SOURCE: VantageWire.com -- As the drive for increased agricultural production continues to surge in Brazil, so has demand for fertilizers. Along with this growth, interest in companies operating in Brazil that are focused on domestically produced fertilizers has increased substantially.
Two Canadian companies with very disparate market caps remain on the ground in Brazil working towards catering those growing needs; MbAC Fertilizer Corp. [MBC:CA], and Eagle Star Minerals Corp.[EGE:CA]. A third company with the same business focus, Rio Verde Minerals Development Inc. [RVD:CA] has recently been acquired by B&A Mineração S.A. (“B&A”). The details of that acquisition show that stock market valuations for these types of companies are far below what investors are valuing them in the real world.
MbAC is embroiled in building up production facilities on its Itafos Project, to beneficiate lower grade Phosphated siltstone to SSP level. A mere 10km to the north, Eagle Star has discovered higher-grade mineralization that could be transformed into direct application fertilizer without the need for concentration at a very low cap-ex, and within a short timeline to production.
RECENT DEVELOPMENTS FROM BOMFIM
Located in the state of Tocantins, one state over from where its two other agromineral projects – Ruth and Samba are located, Eagle Star’s Bomfim Project is now the company’s flagship. Nestled amongst the extremely large agricultural districts of West Bahia and NE Goiás, the Bomfim project could become a godsend for farmers in the area who rely heavily on fertilizer use to compensate for the insufficient levels of nutrients found in the soil of the gigantic Cerrado agricultural region they sow.
In the world of agrominerals, having certain grades of phosphate gives you the luxury of being able to sell various products as direct application fertilizer. This means that if the composition of minerals in the rock is optimal then very little processing is needed to bring the product to market. Since last fall, the Bomfim property has put Eagle Star on the radar of investors across the globe after the company announced it has intersected sizable mineralization of high-grade phosphate over an area of 550,000 sq. meters with consistent repeatability while remaining open in all directions.
The first pit, a 5m interval discovered in late November, returned a very high-grade level of P2O5 that if converted into natural fertilizer would yield at a very low cost a high margin product
Over the next couple of months, evidence gathered from continuous pit opening helped expand the high-grade phosphate mineralized zone. With most recent results published during mid-January, Pit-09 returned 17.75% P2O5 over a 4 meter intersection (open at depth), and Pit-10 returned 1m of 14.33% P2O5 (again, open at depth). High-grade mineralization now appears to cover in length a 1.5km strike over an average width of 400 meters.
Eagle Star will most likely continue to dig pits as they work towards their NI 43-101 resource report. Each pit to date has intersected mineralization at or close to surface making future extraction very attractive from an economic point of view. In addition, it should be noted that the team limits the depth of pit opening to around 5 meters (a safety precaution) where mineralization is still open in depth; hence there is plenty of blue sky beneath, that could increase the resource quite significantly.
So far much of the development across the 30,922-hectares‘ claims has focused on the eastern portion of the Bomfim Hill. The company’s technical team is convinced that they have just begun to scratch the surface in terms of potential as they have identified additional 5 targets to the north, east and west of Bomfim Hill which share the same high-grade outcropping characteristics.
THE RIO VERDE CASE STUDY
Back in December 2012, Rio Verde has released the news that it was being taken over by B&A, for approximately $48.6 million. A deal that looked much like a hostile takeover, had involved a resource of 1.9 million tons of phosphate at an average grade of 19%. This has later been regarded as a bargain for the soon to be mining giant B&A Mineração S.A.
Currently, Eagle Star is sitting at a valuation of ~$20 million, with a phosphate deposit capable of being at least three times the size of Rio Verde’s on just a small portion of its eastern claims. Opening up the west, east and the north of the property could possibly add more to the volume of the project, as a larger resource gets compiled.
The buyer in the Rio Verde deal, B&A, has been very active in the past six months with acquisitions taking place predominantly in the fertilizers’ space. Led by former Vale Chairman, Roger Agnelli, B&A has teamed with a large Brazilian investment bank with roughly $500 million slotted to invest over the next few years in both fertilizers and iron ore. We believe that with a vested stake in 20% of their neighbor MbAC Fertilizer’s Itafos mine, Eagle Star and its high-grade discovery, is presenting a compelling investment case that will be tough to ignore in the long run.
As for the analysts that were covering Rio Verde prior to the takeover, Eagle Star is a natural progression to move on to. With Rio Verde now completely taken over, Eagle Star stands alone as the only public entity solely focused on phosphate in Brazil that is still in an early enough stage to offer significant upside potential.
PRODUCTION TO THE NORTH
When MbAC first purchased its Itafos project for $35 million, they proved that production of high-grade phosphate as natural fertilizer could be quickly achieved at a very low cost. Even with moderate production numbers (around 90,000 tons produced over a period of two years) MbAC managed to gross over $9 million which was later utilized to fund exploration work. Furthermore, and even more interesting from the Eagle Star perspective, is that MbAC who has since ceased production of this material has left a void in the local market desperate for additional supply.
Now at Itafos, approximately 60 million tons of phosphate silstone, at an average grade of 5% P2O5 are planned to be concentrated to the standard SSP grade by way of a costly beneficiation process. At Bomfim on the other hand, Eagle Star plans to focus initially on the natural fertilizer route whereby its sizable discovery of high grade phosphorite will be transformed to a product that will be sold locally at a very high margin by way of a simple production process consisting of crushing high grade phosphorite followed by washing, blending and bagging.
THE BOTTOM LINE
Early indications from Eagle Star’s work show that the company has discovered a sizeable amount of high-grade phosphorite in the east zone of Bomfim Hill. Because this is not typical to Brazil, Bomfim stands out amongst its peers.
With this discovery, Eagle Star is now in a position to control its own destiny. Following MbAC’s successful production model, Eagle Star with significant volume of high-grade phosphorite in hand can swiftly and cheaply become an important producer of natural, direct application fertilizers, catering an already existing and growing marketplace.
The investment required to put a project such as this into production is quite small. It’s not unreasonable to estimate a few million dollars could pave the way for a production facility capable of producing 100,000 to 150,000 tons per year. That kind of production could generate gross revenues of $10-$15 million per year through a very simple operation that should extend over a mine life of many years.
Better still, if Eagle Star can garner the attention of MbAC or B&A, who are still out there with sufficient capital to make large acquisitions, a takeover is also a likely scenario. Whatever the outcome of Eagle Star might be (production or a takeover target), given the $48.6 million price tag paid for Rio Verde, it is clear that there is a lot of value yet to be uncovered.
G. Joel Chury
for the Bottom Line Report
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