Harvest Minerals
27 September 2016
Low capex, high margin, Brazilian fertilizer production
Harvest Minerals’ Arapua project is a multi-nutrient fertilizer deposit lying at
surface. First production is fully funded and expected in November, with the aim
of producing and marketing an initial 50kt from an area called Maximus.
Buy
Price:
17.5p
Target Price:
32.0p
This near term production is welcome, however our investment case is based on
a larger scale operation. Assuming Maximus is successful, Harvest will develop
new mining areas for minimal capital cost. The Arapua land package covers
150km2 and should contain at least 15mt of mineable and marketable resources.
Sector: Metals & Mining
Share Price Performance
For an estimated $7/t Arapua material can be mined and crushed, to be sold at
the mine gate. Helpfully, it is located in one of Brazil’s main agricultural regions
which has poor soil and currently imports most of its fertilizer needs. This should
ensure strong local demand and attractive pricing. A sales price of $50/t, which
we believe is achievable, would give a gross profit margin in excess of 80%.
Minimal capex requirement – exceptional equity opportunity
Source: London Stock Exchange
The majority of producing juniors are significantly indebted and vulnerable to
commodity price volatility. A large scale Arapua operation should be feasible
with c.$1.0m capex, and self-funded from upcoming cashflows. This should
mean no or minimal equity dilution and zero debt.
Key Data
Multi-nutrient, direct application fertilizer
Market:
AIM
TIDM:
HMI.L
1 Year Hi/Lo:
24.15p – 0.6p
Existing Shares:
95.76 million
Market Cap:
ISIN:
£16.8 million
AU000XINEAB4
SEDOL:
Co. Website:
BD82HN0
harvestminerals.net
Most fertilizer ore (potash and rock phosphate) need chemical processing to
make the nutrients soluble. Testwork shows Harvest’s Arapua material (3.5%
phosphate, 4.2% potassium, 6.0% calcium, 6.0% magnesium) is effective in its
natural form, making it suitable as a direct application fertilizer.
First production November - 50kt and rolling
The environmental licence is in place, mining contractors have mobilised, and
the trial mining licence is expected soon. Initial production of 50kt allows
Harvest to start building a market, with customers trialling the product and
Harvest’s ability to deliver volumes. Harvest can apply for successive (rolling)
50kt permits so theoretically could produce up to 400ktpa with a trial licence.
Arapua’s potential profitability
Management expects to sell an Arapua product for >$50/t. Assuming opex of $7/t
($4 for mining and crushing, $3 for marketing) and a slightly lower $45 sales price,
the project could generate pre-tax cashflow of c.$7.0m per annum at 200ktpa. A
300kt business could generate $12.0m, and at 500ktpa $19.0m.
Harvest Minerals share price performance
Charles Long
Research Analyst
[email protected]
+44 020 7382 8384
Sheldon Modeland, P.Geo.
Research Analyst
[email protected]
Harvest Minerals shares are up c.4x since early July, primarily driven by the
approaching first production. It is sometimes a concern when a stock moves so
fast and, although we calculate a Harvest risked NAV of 32p, there could be some
volatility as the shareholder base evolves.
Recommendation and valuation
We initiate with a BUY recommendation and 32p target price. Our valuation
includes $12.5m for Harvest’s potash project but is dominated by our 500ktpa
Arapua mine model. This assumes a $45/t sales price and includes a 40% risk
factor that will reduce as the project is de-risked. Our unrisked NAV is 50p.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: For full disclosures, please see the back page. © Beaufort Securities Ltd
Beaufort Securities is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchan ge.
Harvest Minerals
27 September 2016
Investment summary
Our valuation and investment case is for now based on the Arapua multi-nutrient fertilizer project. First
production is expected by November and assuming this goes well, Harvest will seek to develop a larger scale
operation capable of generating c.$20m of pre-tax cashflow per annum.
