Shares in Harvest Minerals Ltd (LON:HMI, ASX:HMI) shot up 20% as a scoping study on its Arapua fertiliser project bolstered its aims to supply potash to a ready Brazilian market.
The study showed a low cost project with simple processing, and the firm hopes to get it into production under a trial mining licence later this year, to provide it with the necessary cash to fund its larger, longer-term projects.
Developing assets in Brazil
The company has four projects. It owns 100% of the 11,000 hectare Capela potash project, adjacent (13km away) to Vale's Taquari-Vassouras property - the only potash mine in Brazil, and seismic work has confirmed that Capela is a possible northern extension.
Meanwhile, the Arapua fertiliser project, of which Maximus is a target, is in Minas Gerais state and around 400 km south east of the Brazilian capital city Brasilia and within one of the major agro-industrial centres of the country.
The Sergi project lies in the Sergipe basin and covers an area of 65 sq km. Here, Harvest has already proved up an inferred JORC resource of 105.3 mln tonnes grading 21.3% KCl (potassium chloride).
The group also has the Mandacaru phosphate project, where in June it published an initial resource of around 4.4 million tonnes of phosphate.
The site, which lies around 140 km west of Fortaleza city, the capital of Ceara State, also has an additional exploration potential of four million tonnes of phosphate ore with similar grades, to be proven up by more exploration assessment.
A DANF (direct application natural fertiliser) product
The Maximus scoping study was based an initial resource of 883,000 tonnes, which, significantly, represents only around 3% of the estimated mineralisation at the Arapua property.
Production from a simple open pit was put at 100,000 tpa (tonnes per annum) for seven years with initial capital expenditure (capex) of US$800,000 for equipment, which can be funded from existing cash reserves, with first production expected later this year.
Operating costs were put at US$4.77 per tonnes mined and processed, and US$ 7.34/t including selling costs and general and administrative expenses.
At sales prices of US$50/t and US$65/t, net present values (NPVs) of US$15mln and US$21mln post-tax were generated, with IRRs (internal rate of returns) of 408.8% and 562.8% respectively.
Arapua lies in the Brazilian Cerrado, a rapidly expanding agricultural region in Brazil and there is good existing infrastructure near the project, including road access to regional towns so transportation costs are significantly reduced.
Executive chairman Brian McMaster said: "We expect to be able to refine and improve on the numbers presented in the scoping study and we are in the process of appointing contractors to carry out the mining and processing, which could significantly reduce the initial CAPEX requirements and potentially reduce these already low OPEX [operating expenditure] costs even further."
Broker Shore Capital noted that, as expected, the Maximus scoping study yielded small NPVs but good returns.
"According to Harvest, the entire project can be funded from existing cash reserves. First production is expected later in 2016, with the trial mining permit currently being processed and the company being already in discussions with the landowner over leasing the surface area for the mine and associated infrastructure," it said.
Brazil is the world's largest potash importer
..and the third largest potash consumer in the world, which means Harvest has a ready market in which to supply at low cost.
Fertiliser demand in Brazil is set to grow twice as fast as overall global demand.
Around 90% of Brazil’s potash is imported, and the rest is produced by local champion Vale (NYSE:VALE) at Taquari-Vassouras.
Vale's involvement nearby has its advantages, reportedly. One is that infrastructure, such as transport links, are 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.
Also that the existing mine at Taquari-Vassouras has gone through the process and set precedents for permitting.