Brazil Potash taps private equity for $200M

Brazil Potash (NYSE: GRO), aiming to build the largest fertilizer mine in the Amazon rainforest, says it has a preliminary agreement with a private equity firm to fund the project’s electricity needs. 

Fictor Energia would pay the estimated $200 million (C$275 million) in power transmission construction costs and secure long-term energy for the Autazes project, which may supply around 20% of the South American country’s potash demand. The private equity firm would also invest $20 million in Brazil Potash shares for a substantial stake, according to a memorandum of understanding announced this week. 

Fictor Energia would develop, build and operate the 300-megawatt capacity infrastructure by 2029. After 25 years of operation, ownership of the 164-km electrical power line and associated substation is to be transferred to Brazil Potash. 

The deal is important for how Fictor Energia removes a major infrastructure cost from Brazil Potash’s $2.5-billion construction budget and becomes a major shareholder. Potash is becoming increasingly vital as global demand for high-efficiency fertilizers grows. Countries such as the U.S. and Brazil must import nearly all their needs and companies such as BHP (NYSE, LSE, ASX: BHP) at Jansen in Canada and Anglo American (LSE: GLEN) in the UK are pivoting into the material. 

Court challenge

Brazil Potash raised $30 million in an initial public offering last year. However, the project faces a renewed court challenge from government prosecutors to suspend its licence because part of the project is on ancestral lands of the Mura Indigenous people. The state of Amazonas issued the license to build Autazes last year. 

Shares in Brazil Potash gained 28% this week to $1.92 apiece in New York on Wednesday, valuing the company at $73 million. They’ve traded in a 52-week range of $1.25 to $15. 

Fictor’s equity investment is to be in two tranches: $2 million upon signing of a definitive partnership; and $18 million upon receipt of the power line installation licence. At the current stock price with 38.4 million shares outstanding, that would be a 27% stake. 

Fictor Energia is to immediately start preliminary engineering and regulatory processes as the companies finalize a definitive agreement. The proposed mine and processing facilities in Autazes, 120 kms southeast of the Amazonas state capital Manaus, would require about three years to build, the company has said. 

Brazil Potash is hosting a conference call at 4:30 p.m. ET Monday to discuss the investment. 

With files from Amanda Stutt.