Volatility and bear markets appear to continue unabated for most metals, and are emphasized in the share price prints of metal miners. The present report is about a mining stock for those seeking some relative calm in otherwise turbulent markets. It is about a mining stock that is as much part of the mining sector as it belongs to the agricultural sector and should be less volatile compared to (precious) metals companies.
Focus Ventures (FCV.V) is a junior exploration and development company earning into the Bayovar 12 phosphate project in northern Peru, and the release of a PEA later this year for this potentially world class project has great potential to provide tailwinds for the second half of the year. The Bayovar 12 project is located near the coast in an arid and sparsely populated part of the country, and close to several other large operating phosphate mines. Focus Ventures has purchased a 70% stake in the project, and needs to complete a PFS by the end of the year in order to avoid penalty payments. Focus has also agreed to spend a total of $14M on development in exchange for the outright acquisition of 70% of the project.
About phosphate
Three macronutrients are deemed absolutely essential to promote growth of plants, phosphorus is one of these three minerals (nitrogen and potassium are the other two), and consequently practically all modern fertilizers rely heavily on phosphate as the natural source of phosphorus.
There is no substitute for phosphate, recycling is impractical and demand is continuously growing – after all, a growing number of people need food; food that has to be grown on shrinking land available for agriculture. And not only are plants grown for food these days, rising competition for the production of food arises from plants grown to serve as a basis for the production of bio-fuel.
As with many other commodities, China is the largest phosphate producer but it only controls about 6% of reserves worldwide, indicating the country will have to become a major net importer one day. Essentially all of its production is used domestically.
Morocco and the USA are in shared second place in terms of phosphate production, but Morocco has about three quarters of world phosphate reserves. Unfortunately, the lion share of these reserves is located on the occupied territories of Western Sahara exposing these reserves to high country risk, and ethical debate. It is for this reason that phosphate sources outside of Morocco are highly sought after as end-users of phosphate rock want to make sure their supply chain is based on long-term contracts with reliable and stable partners.
Focus Ventures enjoys the advantage of being geographically close to one of the fastest growing markets for phosphate, namely Brazil, and is targeting its marketing efforts accordingly.
Phosphate is a bulk commodity and sufficient infrastructure is paramount to get a phosphate project off the ground; and fortunately Focus Ventures is blessed in this regard. Road access is available, and a power line also passes through the company’s land holdings. Of crucial importance, however, is the company’s access to a nearby port facility which is owned by its 30% minority partner in the Bayovar 12 JV, a very fortunate set of circumstances indeed. This means that shipping costs from the local port to anywhere in South America are currently under $20/t.
The Bayovar 12 project should be very easy to mine
Mining the Bayovar phosphate deposit will be an exceedingly simple exercise. The mineralised layers are free digging, very uniform, extremely predictable and with a horizontal orientation of good thickness. The most recent resource estimate reported 114.99M (dry) tonnes at a grade of 12.37% P2O5 in the indicated category, and 73.36M tonnes at a similar grade in the inferred category. This is already a very respectable size, and once results from the Phase 2 drilling program are incorporated into the data base the size of the resource will almost certainly increase further, along with conversion of existing inferred resources to a higher confidence category. We wouldn’t be surprised to see the total resources increase to in excess of 300 million tonnes on the back of the new drill program.
Focus Ventures has been targeting the Eastern portion of the Bayovar 12 deposit, looking for resource growth in this particular area with the least cover. In fact, drilling for the Phase 2 program has been completed now, and first assays have already been reported making the above resource growth prediction a near certainty. The grades reported for the first nine holes of the Phase 2 program are actually even better than the current resource grade, and drilling to date has outlined phosphate mineralisation over an area of roughly 8 by 5 square kilometres.
The intersected sequence is consistent throughout all holes indicating uniformity across the known deposit and a highly favourable lack of faults or structures affecting the individual beds. This is exactly what we were hoping to see at Bayovar 12. This seems to be shaping up as one of the easiest deposits to mine, and this should result in superior economics.
The different potential scenarios at Bayovar 12
A typical phosphate mining operation will wet process ore into a concentrate and sell the product mostly to fertilizer producers. This process is simple and straight forward and involves separation of fine and coarser fractions, cleaning out any clay content, followed by washing and flotation.
No milling or grinding is required in the case of Bayovar 12, and the resulting concentrate should double in grade to around 29%. Encouraging results have been received from metallurgical studies reporting low MgO and Fe content which in turn ensures a high-quality product suitable for manufacture of phosphoric acid and related fertilizer products, the predominant use of phosphate globally. In the case of Bayovar 12 a plant in the range of 300,000 to 1M tons per year is conceivable, presumably with options to expand operations once cash flow is ensured. The imminent PEA will give a firmer indication on the path pursued by Focus Ventures, and will presumably paint a firmer picture for potential JV or off-take partners.
