3 Reasons to Put Harvest Minerals on your Watchlist

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3 Reasons to Put Harvest Minerals on your Watchlist

The content of this podcast (or content associated with it) is not intended as investment advice. Please do you own research.

Harvest Minerals (HMI)
Share Price: 13.125p
Market Cap: 15.3m

Harvest Minerals (HMI) is a potash and phosphate(fertilizer) exploration and development company with projects located in Brazil.

The Company is listed on the London Stock Exchange’s AIM market and is the only UK quoted company with exposure to Brazilian potash and phosphate.

3 Reasons to Put Harvest Minerals on your Watchlist:

 

The Group has four principal fertilizer projects:

The Sergi Potash Project
The Capela Potash Project
The Arapua Fertilizer Project
The Mandacaru Phosphate Project

The main focus of the company currently is the Arpaua Fertilizer Project.

The Arapua Fertilizer Project

On 27 the February 2017, they released the results of an updated independent Mineral Resource estimate.

Highlights

· 37% increase in the high grade JORC (2012) Indicated Resource increased to 1.21Mt.

· Exploration target extended to a JORC (2012) Indicated and Inferred Resource of 13.07Mt.

· Total resource based on drilling covering just 6.7% of known mineralization. The exploration potential remains open at depth and in several directions.

HMI intend to ramp up production to 400,000 – 500,000 tonnes worth of sales every year, over the next 3 – 5 years.

It’s still at an early stage but in December 2016 they signed a letter of intention (LOI) with Veloso Agropecuária Empreendimentos E Participações Ltd, one of the largest coffee producers in the region, around Arapua and a supplier of coffee beans to several international coffee producers.

This LOI is to supply up to 45kt during 2017 at an expected price of BRL200 per tonne (approximately US$60 based on today’s exchange rate).

HMI’s all in cost of producing this fertilizer is around $7.34 per tonne, so based on a sale price of $60, this is $52.66 profit per tonne. For simplicity sake, let call it $50.

$50 x 400,000 tonnes = $20m profit per year.
$50 x 500,000 tonnes = $25m profit per year.

Based on these earnings, if we use a price earnings ratio of 10 then HMI’s market cap would be:

$200m (£162m) for 400,000 tonnes of sales.
$250m (£203m) for 500,000 tonnes of sales.

Currently their market cap is £15.3m.

Based on the above, HMI has ten bagger potential. This is based on a mine life close to 30 years and on less than 10% of their resources at the Arapua Project.

They also have 3 other major fertilizer projects.

Near Term

The figures above, are the company’s goal over the next 3-5 years but this year could see them supplying their 45,000 tonnes to coffee producer, Veloso, which could earn them $2.25m profit.

What’s important to note is that this project has a low initial capital expenditure of US$800k for their own equipment. In their half year report for the 6 months ended 31st December 2016 they had $1.55m cash in the bank.

They also stated in their updated independent mineral resource estimate on 27 the February 2017, that, “This progress has seen the Company expend the majority of the capital expenditure required for the Project. The remaining substantial costs relate to the operating costs associated with contracting mining and sales. It is expected that any ongoing OPEX costs will be covered from the sale of KP Fertil product. The Company has sufficient cash resources to continue with trial mining and to meet general working capital requirements in the normal course of operations”.

So one would assume that no further funds will be needed, in order, to generate short term cash flow from the sale of 45kt to the coffee producer.

 

The Arapua Fertiliser Project is located in the State of Minas Gerais, approximately 400 kilometres south east of the Brazilian capital city Brasilia and within one of the major agro-industrial centers of Brazil.

Crops Exports from Brazil are predicted to double by 2024.

Agriculture is a key growth industry, but they’re lacking fertilisers to maximise yields.

The use of fertilisers increased by 12% from 29.25 to 32.21mtpa between 2012-14 but domestic production fell -9% and yet the government aims to be self-sufficient in fertilisers by 2020.

Brazil is the largest potash importer and the third largest potash consumer in the world.

90% of potash imported and the rest is produced by Vale on adjacent block to Capela Potash Project.

 


The Management team have both Brazilian and potash experience.

Brian McMaster – Executive Chairman

Brian McMaster has almost 20 years’ experience in the area of corporate reconstruction and turnaround and performance improvement and 20 years in the mining industry.

Mr. McMaster’s experience includes founding Highfield Resources (A$346.18M), an ASX listed potash company with projects in Spain as well as numerous reorganisations and the recapitalisation and listing of 12 Australian companies.

Mr. McMaster’s career to date includes significant working periods in the United States, South America, Asia and India. Mr McMaster was a founding director in venture capital and advisory firm, Garrison Capital Pty Ltd, and is also currently a director of a number of ASX listed companies.

To listen to my recent interview with Brian, click here.

Matthew Wood  – Executive Director

Mr. Wood has 20 years of experience in the resource sector with both major and junior resource companies and has extensive experience in the technical and economic evaluation of resource projects throughout the world.

Mr. Wood’s expertise is in project identification, negotiation, acquisition and corporate development. Mr. Wood holds an honours degree in geology from the University of New South Wales in Australia and a graduate certificate in mineral economics from the Western Australian School of Mines.

Garrison Capital run by Brian McMaster and Matt Wood, has successfully founded and launced 22 ASX listed resource companies and continues to develop new projects across a range of commodities.

Among Garrison Capital’s Successes Are:

Highfield Resources: A US$346 million potash company with assets in Spain (one of the biggest shareholders is Owen Hegarty’s EMR Capital).

 

Hunnu Coal: Which won successively IPO of the year and Mines & Money deal of the year, before being taken over for nearly A$500 million.

Avanco Resources: On the 20th February 2017 it was included in a Mining.com article entitled: The World’s Top 10 Highest-Grade Copper Mines and is now worth $319m.

Harvest Minerals is run by a well connected management team who have a successful track record of taking projects and building value. Their projects in Brazil are shaping up to follow suit.

They have the potential to generate near term cash flow, from their Arapua Project, intially selling 45Kt to an exisiting customer, which will help fund the ramp up to 400kt – 500kt, over the next 3-5 years.

Cash flow generated at Arapua, is in itself compelling but, will also enable them to develop their other 3 projects in Brazil.

The current share price is also at an interesting level, recently falling to a 6 months low of 11.1p, after hitting 23.6p in August 2016.

I can’t quite put my finger on the reason for the fall but it may have something to do with, a major shareholder, Miton UK Microcap Trust, reducing their holding from over 7% to below 5%. This meant the share price was oversold on the relative strength index up until Friday, when it experienced a jump of 16.67% to 13.125p.

Even with this rise, on Friday, the shares still look oversold and should be due a bounce back towards their August highs, when HMI’s projects were less advanced, than they are now.

The content of this podcast (or content associated with it) is not intended as investment advice. Please do you own research.

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