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Since making the decision to establish itself as a domestic fertilizer supplier and producer in the Cerrado area of Brazil, DuSolo Fertilizers has made huge progress. Here’s a look at what the company is up to at the moment.
Since making the decision to establish itself as a domestic fertilizer supplier and producer in the Cerrado area of Brazil, the world’s fastest-growing agricultural region, DuSolo Fertilizers (TSXV:DSF) has made huge progress.
The company’s hard work is reflected in the sales deals it’s locked in so far this year, starting with the massive supply deal it inked in January with large Brazilian soybean grower Primavera Importação e Exportação de Cereais. The deal will see Primavera purchase up to 40,000 tonnes of 18 percent P2O5 direct-application natural fertilizer (DANF) throughout the 2015 planting season at a price of C$110 — that will amount to total proceeds of C$4,400,000 once all sales are executed.
And the sales keep rolling in. DuSolo made another deal Tuesday for 1,100 tonnes of 15 percent P2O5 DANF at a price of C$102,153, and it has already been paid in full.
What is DANF?
Investors who are well versed in the fertilizer space may be able to name a few different types, but not everyone will be familiar with DANF, which is commonly used in farming in Brazil. The product, which is applied directly to soil in its natural, organic form, comes from the high-grade phosphate discovered at DuSolo’s Bomfim project. The company is the sole supplier of the product within the project’s 500-kilometer region.
“It’s at surface and it’s a very simple operation,” explained Patrick Brandreth, senior manager, corporate development, at DuSolo. “Basically it’s excavating the material, then we lay it out and we dry it. We run it through a series of crushers and screens and then we mill it. And then it’s applied directly to the farmers’ soil in its natural form.”
The company currently sells three different blends of the product: 18 percent, 15 percent and 12 percent P2O5. Brandreth said that the average grade that comes out of the ground at Bomfim is 15 percent, but by screening the product the company is able to upgrade it to 18 percent. Prior to the rainy season, its production capacity was at 80,000 tonnes, but that amount is expected to double to 160,000 tonnes this year thanks to upgrades made to the facility.
“At the moment we’re selling for about $90 per tonne, and we are operating on a basis of around a 50-percent margin right now. We think that margin is going to increase as we increase production output,” explained Brandreth.
Serving a big market in Brazil
Given that most Brazilian farmers currently purchase fertilizer from places like Morocco, Tunisia, Algeria and Peru, it can be very costly when transportation costs and exchange rates come into play.
“You’ve got shipping costs, port costs, different port fees, importer fees,” said Brandreth, adding, “you also have land transportation to bring product inland from the ports, so at the end of the day farmers are paying more than double. They are paying around $220 per tonne compared to $90 per tonne from us.”
As mentioned, the exchange rate is another issue for producers, as the Brazilian real isn’t doing well against the strong US dollar. DuSolo eliminates this problem for domestic farmers as well, as it sales are made in the Brazilian currency.
The company also made a recent deal that gives the already low-cost producer an even bigger edge. In February, a Brazilian fertilizer company approached DuSolo with an offer to sell it 33,071 tonnes of phosphate rock grading around 10 percent P2O5 at a very attractive price of C$22 per tonne. It was then blended it with the company’s own high-grade 18 percent material to create a 15 percent blend.
Brandreth said that the deal aligned perfectly with the company’s plan to target sugarcane producers for the first part of the planting season, as they ideally prefer the 15 percent grade.
“We are targeting a few different sectors in the market. We are targeting sugarcane growers, cattle growers because they use fertilizers for the cattle grass,” he said. “We are targeting the organic farming market, the soybean growers and the corn farmers as well. They all use the fertilizers at different times throughout the planting season.”
That focus is already paying off — as noted, the company made a large deal with soybean producer Primavera, which will be able to place orders of 10,000 tonnes or so with just a few weeks’ notice. Being able to accommodate orders in a short period of time is another plus to being a domestic supplier, as overseas orders have to be placed six or seven months prior to the planting season.
Because of all these positives, DuSolo will likely see more deals come as the season starts up, and Brandreth said the company is very focused on sales this year, as well as expanding its resource.
“We are focusing on two things — one is sales and locking up sales contracts and the other thing is expanding the resource. We are just finishing up a drill program right now and we should have the results by the end of April. Then we are going to do an updated resource estimate that’ll be ready by the end of July,” he said.
At end of day Thursday, DuSolo’s share price was up 5 percent, trading at C$0.21.
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
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