Additionally, Focus Ventures has another ace up its sleeve when it comes to processing options for its phosphate.
Ore from the high-grade top layers of the Bayovar 12 deposit has some rare properties, and it appears that this ore is suitable for use as Direct Application Phosphate Rock, or DAPR for short. Ore of this kind, to be commercially saleable, must contain a mineral called apatite, and the apatite must be a very specific type that’s low in the element fluorine making it easily dissolved in slightly acid soils.
DAPR can be applied directly on agricultural ground where the phosphate contained in the ore is released slowly and consistently. If no chemical procedure is involved in mining and processing the DAPR it qualifies as organic material and attracts a price premium over other phosphate products.
A bulk sample was collected as part of the mentioned Phase 2 drilling program and an engineering study has been commissioned in parallel with the ongoing work for the PEA to verify the suitability of Bayovar 12 ore for use as DAPR. Chances for a favourable outcome are very high, considering the nearby Fosyeiki mine which produces DAPR from an extension of the same deposit. Fosyeiki have been selling their DAPR for about $170/t into Central America. Focus Ventures is targeting the high-grade top layers at Bayovar 12 for production of organic DAPR, potentially adding significant value to this project.
The ore from the suitable top layers could be simply dug up, bagged after minimal and inexpensive mechanical upgrading, and sold at a hefty premium to a fast growing local South American market. Producing DAPR requires comparatively little capex, and is easier to permit – and should therefore allow the company to generate cash flow earlier.
As we are unsure about the economics of a larger wet concentrate plant, we hope Focus Ventures will focus on the DAPR-potential of the Bayovar 12 zone. The capex should remain limited and the operating margins per tonne could actually be higher due to the organic nature of the production process which commands a premium price. Similar operations have been put into production in Brazil for as little as $20-30M – a low cost compared to today’s world of mega-expensive copper and gold mines.
The management team
David Cass
President & Director
Mr. Cass is a geologist with over 25 years’ international experience in mineral exploration and mining for precious and base metals. Fifteen years of his career were spent with major mining company Anglo American plc, where he held positions of increasing responsibility in jurisdictions such as Turkey, Iran, Eastern Europe and the America’s, including 4 years as Senior Geologist in Peru, and 6 years as Exploration Manager for North America where he was responsible for Anglo’s exploration programs throughout Canada, Central America, Mexico, mainland USA and Alaska. Since 2006, Mr. Cass has worked for junior exploration companies exploring in Canada, Mexico, Central America and Peru.
Simon Ridgway
Chairman & CEO
Mr. Ridgway is a prospector, a mining financier and a Casey Research Explorer’s League inductee. Grass roots exploration has provided him with a successful career as a prospector since starting out in the Yukon Territory in the late 70s. Simon and the exploration teams under his guidance have discovered gold deposits in Honduras, Guatemala, Nicaragua and continue that success globally. Companies operating under the Gold Group banner have raised over $400 million for exploration and development projects since 2003. Simon is a founder and the Chairman of Fortuna Silver Mines, and founder and CEO of Radius Gold, Medgold Resources and Focus Ventures.
Ralph Rushton
Vice President of Corporate Development & Director
Ralph holds a B.Sc. in geology from Portsmouth University in the UK, a Master’s degree in economic geology from the University of Alberta, and a Certificate in Business Communications from Simon Fraser University. He has over 25 years’ experience in mining and exploration, much of which was gained working as a geologist in Southern Africa, the Middle East and Eastern Europe. For the last 11 years he has worked in business development and investor relations for a number of junior companies and currently serves as a director on the boards of Medgold Resources and Rackla Metals, as well as Focus Ventures.
The recent financing topped up the cash position
The company has just finished a C$4M financing at C$0.20 per unit, and shares continue to trade above this level, roughly at the annual mid-range of C$0.16 to C$0.30. At 98M shares outstanding the current share price translates into a market capitalisation of about C$21.5M. Insiders have plenty of skin in the game owning 13.1% of the outstanding shares (16% fully diluted) and also of note is a 12% stake that Sprott Resources has subscribed to.
It’s also refreshing to see CEO Simon Ridgway has been purchasing a lot of shares on the open market. According to Canadianinsider.com, Ridgway has purchased hundreds of thousands shares on the open market in 2015, and that’s a great vote of confidence for this company and its phosphate project.
Conclusion
With this two-pronged approach towards production being actively pursued, drill results pending, a PEA in the making, and the DAPR potential being studied there will be no shortage of news flowing from Focus Venture going forward.
The second half of the year will add clarity, and perhaps plenty of value to this promising company. To some investors this may well sound like the perfect antidote to the otherwise volatile junior mining market. We are looking forward to see the results of the PEA and also hope to see some more details about the potential production of Direct Application Phosphate Rock.
Disclosure: Focus Ventures is a sponsoring company, we hold shares. Please see our disclaimer for current positions.
