: Cris can you give us some background on how you got started with Amazon Mining, now Verde Potash, and your ThermoPotash fertilizer?

Cris: Amazon was founded in 2005 as the first truly Brazilian conceived, managed and led exploration company. In 2008, Ysao Munemassa, one of Brazil’s most renowned geologists, convinced me to look for fertilizers. In the ‘80’s, Ysao had led one of Brazil’s largest fertilizer exploration programs and was therefore a big step ahead of the competition. We decided to focus on potash and reviewed every single opportunity available in Brazil.

After considerable research and analyses we selected Cerrado Verde Potash as our choice. You can walk our potash deposit. It’s right at surface; it’s a bright green rock so it’s very easy to see we have hundreds of millions of tonnes of it, all amenable to strip mining.

We had read a number of studies done in the late ‘70s and early ‘80s about Brazilian agronomists testing a new fertilizer, ThermoPotash. The results achieved were very good, but it wasn’t quite ready for commercialization because of high costs. So we focused our work on the processing/production technology far more than anything else.

We endeavored to apply the latest metallurgical and pyro-metallurgical processing knowledge to the existing production process to make the flow sheet as efficient as possible.

What’s important to emphasize here is that over our journey we’ve had only the best and brightest in each field working for us. As an example, on the scientific development side we were joined by Professor Derek Fray from the University of Cambridge. We enlisted Professor Fray after hiring a consultant who we gave a very specific mandate to: identify who, worldwide, were the most successful and respected scientists in regards to new pyrometallurgical processes.

We followed the same strategy for every single aspect of production. If, or rather when, we succeeded, we wanted people to look at the accomplishment and be able to say that “Verde’s ThermoPotash is not some chemical experiment done on a small scale at some never heard of before lab in an obscure part of the world. It’s real.” So what we have done, over the last three years, is to bring in every leader in their respective fields to work with us.

The expertise we’ve brought in has paid off. We are successfully advancing the development of our slow release ThermoPotash pellets and have just announced a further milestone: the successful production of Potassium Chloride (KCl) from our Cerrado Verde potash deposit using our continuous rotary kiln pilot plant.

Rick: From my research I firmly believe Brazil is going to be the world’s major breadbasket.

Cris: I think you’re right but if we’re to feed the world’s current and future population Brazil will have to significantly increase its share of food production. There are three major reasons why Brazil is going to increasingly becoming the world’s breadbasket: Brazil has about 1/5 of all land available for agriculture in the world, it has the world’s largest renewable fresh water resources, and Brazilian climate allows farmers to have up to three growing cycles per year. No other place on earth can match Brazil for its food production potential.

Usually when people talk about future potential their current scenario isn’t very robust, but in Brazil’s case the current market size is already impressive and the future one even more so.

Brazil is already a leading producer and exporter of some of the most important agricultural commodities in the world. Consequently Brazil currently needs vast amounts of fertilizer, volumes that will only grow in future years.

Brazil is already one of the largest fertilizer markets and this year is expected to be the world’s largest potash importer at an estimated 7.5 million tonnes of KCl for 2011 - from January to October Brazil had already imported 6.4 million tonnes of KCl.

Rick: Where does most of that come from Cris?
Cris: Good question. Brazil imports more than 90 percent of its potash. Here’s the breakdown from Brazil’s two biggest suppliers for this year up to September: Brazil imported 2.1 million tonnes from Belarusian Potash Co (BPC) and two million tonnes from Canpotex. (Canpotex Ltd. and BPC. control two-thirds of the global market - Canpotex markets potash produced in Saskatchewan by Potash Corp. of Saskatchewan Inc. (TSX: T.POT, Stock Forum) (NYSE: POT, Stock Forum), Mosaic Co. (NYSE: MOS, Stock Forum) and Agrium Inc. (TSX: T.AGU, Stock Forum) (NYSE: AGU, Stock Forum) while BPC is an arm of Belaruskali and Russia’s Uralkali – Rick)
Rick: The cost of that must be through the roof.

Cris: It is, it is. As I said, this year Brazil is expected to import over seven million tonnes of KCl. At current prices that’s $4.5 billion worth of potash, for the past few years KCl has been ranked by dollar value as one of the top ten items on the Brazilian import balance sheet. That’s a lot of money leaving the country.

Rick: Potash has to be railroaded, loaded on ships and sent to a port in Brazil. Things start to get very interesting when the potash finally arrives in Brazil.

Cris: Yes, the first big challenge is the current waiting period to unload. Anywhere from 30-45 days, the average waiting time at the port of Santos is 41 days. Also, it is very expensive to unload at Brazilian ports.

Rick: There’s a very small window in Brazil to apply the fertilizer, does the waiting time to unload affect that?

Cris: It does. It puts a lot of pressure on the fertilizer blenders and on the farmers themselves. Unless the blenders place an order well in advance they cannot bring in enough potash and the farmers risk missing the fertilizer application window.

Rick: When you talk about the blenders, how does the potash get from the port to the blenders? Is this where the infrastructure problem really starts happening?

Cris: After the potash is finally unloaded logistics continue to be chaotic. You need to transport this product from the ports to where it’s blended and eventually consumed. This transportation is predominantly done by truck.

Unfortunately it’s faster for you to walk from a Brazilian port to Minas Gerais in the Cerrado region than the time it takes for your goods to get there by train. Brazil’s rail service is expensive, limited and very congested, there are  a number of reasons why but one of the biggest reasons is the train has to travel through favelas (shantytowns or slums) in some very large cities so it’s speed has to be brought down to a minimum and interruptions are very common.

The state of Minas Gerais is currently the largest iron ore producer in Brazil. The state is also one of Brazil’s most important agribusiness regions. Since 2007 there have been several new major iron-ore projects announced (Anglo American and others) but none of these iron ore giants could afford to build a new railway. Instead, they all opted for building slurry pipelines at almost US$ 1M/km. So even when you look at Brazil’s king of mineral commodities, iron–ore, it’s not economic to build new rail infrastructure and even the federal government will not step in to do so.

Rick: But isn’t Verde Potash positioned in the ideal place, right in the heart of Brazil’s main agriculture sector?

Cris: Yes. Even if Brazil’s infrastructure problems get resolved in a couple of decades you cannot beat our location. We are in the Cerrado region, right in the heart of the main fertilizer distribution channels, without all the logistical headaches of being nearer the coast.

This year Minas Gerais State will have an expected GDP of $70 billion from agribusiness alone. Remember that’s just one state - the state where Verde is located - 60% of that $4.5 billion worth of imported potash comes to Minas Gerais State and its other landlocked neighbor states.

Uberaba, a town in Minas Gerais State, consumes more than half a million tonnes of KCl per year. That is one town, 250 km away from us, that consumes about half billion dollars’ worth of KCl per year.

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