Focus Ventures: David Cass and Ralph Rushton on the Bayovar 12 Prefeasibility

On Tuesday, Focus Ventures Ltd. (TSXV:FCV) released the results of a prefeasibility study (PFS) for its Bayovar 12 phosphate project in Peru’s Sechura province.
The study considers an open-pit mine plan that will target the production of reactive phosphate rock (RPR) for use as direct-application fertilizer. Focus cites studies that have found that, since Sechura RPR is highly reactive, the product “can outperform more expensive and non-organic manufactured fertilizers especially when used in tropical soil and climatic environments.”
Overall, the mine will produce 18.5 million tonnes of RPR concentrate from 52.3 million tonnes of ore over its 20-year mine life. Other highlights of the study include a post-tax net present value of $252.9 million and a post-tax internal rate of return of 17.2 percent, both at a 7.5-percent discount.
Reactions to the news were not overly positive, with shares of Focus Ventures falling 34.7 percent, to $0.075, on Tuesday. In all, 1.85 million shares of the company traded hands.

Still, in Tuesday’s press release, company President David Cass was positive on the report. “[T]his is a solid first step and demonstrates the Project’s viability and potential to generate robust returns, with sufficient mineral resources to potentially support a mine life well beyond 20 years of operation,” he said.
To get more insight into the news, the Investing News Network (INN) got in touch with Cass, as well as Ralph Rushton, Focus Ventures’ vice president of corporate development. Here’s what they had to say.
INN: Congratulations on completing the prefeasibility study for Bayovar 12. It is difficult for companies to bring projects forward in the current market environment. What led to your success here?
Rushton: It’s not easy to advance projects, that’s for sure.
Bayovar 12 benefits from easy logistics and simple geology. Far too many mining projects are remote with complex geology. We’re 40 kilometers from the coast [in a] flat, coastal desert, and we were able to move straight to resource drilling with no mapping, geophysics, geochemistry, etc. to do. That cut our timeline tremendously, and also reduced the overall cost of the work done to date. The simple geology also allowed us to generate a large resource tonnage with less than 10,000 meters of drilling — another huge contrast to many metallic projects, which can take tens of thousands of meters of drilling to properly define.
INN: How do the results of the prefeasibility compare to your expectations? What would you highlight?
Rushton: It’s worth reiterating up front what we stated in the release: the PFS should be regarded as a base-case study for an open-pit mine exploiting the project’s large-scale and near-surface RPR reserves and resources. The project is located near tidewater and in an established phosphate mining district — one of the few such districts in Latin America, and a region that relies heavily on imported phosphate rock. The project is simple logistically, and the product is some of the highest-quality RPR in the world. The material is good enough to be used directly as a fertilizer without the need for processing into phosphoric acid, and without producing the large tonnages of phosphogypsum waste produced by the phosphoric acid process.

INN: How have investors reacted to the news so far?
Rushton: Reaction has been mixed, as you can probably tell from our stock price. Newsletter coverage has ranged from positive to mildly negative. Some investors have run for the exit doors, but others believe in the longer-term investment thesis around global food production and are holding. The investors who continue to hold see a project that is located near tidewater and in an established phosphate mining district, and that will exploit the same phosphate beds currently being mined in neighboring operations. They see a large resource base that contains sufficient mineral resources to potentially support a mine life significantly beyond 20 years of operation and beyond the limits of a sensible cash flow model. The project sits on the doorstep of a large and rapidly growing organic market for natural plant-ready rock fertilizer, and our goal is to make Bayovar 12 the long-term supplier of choice for those markets.
INN: The mine will have a strip ratio of 8.5:1. How is Focus looking to mitigate the cost of removing so much overburden?
Cass: This will be an open-pit strip mine — similar to a coal operation — that will mine large volumes of waste to be able to deliver ore to the process plant. The difference with Bayovar 12 is that the waste rock is cheaper to mine than in most operations as it is soft and free digging (like sand), so does not need any drilling or blasting. One of the biggest sensitivities is waste haulage, which we believe can be mitigated through a mine schedule that minimizes the distance waste rock needs to be moved before it is returned back to the pit as fill.
INN: How were RPR price assumptions determined for the study?
Rushton: We’ve looked at sales prices for similar products mined from the Sechura region — sold into Peru and Central America. FOB prices for Bayovar 12 phosphate rock concentrate for direct application sold into Central America are about US$170 per tonne for 22 percent P2O5 rock. We’re looking at producing two products (a 24 percent and 28 percent P2O5 product), both higher quality. We know from an extensive scientific literature study that Bayovar 12 phosphate rock can compete with single super phosphate (SSP) in terms of agronomic performance, so we’ve assumed a slight premium to the US$170 FOB price for the 28 percent product to capture some of the price differential between the rock and SSP.

INN: What is your current cash position? Are you funded for completion of the next stages of development at Bayovar 12?
Rushton: We’re not fully funded for the next stages of development. We’ve been keeping various brokerage houses and banks up to date with what we’re doing and have seen strong interest out of Europe for the project. This is a tough market — very tough — and it’s not getting any better any time soon, so we have to keep all options open. Ideally we’d like to raise money via an offtake partner or investor into the project, which would potentially reduce dilution.
INN: What can investors look forward to next from Focus Ventures?
Cass: We would like to advance the project to feasibility study level, with particular emphasis on optimization of the mine plan and equipment selection, earlier achievement of nameplate capacity in the process plant, pilot plant testing and definitive marketing studies.
More immediately, we’ll be undertaking a review of the current mine plan to find out where we can optimize the work and cut both capex and opex numbers. We expect the optimization process to take about four to six weeks, and the aim would be for a comprehensive set of recommendations regarding where the project can be optimized or improved.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
Related video:
Ralph Rushton of Focus Ventures on Highly Reactive Phosphate Rock