Development of phosphate fertilizer mine capacity is among the range of investment opportunities presented by the fertilizer industry.
Phosphate fertilizer, along with nitrogen and potash, are the three key inputs needed by farmers to supply a growing world population with food.
Eleven years ago phosphate fertilizer prices moved into the stratosphere at $400 a tonne, as future mine supplies seemed short.
High prices tend to solve low supply issues. New supply of three million tonnes a year from North Africa and the Middle East, which account for 70 per cent of global supply, has brought American prices into the $250 to $300 tonne US range.
Mosaic, one of the big North American phosphate producers, idled three million tonnes production recently and will decide this year whether to put the Florida mines back into operation.
Into this scenario, Arianne Phosphate of Quebec plans to build a $1.2 billion open pit mine/mill and port in Quebec with first commercial production planned for 2022.
Formed in 1997 Arianne began $45 million expenditures on the deposit 200 km north of Saguenay in 2008, when phosphate users were desperate for new supply.
During the ensuing 11 years, Arianne has developed over one billion tonnes of resources with a feasibility study in 2015 that laid out project viability.
Cash operating cost per tonne in 2015 of $93 US a tonne, one of the lowest in the industry, offers a nice margin at last year’s phosphate price range of $250 to $300 a tonne.
Another advantage for the Lac A Paul mine will be freight costs. The feasibility study outlined freight costs from the Saguenay River port to major markets varied from $11 to $14 a tonne, with the exception in India where freight is $35 a tonne.
The $1.2 billion mine cost includes development of the river port to take product from trucks.
In 2018 Arianne took a number of key steps toward production. An agreement was signed with the first two off-take partners for sales from the mine. Off-take sales agreements are critical to financing, both for debt and equity.
A decision was obtained allowing construction of the river port. A partnership was made with the Province of New Brunswick to work on development of a phosphoric acid plant, reducing company reliance on fertilizer markets.
Grants from mining-friendly Quebec allow research to develop aluminum trailers to haul the product to port.
The company is set for development of this resource into a wealth-building project with 26 years life, perhaps longer if more reserves are revealed on the large property lease.
Plenty can go wrong before the mine pumps out the first cash flow. Financing the $1.2 billion mine is the biggest obstacle. Capital requirements will see a need for about $400 million equity and $800 million debt.
Most likely, Arianne will find a partner to build the mine.
World prices and potential new supply could erode profit margins.
For an investor with a long-term horizon, buying shares of Arianne, currently 40 cents, could turn into elephant-sized gains. Risk over the next four years is also gigantic.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at [email protected]