Phase 1 is funded and capex for a larger scale Phase 2 (we assume 500ktpa) should be only $1.0m and self-funded
through cashflows. Although Arapua is not without risk, it is very unusual for a mining project to be developed
with such a low capital intensity, preserving the project’s future cashflows for Harvest shareholders.
Although Arapua is the current focus, Harvest also has two potash projects and a phosphate project, all in Brazil.
Management is also evaluating other fertilizer projects in South America. We believe the potash projects, which
both neighbour Vale’s near depleted potash mine, are potentially extremely valuable.
Management track record
Management has an excellent track record of delivering equity value in the mining sector, most notably Hunnu
Coal (Mongolia) and Highfield Resources (potash in Spain). We are impressed by the board’s abilities in Brazil,
demonstrated by its access to deal flow and the quick receipt of the environmental permit.
Project locations:
Capela and Sergi Potash Projects - Capela
is located 13km from Vale’s TaquariVassouras potash mine which is nearly
depleted and expected to close in 2017.
Arapua Project – a multi-nutrient deposit
located c.400km from the coast (Rio) and in
the centre of an important industrial farming
district called the Cerrado. Crops include
coffee, sugar cane and soybean.
Source: Company, Beaufort Securities
Arapua Phase 1 - Maximus
Arapua is located in the centre of a major agriculture region in Brazil. Harvest is taking a small area called
Maximus into trial production in 4Q16 which we have called Phase 1. First production of 50kt is a near-term
catalyst while in CY17 progress made in marketing the Arapua product (product certification, crop trials, new
customers, tonnage requirements and pricing) will be important milestones to watch.
Once Harvest has sold the first 50kt, under the trial mining licence it can apply for successive 50kt licences on a
rolling basis. Each 50kt takes the contractor 30 days to mine.
Harvest recently employed an agronomist who will manage agronomic studies (e.g. crop trials) of the Arapua
material. He will also be responsible for optimizing the product, both in terms of agronomic efficiency and ease
of application, and help develop the customer base. We expect modest revenues in 2017 and a small gross profit
in the second half of CY17.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 2
Harvest Minerals
27 September 2016
Phase 1 – possible ramp-up scenario
Source: Company, Beaufort Securities
Arapua - Phase 2
The basis of our investment case is the development of a larger scale operation. Harvest’s Arapua tenements
contain sufficient resources for a larger scale (e.g. 500ktpa) and long life operation (15y+). Management believes
Arapua could support significantly more than 500kt if the demand is there.
Given the direct application nature of the product a processing plant is unnecessary. As a result, the capital
intensity (capex/ annual tonnage) of a larger scale operation should be very low, as with Phase 1.
We have built a conceptual mine plan and cashflow model for a 500ktpa operation. This demonstrates what a
large-scale operation would look like and is the basis of our valuation. The model produces an NPV8 of $55m
based on capex of $1.0m. We have attributed a 40% risk factor to the $55m to account for the uncertainty of
developing a 500ktpa market.
Location, location, location
The Arapua project is located in the southern part of the Cerrado, the Brazilian savannah which has been
transformed into one of the largest farming regions in the world. This is a perfect location for four reasons:
1.
the industrial scale of the agribusiness
2.
the poor quality of the tropical soil
3.
the distance from the nearest port which makes importing fertilizers high cost
4.
the absence of fertilizer production in the local area
Brazil’s farm production has seen rapid growth over the last 30 years, with total agricultural output approximately
doubling from 1990-2015. Brazil is now the 2nd largest exporter of crops in the world and the largest supplier of
coffee and sugar. Agriculture is also its only growing industrial sector. The main reason for this transformation is
the development of the Cerrado (Brazilian savannah) areas through the use of new farming methods and
genetically modified crops. Previously the Cerrado was regarded as unproductive.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 3
Harvest Minerals
27 September 2016
Cerrado soils are however tropical and poor quality, they require regular remineralising/fertilizing (no different
from any soil subject to industrial scale farming) and being acidic some crops require alkaline neutralisers. Given
the importance of agriculture to Brazil’s economy and in particular its balance of payments, the Brazilian
authorities are (and have been for at least 15 years) focused on finding and developing Brazilian sources of
fertilizers and remineralizers. Brazil currently imports 80% of its fertilizer requirements.
