Demand for fertilizer products is increasing, and more and more people are getting interested in Phosphate (P2O5) as well. As DuSolo Fertilizers (DSF.V) is sitting on a very near-term production asset in Brazil, we discussed the company’s future development plans with CEO Eran Friedlander.
– Can you give us some more background information about the Bomfim project? What are your near-term development plans? What’s the current resource estimate?
The Bomfim Project resides along Brazil’s Phosphate belt, one of the most sought after areas for phosphate exploration. The project neighbors MBAC Fertilizer’s (MBC.TO) SSP mine with other majors exploring in close proximity including Vale (NYSE:VALE) and Votorantim.
Most recently DuSolo released its maiden resource estimate for Bomfim that includes a significant tonnage of high-grade phosphate with an average grade 3X higher than the ore currently being fed to MBAC’s SSP plant. The estimate includes an inferred resource of 18.2Mt @ 6.32% P2O5 and a measured and indicated resource of .463Mt @ 11.88% P2O5 using a cutoff grade of 3% P2O5. Using a cutoff of 8%, the inferred resource is estimated at 4.1Mt @ 14.42% P2O5 and an M&I resource at .316Mt @ 15.09% P2O5.
This Initial Resource Estimate was based on drill results from small portions on 3 out of 10 targets identified thus far. Based on field evidence, (detailed mapping, sampling, trenching and pit opening) our technical team believes this resource represents a very small portion of the potential at Bomfim.
In terms of our near term development plans, our team is very eager to get back drilling to expand our current resource but we’re trying to do this in the least dilutive way possible. Hence the strategy of producing Direct Application Natural Fertilizer (“DANF”) for our first stage of production from the high-grade zones we have already proven to have on the property. Our team is busy working towards securing the necessary equipment and permits for this operation along with orders from the local agricultural centers surrounding Bomfim.
– Can you elaborate a bit more about the DANF-product, and what your expected operating margins are for this product?
Based on the past experiences of MBAC which produced this DANF product for almost three years we have a really good idea of what to expect in terms of the costs moving forward. At the end of the day we plan to produce three separate DANF products, a 12% P2O5, a 15% P2O5 and a 18% P2O5 and all three will obviously fetch different prices in the marketplace but we are looking at an average price of approximately $90/t (which is depending on the USD/BRL exchange rate). We anticipate our cost of mining and processing will land around $35/t and because these farms and agricultural centers pick up the product at the processing facility we don’t have to account for transportation costs to the end client which translates to hefty profit margins and ultimately a very good business opportunity for us and our shareholders.
– After you will start your small-scale production later this year, how do you see your output (and margins) evolve over time?
Stage 1 of production is a stepping-stone that will allow us to further develop the Bomfim Project in the most non-dilutive way possible. As a result, the license we have applied for is an extension of our exploration license and allows us to extract, process and sell up to 100,000 tonnes of material per year. We anticipate operating under this license and processing the maximum material allowable over the next two years and in tandem apply for a full-scale mining license that would enable us to not only continuing ramping up production of DANF but also give us the flexibility to execute our Stage 2 production plans, which ultimately is the main goal of the company.
– Can you elaborate on the Company’s plans for Stage 2? What is the timing on this?
Stage 2 entails the production of a premium fertilizer product such as SSP/TSP/Thermal Phosphate/MAP/DAP or Phosrock. Since these products are used on a larger scale within Brazil and fetch higher prices, DuSolo would be able to cater to a larger and financially more attractive marketplace. The company is now investigating the economics behind production of these fertilizer products in order to determine the optimal product to move forward with.
– Can you tell us something more about the background of the people on the ground in Brazil?
We believe we have assembled one of the best phosphate teams in Brazil. Dr. Eloi Campos, the Head Professor of Geology at the University of Brasilia has played and continues to play a large role as to our involvement in the Bomfim project. He is recognized as the top phosphate expert in Brazil and was responsible for developing the genetic model that was used to discover the Itafos SSP mine owned by MBAC Fertilizers. In addition we were able to leverage on the experience gained by MBAC through recruiting three ex-senior level managers. Tiago Pereira is a mining engineer and was responsible for operating MBAC’s DANF facility at the time. Edvaldo Guimaraes headed MBAC’s DANF sales team and has long standing relationships with the end users that used to buy this product from MBAC. Finally, Prof. Paulo Amorim is an extremely experienced field geologist having spent 22 years with Vale and most recently was responsible for carrying out the exploration program for both MBAC Fertilizers and Rio Verde Minerals Development (which was bought out by B&A Mineracao in 2012). We believe this combination of experience will prove instrumental to our future development at Bomfim.
– You have recently raised C$3M in a private placement, which tackled the working capital deficit. What’s your current working capital position, and how far will this take you?
We recently closed this financing with the bulk of it coming from M&G Investments out of London. We currently sit with approximately $2,000,000 in the treasury which should take us into our first stage of production. Once we are in production, we don’t anticipate having to raise any more money unless we could do so at a significant premium to the current share price. We are also looking into different alternatives to raise capital by way of applying for cheap debt facilities available in Brazil to finance our 2nd stage of development.
Disclosure: The author currently holds no position in DuSolo Fertilizers. Please see our disclaimer for current positions.
