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 People Tree for Verde Agritech Ltd
    Publisher: Kaiser Research Online
    Author: Copyright 2022 John A. Kaiser

 

People Tree for Verde Agritech Ltd (NPK-T)
Verde Agritech Ltd (NPK-T) RSWeb SiteTreeForumSEDARQuoteFREE
Issued
52,234,844
Price
$6.14
Working Capital
$8,891,000
Story Type
Producer
Diluted
54,270,158
Insiders
19.1%
As of
6/30/2022
Key People
Cristiano Veloso (CEO), Felipe B. Paolucci (CFO),
SV Rating: Good Spec Value - Favorite - as of December 31, 2020: Verde Agritech Inc is a Good Spec Value rated Favorite because the junior controls a multi-billion tonne resource of a potassium silicate in Brazil which it is turning into an alternative to conventional potassium chloride for the Brazilian agricultural sector under the brand name Super GreenSand. The greenish rock, called "verdete slate" in Brazil and glauconite in technical circles, runs 9%-11% K2O compared to the 20%-30% K2O that the sylvite from evaporite beds in Saskatchewan runs. Sylvite is a combination of potassium chloride and ordinary salt which gets chemically upgraded to potassium chloride (KCl - 60%-65% K2O), the main fertilizer form applied to crops around the world. Its disadvantage is that crops to which it is applied do not qualify as organic and its salt nature makes it unusable for some crops. Its solubility poses an extra problem in Brazil where a good part of applied KCl disappears as runoff due to torrential rains during the main growing season which runs from November through May. Gluaconite's problem is that as a silicate the potassium is mineralogically locked up and not soluble. The verdete slate formation, which is up to 500 m thick and has a 120 km trend whose blue-green trace is visible from Google Earth, was recognized during the seventies when a process called ThermoPotash was developed to heat treat the material in a rotary kiln which made K2O available for crop uptake. ThermoPotash was a whole rock product that could be supplemented with other fertilizer ingredients such as limestone, but the physical volume that needed to be applied was 5-6 times the weight of KCl. ThermoPotash was never commercialized because its treatment cost could not compete against $100/t KCl, so the verdete slate was abandoned. But in 2008 when a supply squeeze pushed KCl to $1,000/t Cris Veloso, the Brazilian head of a junior that had just gone public to explore for gold in Brazil, staked the entire formation on behalf of the junior and proceeded to revive ThermoPotash as a possible solution to Brazil's 90% potash import dependency. NPK focused on a ThermoPotash PEA in 2009-2010, but in late 2010 shifted its focus to a breakthrough process developed at Cambridge that could convert the verdete slate into conventional KCl. The KCl PEA delivered in Q1 of 2012 showed promise and NPK worked on a feasibility study delivered in H1 of 2013 which proved not to be bankable because the equipment scale required200 tpd pilot plant studies. By then potash prices had dropped below $300/t at which price the Cambridge Process was no longer viable and the stock price crashed. NPK returned to the ThermoPotash plan to market the fertilizer for organic crops and those that could not handle KCl. Throughout this period NPK had run agronomic studies on different crops which demonstrated that ThermoPotash worked as well as KCl as a potassium source, but, it turned out, the control plots to which ground up but untreated verdete slate had been applied fared equally well. Closer investigation revealed that the interaction between micro-organisms and plant roots generated secretions which were somehow liberating the potassium tied up in the silicate. Veloso realized that the expensive effort to demonstrate the feasibility of treating the verdete slate with the ThermoPotash and Cambridge processes had been an unnecessary detour. Out of the realization that the verdete slate simply needs to be quarried, crushed, ground up and applied as a whole rock fertilizer was born the concept of Super GreenSand in 2016. In late 2017 NPK delivered a PFS which envisioned a 36 year mining plan which would start with 600,000 tpa and eventually scale up to 25 million tpa where Super GreenSand (SGS) would displace a large part of conventional KCl usage in Brazil. The financial model assumed an initial CapEx of USD $3 million with expansion costs funded by internal cash flow, which implied an after-tax NPV of USD $2 billion at an 8% discount rate and 290% IRR. The base case price was USD $250/t KCl cfr (landed in a Brazilian port), the lowest it has been since the 2008 runup. The simple flow-sheet made the cost readily identifiable but the key was a pricing model where the SGS would be sold at a price competitive with farmers buying KCl from regional warehouses. The market, however, has ignored the $50 plus price implied by this DCF analysis and the 48 million fully diluted NPK shares because this is not a story about developing a mine and selling the output into a deep market with a stable price, but rather one of developing an offtake market for a product that has never been commercially used by the agricultural sector. NPK built the 45 tph production facility in 2018 but did not get the 170,000 tpa quarrying permit until July which is the start of the planting season in Brazil which runs until November when the rainy season starts and crops are simply left to grow. NPK managed to secure orders for 50,000 tonnes but because of the usual commissioning problems was able to deliver only 29,000 tonnes in 2018. At the start of H2 2019 Verde Agritech is geared up to produce as much as 170,000 tonnes and is awaiting an increase in the mining permit to 400,000 tpa to install a second production line at the current facility. The speculative question is how big will NPK's order book get this summer? While the effectiveness of Super GreenSand is backed by agronomic studies, there is nothing like a farmer applying this alternative to KCl to a portion of the crop and observing first-hand how well it performs and how the costs compare. Some of the 2018 SGS was applied to soybean crops which have a 3-4 month growing cycle and those farmers will be in a knowledge position to make repeat orders. Other crops such as sugar cane and coffee have 12 month plus crop cycles, so it may be 2020 before those farmers are ready for more. The key will be expanded repeat business and new orders generated by word of mouth, with the government providing background support because reducing potash import dependency is a strategic goal for Brazil. Assuming NPK is able to achieve capacity production while maintaining a healthy profit margin, the next stage would be a permit for 1 million tpa and construction of a new facility at the mine site. That milestone will take a few years to reach, but by then the market will no longer be pricing NPK as a longshot market development story. The critical window will be H2 of 2019; will NPK fill its 170,000 tpa capacity with orders, will it deliver the product within the planting window, and will it show a profit in H1 of 2020 demonstrating that the model of cash flow funded internal growth is plausible? In March 2019 NPK completed a $1.7 million private placement consisting of 2,820,114 units at $0.60 of which the CEO Cris Veloso bought 912,416 units while other insiders participated on a smaller scale. The unit came with a half warrant exercisable at $1 for 2 years which no doubt some placees will clip and flip the stock when it comes free trading in July 2019 just as showtime begins for Verde Agritech Inc.
Hop to this company's People Tree
Related Party Occupation Related
Since
Insider Director Officer Capacity Ownership %
Cristiano Veloso Lawyer 8/1/2006 CEO & Chairman 9,451,547 18.1%
Renato Gomes Lawyer 6/25/2009

449,975 0.9%
Alysson Paolinelli Engineer 1/14/2014

69,665 0.1%
Luciana O. C. Coelho
9/13/2022

0 0.0%
Fernando Prezetto
9/13/2022

0 0.0%
Persion Mandetta Geologist


Advisory Board 0 0.0%
Rubens Mendonca Engineer 7/26/2012
VP 0 0.0%
Ysao Munemassa Geologist


Advisory Board 0 0.0%
Felipe B. Paolucci
3/5/2019
CFO 0 0.0%
Patricia Radino Metallurgist 7/26/2012
VP 0 0.0%
Eduardo Spolidorio Engineer 10/13/2010
VP 0 0.0%
Marcello Viega Engineer 6/30/2009

Advisory Board 0 0.0%
 
 

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