Brazil’s Cerrado:
Source: Economist
Arapua – a multi nutrient product
The Arapua material is a multi-nutrient fertilizer containing phosphate (3.5%) potassium (4.2%), calcium (6.0%)
and magnesium (6.0%) i.e. four of the six major nutrients plants require (others are sulphur and nitrogen). It’s
relatively high pH also makes it a neutralizer, an additional bonus given the acidic soils of the Cerrado.
Great product...? Probably
Although the sales price and demand levels are as yet unknown, an inferior product called EKOSIL sells for circa
$70/t (although we do not know the volume of sales) in Brazil. EKOSIL is effectively a potassium only product
with only 1% soluble potassium. In comparison, Arapua has four nutrients including c.4% and 90%+ soluble
potassium. We believe that an Arapua fertilizer product will perform well in crop trials and receive good levels
of demand and pricing.
Only funded fertilizer project on AIM
Harvest Minerals was effectively created in 2014 when ASX listed Triumph Tin Ltd. changed name, its board and
portfolio of assets. By the end of 2014 Harvest had acquired the Arapua multi-nutrient project, the Capela potash
project, and divested its tin interests. Harvest then listed on AIM and de-listed from ASX and is now one of three
London listed mining fertilizer companies, one of only two with shallow resources and the only project funded
for production.
Sergipe - Brazilian potash project
Arapua is the main focus and is well suited to current investor demand for low capex projects. However, there is
also value in Harvest’s Capela and Sergi potash projects, together Harvest calls this the Sergipe Potash Project.
The value here is based on its proximity to Vale’s Taquari-Vassouras mine which is scheduled to be depleted of
ore during 2017. We believe Sergipe has the potential to be an important asset, with a value that significantly
exceeds our current $12.5m valuation.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 4
Harvest Minerals
27 September 2016
More deal flow anticipated
Triumph Tin’s rapid transformation to a fertilizer mining company with three assets and near term production
reflects management’s effectiveness in Brazil. We anticipate Harvest to acquire or invest in additional fertilizer
projects in future. Brazil is the current focus but management will consider other simple to develop, low capex
fertilizer projects in other South American countries with local captive markets.
Valuation and Risks
Our valuation is based on a conceptual model that incorporates Phase 1 and a larger scale Phase 2 operation.
The main inputs for Phase 2 are a 500ktpa operation, capex of c.$1.0m, total mine operating costs of $7/t and a
long term sales price of $45/t. We used an 8% discount rate and a mine life to 2028.
The model produces a $54.6m NPV8 for Arapua that we have risked by 40%. Our sum of the parts also includes
G&A costs and $12.5m for the potash project. We expect to reduce the risk factor as the project progresses and
we detail the method below. We would also change our long-term product sales price (up or down) from $45/t
according to pricing information from Harvest.
Sum of the parts valuation:
Description
Arapua NPV
$m
54.6
£m
42.0
Risk factor
%
40%
Arapua risked NPV
$m
32.7
£m
25.2
G&A
$m
-5.0
£m
-3.8
Potash
$m
12.5
£m
9.6
Total
$m
40.3
£m
31.0
Price target
(p)
32.3
Current share price
(p)
17.5
40% risk factor and sales price
Our Arapua valuation is negatively impacted by our use of a 40% risk factor and potentially our $45/t long term
sales price – management believes a price >$50/t is achievable.
Risk factor
The table below shows the components of our 40% risk factor. We will reduce the risk factor as and when Harvest
delivers each milestone, or at the point we believe it will be able to deliver. In CY17 we expect to remove the risk
discounts associated with both stonemeal certification and initial sales. This would increase our target price to 35p.
