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Mining for Food: TSX-V Entry Into Brazil's Exploding Agro Scene

|Includes:ELGSF, PBR, Vale S.A. (VALE)

ORIGINALLY POSTED ON PROSPECTINGJOURNAL.COM

ANALYSIS
 – ProspectingJournal – Sensing an impending crisis back in 2008 when higher internationally imported fertilizer prices hit the scene, the Brazilian government sprung into action to aid its burgeoning agriculture industry. Along with the pledged investment of US$5 billion from 2011 through 2014 on Brazil’s fertilizer segment, the government enlisted the help of the country’s two largest resource flagships, mining-based Vale [VALE – NYSE] and petroleum-based Petrobras [PBR – NYSE]. As potent as a combination of these three entities poses, the mission to achieve Brazilian fertilizer independence will be a monumental challenge, and may require some help from other sources along the way.

Brazilian soy plantation farming.

The sheer tonnage of fertilizers required for Brazil’s agro-economy has grown tremendously over just the last two decades. Representing 1/3 of the emerging BRIC country’s economy, agriculture in Brazil is big business; and it’s getting bigger. In 2010, Brazil was supplementing its thirst for fertilizer materials to the tune of importing nearly 53% of its potassium and 92% of its phosphates. The percentage of raw materials requiring imports for Brazilian fertilizer production rose from 36% in 1990 to 80% in 2010. These imports don’t come cheap, and ultimately effect the bottom line, as fertilizer costs in Brazil currently represent between 10-30% of total production expenses. Like the available land space in Brazil, the agriculture industry still has plenty of room to grow, but a lack of suitable fertilizer materials poses a major hurdle.

On a typical bag of fertilizer, one can find three numbers representing the “analysis” of its contents. These numbers stand for the percentage of nitrogen, phosphate and potassium in the bag, minus the filler quotient. But not all ingredients are created equal. Nitrogen requires large amounts of natural gas and ammonia for processing, which Petrobras hopes to address through developing natural gas sub-salt projects. Potassium (potash) requires less input materials, but isn’t as readily available in Brazil, with only one mine to speak of in the state of Sergipe, owned by Petrobras and run by Vale. Phosphorous or phosphates, however, can come in multiple forms, from non-granular forms found in liquid fertilizers and granulated which can be either added to other fertilizers or even crushed and applied directly to the ground.

Studies have shown the effectiveness of applying granulated phosphate rocks (PR) directly to the soil. With Brazil’s estimated reserves of 376 million tonnes of phosphorous-bearing ore, the country appears to have a large supply of phosphates. But before they can start spreading PRs on the ground, there are criteria these rocks must meet. Discouragingly, much of Brazil’s current supplies of PRs are mainly igneous in nature, as opposed to the more favourable sedimentary supply. Igneous rocks possess low solubility, requiring high temperature treatment or the outright import of additional water-soluble fertilizers or reactive PRs. Next, proximity to the intended fertile soil is key. Besides the added costs of transporting granulated rocks across large distances, soils tend to react optimally with PRs that have been harvested within a 200km radius.

While Vale, Petrobras and the Brazilian government are scheduled to spend billions to address the fertilizer issue, one Canadian junior exploration company seems to have found a loophole. Eagle Star Minerals [EGE – TSX.V] has held interests in Brazil for a few years now, including iron ore and petroleum projects, but recently its President and CEO, Eran Friedlander, announced that the company was entering the world of phosphates, and projects the prospect of production in the near term.

Eagle Star's claims marked in red, soy plantation in green (covering more than 69,000 square km)

Located in the Northeastern Brazilian state of Piaui, Eagle Star’s new prize possession is the 100%-owned Ruth Phosphate Project. Comprised of 41 mineral claims and consisting of nearly 200,000 acres, the Ruth Project lies in a favourable geological environment believed to host a very large phosphate deposit comparable to the Wonarah phosphate mine in Northern Australia, which hosts 485 million tonnes of ore grading 18% in phosphates. Early sampling done on the Ruth Project has shown multiple phosphate grades in percentages up to the high teens, and one sample showing 21.078%. But unlike most of Brazil’s previously discovered igneous phosphate reserves, Eagle Star’s rocks appear to be more optimal sedimentary, making them prime for low-cost crushing and direct application.

“While our geology appears to be quite favourable, the geography poses an even larger benefit for us, “says Eran Friedlander. “Not that long ago, Piaui was drastically undeveloped with little infrastructure to show for, but today, the area hosts several thriving agribusinesses and is gearing up for the completion by 2013 of the Transnordestina railway that will run right through our Ruth property.”

Soy bean plantation in Brazil - Image Credit: Tiego Fioreze

Friedlander’s team consists of some of Brazil’s top minds in geology, as well as the former Finance Minister of Brazil, who all understood the importance of phosphate development. Strategic planning landed the company with a project that lies within 150km of a massive soy plantation that reports annual production of 2.3 million tonnes. If a buyer-seller relationship can be made, the plantation sits within the previously mentioned 200km soil optimization radius.

“Brazil is a beautiful country that has plenty of sunshine, land and water, but still needs stimulation to grow its food,” says Friedlander. “At this time, we are quite enthusiastic about the prospect of adding near-term shareholder value and enhancing the opportunity for the North American market to take part in the further growth of Brazil’s agro-industry.”

 

G. Joel Chury
Editor in Chief
ProspectingJournal.com

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Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc. which owns the ProspectingJournal.com may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Eagle Star Minerals is a sponsor of ProspectingJournal.com. 
Stocks: VALE, ELGSF, PBR