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Harvest Minerals Ltd.: THE INVESTMENT CASE

Harvest Minerals Limited in pole position to supply Brazilian potash

Harvest Minerals is well positioned to supply potash into one of the world's biggest markets
Harvest Minerals Limited in pole position to supply Brazilian potash
INVESTMENT OVERVIEW: HMI The Big Picture
Potash is a key fertiliser locally in Brazil

It’s been a busy six months for Harvest Minerals Limited (LON:HMI). Early in September the company added a listing on London’s Aim market to its Australian listing. At the time it didn’t raise any new money, but a significant placing did follow shortly afterwards when the company announced a US$3.6mln placing of shares at 0.75p each, with each two shares also coming with a 0.88p warrant attached.

A subsequent one-for-10 consolidation was then approved by shareholders in December, such that when the next, smaller, raised occurred in early January it was done at 7.5p and brought US$828,681 into the companies coffers.

 

THE BUSINESS

 

The new listing and the effective positioning of the company’s shares on Aim are all designed better to position the company’s potash projects in Brazil in relation to world financial markets.

Brazil is the world’s largest potash importer and the third largest potash consumer in the world. That makes the Harvest’s potash portfolio ideally situated in terms of supplying into a ready market at low cost. Around 90% of Brazil’s potash is imported, and the rest is produced by local champion Vale (NYSE:VALE) at Taquari-Vassouras, which sits adjacent to one of Harvest’s own properties, the Capela project in the state of Sergipe.

There are several advantages to this. One is that infrastructure is already in place. Another is that in time Vale may come to appreciate the proximity of Capela and the advantages of maintaining its current monopoly on production. A third is that the existing mine at Taquari-Vassouras has set precedents for permitting.

3-D seismic work has confirmed that Capela is the possible northern extenstion to Taquari-Vassouras. Drilling work has intersected over 16m of high grade sylvinite as part of a total of 79m over multiple extensions.

Meanwhile, less than 100km to the south, at the Sergi pipe, Harvest has already proved up an inferred JORC resource of 105.3 mln tonnes grading 21.3% KCl. That’s a solid foundation around which the company can begin to build an economic model.

And at Arapua, further inland, recent geological mapping has identified 1,691 square kilometres of potassium oxide rich rock. Work here is ongoing.

 

FROM THE BOSS

 

Chairman Brian McMaster strikes an upbeat note when referring to the recent progress at Arapua. “Since receiving the proceeds of our recent funding in January, the team has been very busy ground mapping the extent of the potential DANF product,” he says. “These excellent results indicated that once we have defined a commercial product, we would have sufficient resource material to support a substantial long-life project.”

And in regard to the fundraising, he says: “This tranche of funds will enable the company to substantially progress its business plan without being overly dilutive to existing shareholders.”

And it’s worth noting that McMaster has been involved in several successes before, including Hunnu Coal and Highfield Resources (ASX:HFR), so he knows a thing or two about making things happen.

 

WHAT THE BROKERS SAY

“We expect the focus of the company and its recently raised capital will be on quickly bringing Arapua into production to provide cash flow to fund its larger, longer-term projects,” says Mirabaud.

“Harvest could produce up to 100ktpa under a trial mining permit, especially as it would just involve crushing to produce a powder and not require water rights. The company could receive a trial permit and be in production within six months. As Brazil has a well-developed natural resources industry, most of the plant and other equipment Harvest would require could be sourced in country. Given the depreciation of the Real and local fabrication, it will make the capex far cheaper in US$ terms than might be expected. A suitable new 50t per hour plant including crusher, grader etc. in Brazil would currently cost around US$750k. Assuming only 75% utilisation and operating for only 8 hours per day, this would still be able to handle over 108kt pa. Running more shifts would obviously increase through put and if Harvest could secure sales of 100kt pa revenue could be US$7.5-10m pa, still under a trial license.”

 

THE SHARE PRICE

The shares have weakened somewhat since the consolidation, and are currently trading at around 4p.

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