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Shares in Harvest Minerals soar as first fertiliser production nears

Published: 19:21 18 Aug 2016 AEST

Wheat
Brazil is crying out for more locally-produced fertiliser

Shares in Harvest Minerals Limited (LON:HMI) have shot up to new all-time highs in London in recent days, following the release of a scoping study that examined the economic potential of developing the Arapua fertiliser project in Minas Gerais, Brazil.

The shares bounced from trades at around the 4.75p level at the end of July to a high of 11.62p in morning trade of 17 August.

That puts them at more than three times the 12-month low of 3.625p hit in February and more than 20% above the price the shares first traded at when they listed on Aim in September of last year.

All told, a very good performance.

“The project’s where we wanted it to be,” says Brian McMaster, the company’s chief executive. “We banked the cheque in January and here we are seven months later with a clear line of sight to getting ore on the ROM pad.”

The cheque in question refers to the US$3.6 mln fundraising that Harvest undertook in November of last year with a view to bring Arapua into production with a minimum of further fuss.

There are still some hurdles to be cleared, but none that McMaster thinks are insurmountable.

“We’re finalising the process for our permitting,” he says. “It’s not a complicated process and the government has just gazetted a plan to make fertiliser projects a priority. We’ve got to retain a contractor and we’ve got a quote on the desk already.”

What it adds up to is that first production from trial mining is likely to take place before the rains set in this November.

“We’ll do 100,000 tonnes in the first run under the terms of our trial mining license,” says McMaster. “And we’ll sell it all. Then we’ll go back and apply for a full mining license and we will roll out the rest of the property.”

But just how much will Harvest be able to sell the product for? This is a moot point, as the product mix is somewhat unique in terms of the relative amounts of potassium, phosphate and calcium contained, but there’s no doubt a market is there.

There’s only one major producing fertiliser project in the whole country, and Brazil is forced to import around 90% of its overall requirements. So McMaster is confident that Harvest will be able to sell product almost at the mine gate, and certainly into a market right on the company’s doorstep.

“A realistic scenario is that we’ll sell at between US$50 and US$60 per tonne,” he says. “That would be a price set in essence by benchmarking the existing market.”

At this point, it’s worth noting that the scoping study reckoned mining costs would come in at around US$7.60 per tonne, and employed extremely assumptions in regard to possible price: between US$15 and US$120 per tonne.

“At US$15 it still makes margin,” says McMaster. But he remains confident that the price Harvest will get will be much higher, and also hints that costs could go even lower.

It’s in that context that the market has suddenly woken up to the potential of Arapua and boosted the share price accordingly.

Assuming that Harvest buys in all the necessary equipment to get mining, Arapua could be put into production for around US$800,000, although McMaster mentions an alternative contract mining scenario that could bring capex down to US$350,000.

That’s more than covered by last year’s funding and means, as McMaster says, that there is indeed “a clear line of sight to production.”

After that a dividend is likely to come pretty sharpish, and that in turn should generate further support for the share price.

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