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Spec Value Hunter Comment - January 29, 2010: Amazon's glauconite drilling outlines initial resource footprint
 Amazon Mining Holding Company plc released drill results on January 21, 2010 for its 100% owned Cerrado Verde potash project in southern Brazil which indicate an initial resource exceeding 100 million tonnes. The 118,742 hectare property covers a belt of slate-like rocks extending about 100 km with an average width of 6 km and a thickness up to 80 metres. These metasedimentary rocks are about 600-700 million years old, are known locally as "verdete slate" due to their greenish-blue color, and contain a potassium bearing silicate mineral called glauconite which contains 5%-14% K2O. The belt is underlain by a mudstone unit and is discordantly overlain by a thin sandstone unit. About 20% of the belt outcrops and Amazon has focused on one particular outcropping area which it has named the Funchal Norte target. The company completed 19 reverse circulation holes totalling 1,000 metres along the strike of this target in two parallel lines about 600 metres apart. The results were reported as two batches, one representing a dark green massive glauconite with grades ranging 9.9%-11.8% K2O to a maximum depth of 66 metres, and the other representing a lighter green transitional glauconite which ranged 5%-9% to depths up to 48 metres. The diagram below shows the massive glauconite holes as green dots and the transitional glauconite as orange dots. Most of the holes were collared in glauconite, and encountered a maximum of 12 metres of the friable Cretaceous aged sandstone unit that sometimes covers the glauconite. The results suggest a simple strip-mining scenario with minimal waste rock stripping, in sharp contrast to deep underground mining of the higher grade sylvite ore in Saskatchewan.
 The Funchal Norte target is a small fraction of the 80 km portion of the belt that Amazon controls. It was chosen because of its accessibility and the high grades yielded by sampling of outcrop (the green stars). Only the massive glauconite is of economic interest to Amazon, which reports that the massive glauconite portion of the Funchal Norte zone has dimensions of 3,000 m by 350 m. Although the map indicates holes along a strike of only 2,200 m, I have used the company's numbers to convert the massive glauconite into a potential tonnage footprint by multiplying the strike (3,000 m) by the width (350 m) by the average thickness (48 m) by a specific gravity of 2.7 which Amazon's Jed Richardson passed on to me as the number the technicians have established (this will need to be confirmed in writing by a QP). The result is a tonnage footprint of 136 million tonnes. This may seem small, but it is a fraction of the property's potential resource, and certainly adequate for now. The weighted average grade for the massive glauconite holes works out to 10.9% K2O, which converts into 0.182 tonnes of KCl equivalent (divide K2O grade by 0.6) per tonne of ore. If we use a $400/t KCl price, the rock value of the massive glauconite at Funchal Norte works out to US $72.80 per tonne. Assigning the $72.80 rock value to 136 million tonne footprint yields an in situ value of US $9.9 billion of KCl equivalent, which pretty much confirms that Amazon is sitting on a world class resource with a 43-101 compliant resource estimate a formality that lies just around the corner. With this milestone effectively achieved the junior must now focus on the more important milestone, which is establishing the cost structure for converting the glauconite into ThermoPotash, the slow-release fertilizer it hopes to market to Brazil's agricultural industry. A detailed discussion of the milestones Amazon must achieve is available in Bottom-Fish Comment December 18, 2009. Amazon is currently the subject of a Spec Cycle Hold 100% recommendation pursuant to the original medium priority bottom-fish buy recommendation in the $0.10-$0.19 range issued on December 24, 2008, and a Good Absolute Spec Value Buy at $1.63 issued on December 18, 2009. Since the Spec Value recommendation the stock has traded as high as $3.00, but during the past couple weeks the stock has pulled back sharply. This has more to do with the general market weakness than any changes in the fundamental outlook, which has in fact improved with publication of the drill results. I thus confirm that the Spec Cycle Hold 100% recommendation remains intact for bottom-fishers who own the stock, and confirm that the stock remains a Good Absolute Spec Value Buy, particularly if further market weakness drags the stock back below $2.00 as it did during the past week.
 The general market funk may be a big reason why the market overlooked the implications for Amazon posed by two important developments during the past week. The first was a $341 million cash takeover bid launched by BHP Billiton for Athabasca Potash Inc at $8.35 per share on January 28, 2010 which represented a 25% share price premium. Athabasca Potash owns the Burr project in Saskatchewan which hosts about 424 million tonnes of 23% K2O on which the junior was conducting a prefeasibility study with regard to a 2-4 million tonne KCl output scenario. The Burr potash resource is a deep sylvite deposit typical for Saskatchewan. This marks the second major takeover bid for BHP, which acquired Anglo Potash Ltd and its Jansen Lake potash project for $283 million in September 2008 in a bid that valued the potash asset at $1.1 billion. BHP's latest potash takeover bid implies that major mining companies are still enthusiastic about becoming major players in the fertilizer sector. The second development which perhaps has greater implications for Amazon is the decision by Brazil's iron miner, Vale, which swallowed Inco, Canada's major nickel producer, to move downstream in the fertilizer sector by purchasing the Brazilian fertilizer assets of Bunge Participacoes e Investimentos (BG-NYSE: $58.79) for US $3.8 billion in cash. Bunge is an agribusiness with substantial operations in South America. Vale is buying Bunge's wholly owned phosphate mining operations in Brazil and its 42.3% stake in Fertilizantes Fosfatados S.A. (Fosfertil), a major supplier of fertilizer raw materials for agribusinesses in Brazil. While Bunge will retain its retail fertilizer supply network, it will negotiate supply agreements with Vale by 2012. Vale already operates the Sergipe mine in Brazil, a traditional producer of deep sylvite based potash, and acquired Rio Tinto's potash assets in Argentina and Saskatchewan in January 2009 for US $850 million. The Bunge purchase reaffirms Vale's strategy of becoming a dominant supplier of fertilizer raw materials in Brazil, one of the world's major agricultural powerhouses. This development is significant for Amazon because during the eighties Vale owned the Cerrado Verde ground Amazon now owns, and staked the other, somewhat lesser belt of similar glauconite rocks in the region shortly after Amazon staked its land position in 2008. Partly owned by the Brazilian government, Vale can be seen as a consolidator of Brazil's critical raw material production, and is a likely candidate to buy out Amazon after it has demonstrated that glauconite derived ThermoPotash is feasible.
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