Verde Potash scores major funding from Brazilian government

VANCOUVER — It has been just over five years since Verde Potash (TSX: NPK; US-OTC: AMHPF) staked its Cerrado Verde potash project in western Minas Gerais, Brazil, with the goal of meeting the country’s growing fertilizer demand. And on Feb. 18 Verde was rewarded for its efforts with financing from Inova Agro, which is a government program intended to fund innovative projects in the agricultural sector.

Cerrado Verde hosts a large mineral occurrence of potassium silicate rock. Verde has spent the past four years tweaking the science on a new fertilizer product called “ThermoPotash,” which is a controlled-release, non-chloride, multi-nutrient fertilizer ideally suited for Brazilian soils. The company is also looking at producing conventional potassium chloride (KCl) via emerging pyro-metallurgical processes.

Verde’s potassium silicate rock is heated in a rotary kiln along with limestone to produce Thermo-Potash, with the calcium content capable of neutralizing acidities in Brazilian soils.

Brazil’s potash consumption nearly doubled the rest of the world’s consumption over the past decade, and the country is one of the largest global fertilizer consumers, with 8.1 million tonnes imported in 2013. And Brazil still has room to grow, with the United Nations’ Food and Agriculture Organization estimating that the country is only using around 13% of its 4 million sq. km of arable land.

Verde has cleared a number of hurdles over the past six months in its bid to make ThermoPotash a marketable product. The company announced in June that the Brazilian Ministry of Agriculture had approved ThermoPotash for sale after 41 lab tests and 15 field tests, with 12 different crops. In September Verde followed up with results from a 30-month field test that indicated ThermoPotash was more efficient in delivering potassium than KCl, generating an equivalent coffee yield while using 36% of the potash that was applied to the KCl test plots.

In November Verde received approvals for ThermoPotash to be used on organic crops by IBD Certifications, which is a Brazilian company that carries out agricultural, processing, wild harvesting, organic, biodynamic and fair-trade inspection, and certification activities. The market for Brazilian organic products was valued at US$385 million in 2012, and IBD predicts sales growth of 20–25% over the next five years. KCl is not certified for use on organic crops due to higher chloride content.

The culmination of Verde’s work came with its approval for Inova Agro funding. The company submitted a business plan for Cerrado Verde during the final selection round, which involves developing a greenfield 1,000-tonne-per-day plant to produce ThermoPotash.

The company estimates that its first-phase build would cost US$115 million, and has requested US$105 million — or 90% of that total — from the Brazilian government. The capital would be provided via loans with subsidized interest rates, equity investment and non-reimbursable project-investment grants from the Brazilian Development Bank and the Financing Agency for Studies and Projects.

“The selection for the Inova Agro funding is a strong endorsement from the federal government, acknowledging both Verde’s competence to bring the project into production and the importance of the project for Brazil’s long-term agricultural development,”  president and CEO Cristiano Veloso stated in a press release.

Verde originally modelled a US$200 million ThermoPotash–KCl hybrid operation that would have run at 1.1 million tonnes per year. To make project development more affordable, the company has adopted a staged build-out model.

The proposed stage-one, or “flex” plant, would produce ThermoPotash and run the pyro stage of a KCl operation. A pyro-stage operation could obtain performance guarantees for second-phase, large-scale potash production.

In 2010 Verde filed a patent application in the U.K. for producing conventional potash products from potassium silicate ore at Cerrado Verde. The method involves reacting the rock with a simple mixture of salts to form water-soluble potash. The reactions occur at temperatures of 800°C to 1,000°C, with most reagents regenerated in process.

A larger operation could give Verde access to global potash markets, and help the company capitalize on a bulk-tonnage resource at Cerrado Verde that totals 71 million indicated tonnes grading 9.22% potassium oxide (K₂O) and 2.8 billion inferred tonnes averaging 8.91% K₂O. All resource estimates assume a 7.5% K₂O cut-off grade.

The company expects to complete a prefeasibility study on its two-phase development during the first quarter. Verde’s most recent study was a preliminary economic assessment released in February 2012 that modelled a three-stage KCl development that would run at 3 million tonnes per year, and feature US$2.4 billion in capital costs. The proposal carried a US$2.3-billion net present value at a 10% discount rate — along with a 23.7% internal rate of return — over a 30-year mine life.

Verde shares have traded within a 52-week range of 19¢ to $3.06, and have risen 89%, or 46¢ since early February, en route to a 94¢-per-share close at press time. The company reported US$11.5 million in cash at the end of September, and maintains 37.5 million shares outstanding for a $35-million market capitalization.