Wake up and smell the . . . opportunity!
BRAZIL i s one of the world’s largest exporters of agricultural products, especially coffee, sugar and soybeans. Over the next five years, almost half of all new agricultural land is expected to be in Brazil, making it one of the fastestgrowing farming economies on the planet.
Most of Brazil’s crops need extra nourishment to flourish. But today, about two thirds of the country’s fertiliser is imported, which is expensive and, at times, unwieldy. The government is keen to change this, with a stated aim of being selfsufficient in fertilisers by 2020.
While this seems unrealistic, the authorities are keen to give it a try, making them highly supportive of locally based producers.
Brazil-based Harvest Minerals is ideally placed to benefit from this. The shares are 17p but brokers believe the price should hit 40p in the next few years, as the firm expands and develops.
The business was founded three years ago by Brian McMaster and Luis Azevedo. An Australian mining entrepreneur, McMaster has spent nearly 20 years in and around the industry, most recently setting up Highfield Resources, an Australian-listed potash firm, now valued at £150 million.
Azevedo, based in Rio de Janeiro, is both a geologist and a lawyer with a 25-year history in the Brazilian mining sector.
The duo have worked together in the past and founded Harvest Minerals specifically to satisfy Brazil’s growing need for domestically-produced fertiliser. The firm has four assets, the most advanced of which, Arapua, is already in production and generating sales.
Based in the state of Minas Gerais, a known agricultural area, Arapua is surrounded by coffee, sugar and soy producers. The location is important, not least because the Arapua product is very different from traditional fertilisers. These tend to be based on potash or phosphates, and are heavily processed, blended with chemicals and delivered in a concentrated form.
The Arapua fertiliser is formed from weathered lava, which is simply crushed, bagged and sold to local farmers. Known as KPfértil, it is completely organic, rich in nutrients and involves no added ingredients. As such, it plays well into the fad for more natural foodstuffs, and farmers say it makes their coffee, sugar and other crops taste better.
KPfértil has other benefits. Most fertilisers are washed away yearly, having little permanent impact on areas where they are applied. KPfértil is released slowly into the soil, improving the quality of the earth over time. The weathered lava on which it is based is easily accessible too, rather than being buried deep underground, like most potash. This accessibility and simple preparation make KPfértil cheap to produce, with total costs of about $8 (£6) a ton. But McMaster can sell the fertiliser at $60 a ton, so the profit margin is substantial and the product is cheaper than imported alternatives.
Harvest only began to sell its fertiliser recently, but initial demand has been encouraging. In March, McMaster signed a 36,000-ton contract with a major distributor of agricultural products, and local farmers are enthusiastic once they understand KPfértil’s benefits.
The group is expected to sell 100,000 tons in the year to July 2019, rising to more than 300,000 tons by 2020. Over time, McMaster is keen to take annual production up to 450,000 tons, confident that local demand will be substantially higher. Nearby coffee producers alone require more than three million tons of fertiliser a year and KPfértil is cheaper and more natural than most alternative products. Importantly for patriotic Brazilians, it is also produced at home.
Having been founded only in 2015, Harvest Minerals is at an early stage of development. The company spent most of 2016 exploring and developing its assets, and most of 2017 gaining independent verification of the Arapua product and testing it on the market. At the same time, the group has applied for government certification of KPfértil, in effect a kitemark, which is expected to be granted in the next few weeks.
Approval was expected in the first quarter and the delay has rattled some investors, sending the shares down from 22p to 17p since March. At this level however, they are a bargain.
Harvest has three other assets in Brazil – two potash mines and one phosphate mine. While these are at a much earlier stage than the Arapua project, initial findings have been positive. Looking ahead, Harvest is likely to continue low-cost exploration work on these sites before selling them in their entirety or finding joint venture partners to take them to commercialisation.
At the same time, McMaster and Azevedo are on the lookout for assets similar to Arapua, as demand for cheap, natural, organic fertiliser is only set to increase.
Midas verdict: Consumers the world over are being encouraged to eat healthier, more natural products and Harvest Minerals plays into that trend, making everyday goods taste better at the same time. The company’s fertiliser is low-cost and high-margin too, so the business should develop into a highly profitable operation. Like most earlystage firms, Harvest Minerals is not without risk, but the shares could prove to be a rewarding punt for adventurous investors, especially at the current 17p price.