Verde Potash Plc.
When it comes to globally significant centres of agricultural growth forecasts, they don’t get much bigger than Brazil. Housing approximately 500 million acres of arable land, the South American trade epicentre is due to become one of, if not the biggest potash importer in the world by 2020, and already imports circa 90 per cent of its potash requirements.
Brazil’s mounting potash imports have long and largely stemmed from Russia and Canada, and product comes at significant costs. However, when Brazilian miner Verde Potash Plc (TSX: V.NPK) announced that it had produced potassium chloride (KCl) using its patented Cambridge Process at its large, surface mineralised Cerrado Verde project (home to enough potash to keep Brazil going for two decades) the industry sat up and took notice.
“After three-and-a-half years working on it, it’s a good feeling,” says Verde’s founder, president, chief executive and director Cristiano Veloso.
Verde’s shares leapt up 10 per cent following this news (to $7.70 in early trading) and the company, armed with its large project in the absolutely ideal Brazilian potash-hub of Minas Gerais, is just getting started as it aims to become a much-needed domestic producer.
Understanding Cerro Verde
One of the key differentiators to Verde’s project, Veloso starts, is that it’s amenable to strip mining dues to the surface mineralisation, outcropping as bright green rocks that you can walk right up to. Where many conventional potash plays require deep shafts, Verde has been able to slash its costs, time taken and adopt a different mining approach from the onset. The second characteristic, Veloso says, is the sheer size of Cerro Verde. Conducted by SRK Consulting, the project’s National Instrument (NI) 43-101 compliant indicated and inferred mineral resource estimation boasts a total inferred sum of 1,176.27 million tonnes at a 7.5 per cent cut-off grade.
“We already have enough potash resources to supply all of the Brazilian market for the next 20 years,” Veloso says.
“We’re going to have a scalable operation, but if [another] company wanted to start supplying all of the Brazilian market for the next 20 years they wouldn’t have enough ore there.”
Thirdly, he explains, you can’t beat Cerro Verde when it comes to location. At 118.742 hectares in western Minas Gerais, surrounded by superb rail, road and other necessary infrastructure where 58 per cent of all Brazilian fertilizers are consumed, this mammoth resource neighbours more than enough interested buyers to warrant development through to commercial operation.
“Potash is an industrial mineral, and as an industrial mineral it’s all about location, location, location,” Veloso confirms.
“We are very close to the country’s largest fertiliser players; the companies that buy KCl, phosphate and nitrogen. They buy and sell it on to the farmers so we’re not only in the middle, surrounded by farmers, but we are next to where fertiliser gets planted and distributed into the country.”
Comparing mine gate sales of KCl (now backed by successful technological application) with the extraneous costs incurred in importation, demonstrates quite how much value would-be buyers can expect from such a project. Cerro Verde could offer potash users of Minas Gerais and its surrounds a desirable option to eliminate complex stockpiling, capital commitments marred by long shipping times and other unfavourable import-related impacts on working capital.
Moreover, it enables players to keep their finances inside Brazil; to contribute to the national economy instead of sending funds overseas out of necessity.
A scalable, world-stage project
December’s news may have signified that Verde is a group with the world-class deposit, company expertise and proven technical capability to become a potash producer in Brazil, but it also marks the culmination of years spent gathering the right information, people and project strategy. Veloso explains that in order for Verde to compose a strong production brief for its KCl works early on, the company needed two key elements.
“First we knew that to achieve success in the short term, we would need to find the best of the best in each area of expertise to help us,” he says.
“The second thing was unless we really worked with the best of the best, if we succeeded people wouldn’t believe unless we could demonstrate we had that calibre of [groups] working with us.”
In the first quarter of 2011, Verde engaged the University of Cambridge, U.K., in furthering and concluding bench tests. In the second quarter, it partnered with Hazen Research of Colorado, U.S, together completing over 300 tests and assaying 6,000 checkpoints using Hazen’s laboratory to scale up works. A flurry of internationally-heralded groups joined Verde in the third quarter—GEA Messo of Germany ran leaching/evaporation/crystallization testing and optimisation and FLSmidth of U.S. state Pennsylvania worked on testing heat consumption, to name a couple—and in the fourth quarter the landmark technological breakthrough was achieved.
The next step, Veloso says, involves Verde’s Preliminary Economic Assessment (PEA) carried out by SRK Consulting, on track towards completion in Q1 2012; the statement set to underpin company plans to scale up the project.
“It’s an extremely scalable project given the nature of the deposit because its open pit,” he explains.
“All you need to do is to add production lines and you can grow the production, [then] buy a few more trucks and add a few more rotary kilns. What we’re going to look at is where you get your optimum cutbacks per term production rate.”
It is the scalability of Cerro Verde that backs up the company’s overarching vision: To become a Brazilian potash producer, running the project rather than selling it and offering this needed-source of product to the potash hungry region.
KCl & beyond
In addition to weighing up plans for potential KCl production, Verde has been working steadily away in the realms of ThermoPotash. Using the same pilot plant kiln as that of its KCl works, the team has completed work to transfer the pellet-making process from pre-calcining (in the kiln) to a post-calcine step, and tested the process of air cooling the product from the kiln by drawing on drying done by the cement industry.
“We’ve been able to improve the flow sheet from when we started and now it is really about getting into detailed engineering and finalising a feasibility study of ThermoPotash,” Veloso says.
“The key objective was really what’s done, was handled very well on achieving the results we expected, and now it’s finalising the feasibility and construction for what we will do early next year.”
Once this study is compiled, Verde will decide whether to begin producing KCl or ThermoPotash. Both are excellent businesses, Veloso says, but depending on the PEA underway, the final decision will be made when the company has every possible snippet of information to back it up.
“We don’t want to do both at the same time, but we definitely want to do both,” he resolves.
And the scalability of the project proposed again allows Verde to be flexible in its choices. There is no need for the miner to source a major partner or sell on Cerro Verde. Initial capital costs envisioned are totals fundable by Brazilian development banks and additional equity investors, and Veloso says that the company may start with a lower capital cost than any other potash buyer in the industry. This is aided by another resource strategically held by the company; the Calcario limestone project 100 kilometres from Cerro Verde, for which the team announced an independent resource estimate in September. This estimate now places Calcario at 89 million tonnes in the indicated category at an average grade of 54.71 per cent CaO, and 180 million tonnes in the inferred category at an average grade of 54.7 per cent CaO (no cut-off applied).
“Limestone is strategic for both KCL production and some of potash production, so it’s a fantastic source of one of the raw materials required in final fertiliser production,” Veloso says.
“Having your own quarry with extremely high grade material—as good as it can get—it’s fantastic.”
The Cerro Verde project successes in KCl and ThermoPotash combined with this strategic asset say a lot about Verde as a tenacious, technologically-advanced, efficient explorer-developer. The company commitment to taking its project to commercial operation without a sale process says even more. But most of all, the years spent crafting this exciting play, highlighted by December’s news (and soon by PEA results), reveal how staunchly committed the company is to serving and bettering Brazil’s booming potash industry.