In what could be seen as a surprise, DuSolo Fertilizers (DSF.V) has received a C$750,000 bridge loan facility from major shareholder Tembo Capital. This was a little bit surprising as we would have expected the company to be breaking even by now considering CEO Friedlander said he expected the operating costs to be approximately $35/t (click HERE to read our Q&A with Eran Friedlander) resulting in an expected operating margin of $30-40/t.
As DuSolo has signed contracts to sell 81,000 tonnes of DANF for a total revenue of C$8.5M, we were hoping the company wouldn’t need any additional financing this year. DuSolo cites the rainy season and delayed government subsidies as the main reason for its temporary cash crunch, but even though both explanations are correct, it’s surprising to see the revenue is coming in lower than anticipated despite having locked in 81% of its expected 2015 production at fixed prices.
We’re looking forward to see an updated balance sheet from DuSolo Fertilizers and would expect the temporary hiccup to be reflected in a higher inventory value and higher amount of accounts receivable. The fact the bridge loan has a term of just 3 months strengthens our thought this might just be a temporary issue.
Meanwhile, all resolutions have been passed at the company’s annual general meeting (as expected) but we couldn’t help noticing CEO Eran Friedlander got a very handsome 35% base salary increase last year and earned in excess of C$25,000 per month in 2014. Quality needs to be paid for, but in this case it might have been a better idea to wait with salary increases until the Bonfim project is continuously generating a positive operating cash flow to support the salary increase.
> Click here to go to DuSolo’s website
Disclosure: The author holds a long position in DuSolo Fertilizers. Please see our disclaimer for current positions.
