Tuning into PhosRock as new players (V.DAN) (T.ST) seek project financing

Peter Kennedy Peter Kennedy, Stockhouse
0 Comments| May 21, 2014


In spite of ominous forecasts about supply disruptions, 2014 has not been kind to investors in companies engaged in the development of North American phosphate projects.

That includes the likes of Windermere Capital, a Montreal-based investment management firm, which owns 20 percent of Arianne Phosphate Inc.  (TSX: V.DANStock Forum) and a small stake in Stonegate Agricom Ltd. (TSX: T.STStock Forum).

Shares in those companies have been hit hard even though they are developing phosphate rock projects that would seem to make them potential takeover targets for companies looking to secure a stable supply of the fertilizer ingredient in so-called safe jurisdictions in Canada and the U.S.



Industry officials say investors are tuning out of PhosRock stocks in part because exchange rate problems have prompted India to impose import restrictions that helped to send the price of potash and phosphate plunging.

Standard grade PhosRock concentrate available for shipping from Morocco fell to between US$115 and US$130 per tonne from around the US$160 level in May 2013.

In the same period, the price of Diammonium phosphate -- an industrial mineral that is produced from PhosRock and sold directly to farmers -- dropped to US$450 per tonne, from a high of US$490.

Prices have slipped even after warnings about supply disruptions, which were driven in part by the fact that the majority of global phosphate rock reserves are located in Morocco.

Two years ago, the Hague Centre for Strategic Studies warned about potential shortages in the European Union in a paper titled “Risks and Opportunities in the Global Phosphate Rock Market.”

The paper explained that this is in part because Europe possesses only limited domestic phosphate rock reserves and EU imports come mainly from Russia and countries in the Middle East and North Africa.

“It takes many years to prepare new reserves for active mining, which means that increases in supply lag far behind increases in the price,” the Hague Centre study said.

But falling equity values are putting added pressure on companies with new projects in the pipeline.

As it works to find a partner for a Quebec PhosRock project that is expected to cost $1.2 billion to develop, Arianne has seen its stock price fall from a high of $1.69 to $1.06 this week, leaving the company with a market cap of $92.3 million, based on 87.1 million shares outstanding.

With Proven and probable reserves currently stand at 472.1 million tonnes at an average grade of 6.9% p205 phosphorous pentoxide, Arianne’s Lac a Paul project is expected to produce three million tonnes of phosphate annually, the company has said.

For its part, Stonegate is attempting to secure financing and permits for its Paris Hills phosphate project in Bear Lake, Idaho after completing a feasibility study for a $121 million underground mine.

Production is forecast at an average of 904,000 tonnes annually over a 19-year mine life.

Still, while announcing that it has retained investment bank Macquarie to take the lead role in arranging an equipment leasing facility for up to US$60 million, Stonegate has seen its stock price fall to 14.5 cents from a 52-week high of just under 50 cents.

Arianne Chief Executive Officer Brian Kenny told Reuters News Service recently the company  has signed several confidentiality agreements with potential partners and is open to selling the company. 

Agrium Inc. (TSX: T.AGUStock Forum) “would be a very good partner,’’ Kenny said, while declining to comment on the stage of discussions with potential partners.

Michael Goldberg told The Northern Miner newspaper in September 2012 that Mosaic Co. (NYSE: MOS,Stock Forum) would be the company most likely to launch a takeover bid for Adrienne.

But as Arianne waits at the altar, Kenny said company officials are focused on activities that they can control.
“As management, we can’t sit around on our hands waiting to be taken over,’’ Kenny told Stockhouse in an interview last week.

“So we are pushing ahead very strongly with the development of this project,’’ he said.

“We are still drilling the project. We have a 38-year potential mine life. We would like to get it up to 50. The bigger the resource, the longer the mine life, the more interesting it is to a partner.”
 
Other companies in the sector include Focus Ventures Ltd. (TSX: V.FCV, Stock Forum), which is working to working to outline an initial resources estimate at its Bayovar 12 phosphate project near Piura, northern Peru.

Trading at 28.5 cents this week, Focus has a market cap of $16.9 million, based on 59.4 million shares outstanding. The 52-week range is 35 cents and 6 cents.

Great Quest Metals Ltd. (TSX: V.GQ, Stock Forum) recently released a positive results from field work, including bulk sampling, at its Tilemsi Phosphate project in Mali, West Africa.

Trading at $1.38 this week, Great Quest has a market cap of $67.5 million, based on 48.9 million shares outstanding. The 52-week range for the stock is $2.54 and 53 cents.

Quia Resources Inc. (TSX: V.QIA, Stock Forum) released an update on its progress at the Murdock Mountain phosphate project in Nevada.  The company said it is hoping to secure drilling permits that will allow it to outline a resource later this year.

Trading at $0.005 this week, Quia has a market cap of $908,360, based on 181.7 million shares outstanding. The 52-week range is 1.5 cents and $0.005.

MBAC Fertilizer Corp. (TSX: T.MBC, Stock Forum) recently announced the completion of a $20.7 million equity financing. The company is focused on becoming an integrated producer of phosphate fertilizers and related products in Brazilian and Latin American markets.

Trading this week at 55 cents, MBAC has a market cap of $100 million, based on 181.6 million shares outstanding. The 52-week range is $2.48 and 44.5 cents.

Tags: INDUSTRIAL METALS & MINERALS AGRICULTURAL INPUTS AGRICULTURE

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