Canada’s phosphate production hopeful received a tidal wave of support from the Quebec government. On Monday, the province’s premier, Phillippe Couillard, announced a $2-million investment into Arianne’s Lac à Paul project, located 200 kilometers north of Saguenay. The investment, which is being made by Investissement Quebec, is part of the $8-million financing the company announced at the end of July.
The $1.2-billion Lac à Paul phosphate project has an indicated mineral reserve of 500 million tonnes of high-grade phosphate. With an annual capacity of 3 million tonnes and a mine life of 25 years, the project fits into Quebec’s Plan Nord program with the expectation that it will create some 2,200 construction jobs and 1,000 direct and indirect jobs.
Through its investment in the project, the Quebec government hopes to demonstrate its commitment to Lac à Paul‘s economic potential, as well as send a clear signal for other entrepreneurs to also take part. At a press conference on the subject, Couillard noted that beyond the $2 million invested, the government wants to stand by the company in an attempt to boost market confidence.
Indeed, as Pierre Fitzgibbon, chairman of Arianne, noted in the company’s press release earlier on Monday, Lac à Paul “is a world class project with enormous benefits to all involved. By making this investment, the Government of Quebec is helping to pave the way forward for this important project. This concrete show of support will allow the strengthening of the region’s economy, pioneer a new long lasting industry for Quebec and, of course, provides the province the economic benefit of being a shareholder in this $1.9B [NPV] asset. The jobs and benefits to the community are that much closer.”
Likewise, Jean-Sebastien David, Arianne’s COO, commented, “[c]ertainly, this is a big project and it will require the support of all those involved. By having the government there, I think it shows the commitment of the province to doing all they can do to help see Lac à Paul be developed. Their investment will enable our team to continue to focus their efforts and energy on the ultimate success of our project. This investment also adds to the string of recent favorable corporate events over the last few months: positive drill results, favorable cost reductions and strong management additions.”
Lac à Paul is set to be the most significant development in Quebec. As Arianne reported in its feasibility study early this year, it will generate $12.5 billion in economic benefits throughout its 25 years of operations. Arianne is planning to reach production by 2017 to 2018. Arianne’s production timeline puts the company in a better position to take advantage of an improved market. As it stands, analysts are currently calling for declining prices and crops, which could reduce growth in the fertilizer sector for the next year.
Coincidentally, Arianne’s announcement was released alongside news out of top phosphate-producing country Morocco, which announced a drop in profits for the first half of the year. Prices for phosphate rock have slumped so far in 2014, and are currently sitting at $110 per tonne. In contrast, 2013 saw phosphate prices around $145 per tonne and in 2012 they were at $185.
According to Reuters, Morocco’s Office Cherifien de Phosphate (OCP) has exclusive access to the largest global reserves of phosphate. With North America projected to double its required phosphate imports to 8 million tonnes in the next five years, domestic supply could offer some shelter from the Middle Eastern and Northern African suppliers, which control the bulk of the phosphate market.
Arianne issued a trade halt on Monday and did not resume trade following the news.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.