Brazil is the largest importer of potassium fertiliser in the world, obtaining 95% of its potash needs from abroad for use in the commercial agriculture industry. Agriculture is one of the strongest sectors in the Brazilian economy, accounting for around 25% of its GDP and providing up to a third of all jobs, be they directly or indirectly related to agronomy. As a result of this, Brazil is widely regarded as one of the key breadbaskets of the world, and it is the valuable nutrient potash which plays a vital role in the production of crops for food production. “If there was an issue with potash supply to Brazil, the impact would be far greater than the impact of COVID-19. Not only economically, but most certainly with far greater loss of life,” says Cristiano Veloso – CEO and president of sustainable potash producer Verde AgriTech.
The TSX and OTCQB-listed company’s mission is to feed and nourish a growing global population through the production of innovative products of high agronomic efficiency that foster sustainable, profitable and productive agriculture.
Verde was founded in 2005 when a team of experienced explorers and professionals from the mining industry assembled a grassroots mineral exploration portfolio with properties in Brazil. After evaluating several mineral projects, the company decided to concentrate its efforts on the production of natural mineral fertilisers in 2006.
The Verde team has been focused on developing the Cerrado Verde Project in Minas Gerais state since discovering the potassium-rich deposit in 2008. The current board of directors possess unrivalled experience in mineral exploration, potash production and Brazilian agriculture.
The board is headed up by a dynamic duo comprised of the company’s founder Cristiano Veloso and Dr. Alysson Paolinelli – the former Minister of Agriculture for Brazil and ‘the Pele of agriculture’ according to Veloso.
“Alysson has made more for Brazilian farmers than any other person. He has done more for food production on a global basis than anyone else and he was recognised for that with the World Food Prize in 2006.”
“He adds a lot of credibility to what we are doing. He is a great leader and a very smart person to have on the board,” Veloso adds.
The Cerrado Verde Project
Years of exploration and research culminated in the publishing of a pre-feasibility study (PFS) and the start of small-scale production from a pilot plant in 2017. The PFS revealed a huge, long-life potash deposit, with 772 million tonnes in reserve and 1.5 billion tonnes in resource that can be converted into reserve over a 36-year mine life.
The project’s net present value (with an 8% discount) is estimated to be just under US$2 billion with an after-tax internal rate of return of approximately 290% and a total capex $369.5 million. These attractive economics reinforce the longevity of the project and allows the company to provide the lowest delivered cost to the market out of all potassium producers in Brazil and from abroad.
Verde’s product – marketed in Brazil as K Forte® – is delivered to the consumers at a price below C$68 per tonne, while the average cost of potassium chloride (KCl) in Brazil is around C$408 per tonne – nearly six times more than K Forte®. A significant part of KCl cost is due to transportation expenses, which further highlights the attractiveness of having a domestic potash source.
“Most imported mineral fertiliser comes from Russia or Saskatchewan in Canada. It is very expensive to transport an industrial mineral like KCl from these places to Brazil. Brazilian ports are often extremely overcrowded, so a ship carrying KCl can wait for up to 60 days after arriving to dock and unload the material.
“Then you have the added cost of transporting the product from the coasts of Brazil to the rural agricultural regions in the centre of the country,” Veloso adds. “With our project located in the heartland of Brazil’s largest agricultural market, our product is much cheaper as a result.”
A superior alternative
Aside from the significantly lower delivered cost of K Forte® compared to KCl products, Verde’s customers will also notice the differences in quality between the two products. K Forte® is a multi-nutrient fertiliser that contains 68 minerals and trace elements – including potassium, iron, magnesium and manganese – that improve chemical, physical and biological conditions of the soil.
In addition, K Forte® does not add salt or chloride to the soil. It is approved for organic production and its silicon content increases plant resistance against pests and diseases. These advantages make Verde’s product a sustainable KCl alternative for tropical soils.
“Chloride is very bad for agriculture and for the environment. It burns crop roots and is a problem in terms of seed germination. It brings solidity to soils, which is bad for future agricultural activity.
“And in terms of its damage to the environment, chloride kills soil microorganisms, which are very important as much for crops but also for storing carbon into the soil. 100 kg of KCl applied to soil is equivalent to adding 800 litres of bleach,” Veloso reveals.
Rapid annual sales growth
The rising popularity of Verde’s product in the Brazilian market is shown in its year-on-year (YoY) growth figures. In 2018, the company built its own plant and the product quickly sold out. Last year, Verde upgraded the plant’s production capacity to 500,000 tonnes per annum.
By increasing its production capacity to meet the increasing amount of K Forte® demand in Brazil, Verde succeeded in increasing YoY revenue by 344% to just over C$6 million for the 2019 financial year, with a gross margin of 48%.
“For this year we are predicting to grow another 80% on last year, when we grew nearly 350%. We are on track to deliver another year of significant growth. We are a small company, so our sales mainly come from our customers recommending our product to their neighbours.”
One would be forgiven for assuming that the company’s C$10.6 million sales target for 2020 would have to be revised down due to the unforeseen outbreak of COVID-19 (coronavirus) around the world and its devasting socio-economic effects.
However, Veloso believes that the pandemic will actually accelerate Verde’s growth trajectory this year, as there is a need for Brazilian farmers to secure domestic sources of crop fertiliser in case of sustained disruption to international supply chains.
“Farmers are worried about the potential disruption in the international supply of potash. At the moment, they have an added incentive to procure domestic potassium instead of buying it from Canada or Russia.”
While cementing its position in the Brazilian potash market in 2019, Verde also developed its international footprint by exporting its product to the Canadian and Chinese markets for the first time, adding to its existing presence in the US – where the product is sold under the name Super Greensand®.
Up to the challenge
Verde sees itself playing a big role in providing solutions to two of the biggest challenges facing the world in the 21st century: Adequate food supply for the growing global population and climate change brought about by human industrial activity.
These ambitions are crystallised in the company’s motto: ‘Improving your health and the planet’s health’. Farmers using Verde’s potash product will cultivate crops with significantly higher nutritional value due to the 60+ trace elements added to the product, thus improving the health of the food’s recipients.
With the bulk of its customers in Brazil, which accounts for around 10% of global agricultural production and is one of the largest exporters of foodstuff in the world, Verde’s unique product could make a positive difference to people’s diets all around the world.
“We also improve the health of the planet by removing KCl from our customer’s soils. Using our product will preserve soil microorganisms that would otherwise be killed by KCl products. These microorganisms capture carbon into the soil, so we are helping to fight climate change in this way.”