Risk factor:
Description
Risk weighting
Trial mining licence
N/A
Initial sales
2.5%
Stonemeal certification
2.5%
Fertilizer certification
2.5%
200kt market size demonstrated
15.0%
500kt market size demonstrated
17.5%
Total risk factor
40.0%
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 5
Harvest Minerals
27 September 2016
Sales price
Our Arapua NPV is most sensitive to the sales price of the Arapua product. We have used $30/t in years 1 and 2
as Harvest establishes its customer base, and a $45/t long-term price. We will adjust our long-term sales price
according to feedback from Harvest and its potential customers.
The sensitivity table below shows the impact of sales price on the Arapua NPV and target price. It also shows
both risked and unrisked target prices.
Price and risk sensitivity analysis:
Risked
Unrisked
Arapua NPV
TP
TP
$25
27.8
19
28
$30
34.8
23
34
$40
48.2
29
45
$45
54.6
32
50
$50
61.7
36
55
$60
74.6
42
66
$65
81.6
45
71
Note: Our 32p risked NAV highlighted
Our main concern – time
The main concern we have is the time it may take to build a sizeable local market. Our model assumes ramping
up to 500Ktpa by 2023 which may be too ambitious. Although we believe local demand will be substantial, this is
yet to be established for certain. The biggest challenge will be convincing farmers to try something new, and low
introductory prices will probably be needed to attract initial sales (hence our $30/t sales price in years 1 and 2).
Our ramp-up assumptions:
Source: Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 6
Harvest Minerals
27 September 2016
Marketing the Arapua product
Harvest’s progress over the next 12 months will primarily be measured by the success of its marketing activities.
This process will combine building relationships/negotiating with potential customers, product design, crop trials
and product certification. Much of this work will be managed by the newly employed agronomist. Harvest
management (and HMI shareholders) is mostly interested in demand levels and product pricing.
Arapua Constituents
The Arapua material/product is a multi-nutrient direct application fertilizer containing phosphate (3.5%)
potassium (4.2%), calcium (6.0%) and magnesium (6.0%) i.e. four of the six major nutrients plants require (others
are sulphur and nitrogen). It’s relatively high pH also makes it a neutralizer, an additional bonus given the acidic
soils of the Cerrado.
By way of comparison Sirius Minerals’ POLY4 product is crushed and sized polyhalite, an evaporate mineral with
four of the six major nutrients - potassium (14% K2O), sulphur (19% S), magnesium (6% MgO) and 17% calcium
(CaO). POLY4 is of course higher grade but it will be a seaborne product so needs to be high value per tonne.
Product certification:
(1) Stonemeal certification - straightforward
(2) Fertilzer certification – longer process
Over the next 6-12 months Harvest will look to get the Arapua product certified by the Brazilian Ministry of
Agriculture, Livestock and Supply. The first target is to have it certified as a Stonemeal. We expect this to be a
straightforward process since Arapua material is higher grade (phosphate, potassium, magnesium and calcium)
than most if not all comparable Stonemeal products. Stonemeal products are often known as remineralizers and
are typically crushed volcanic rock.
In conjunction with Stonemeal certification, Harvest will apply for Fertilizer certification. This will require crop
trials where the product is tested on different crops at different stages of the crop’s life cycle. This process could
take up to 18 months.
Customers
The Arapua Project is surrounded by industrial crop farming, of coffee, soybean, maize and sugar cane. Larger
agribusinesses are likely to use an Arapua product in conjunction with standard industrial fertilizers (MOP, SOP,
MAP, DAP etc.). Small private farms, many which don’t currently use any fertilizer, could use Arapua material as
a complete solution.
Pricing
There are no exact comparables to an Arapua product although there is a Brazilian direct application potassium
product called EKOSIL which sells for c.$70/t.
EKOSIL:
EKOSIL grades 8.0% potassium however only 1% is soluble (in the standard 2% citric acid test). This is significantly
less than the nutrients available in an Arapua product so bodes well for Arapua pricing.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 7
Harvest Minerals
27 September 2016
That said, pricing will be determined by demand and the cost of the fertilizer products available in the Arapua
catchment area. Management expects an Arapua sales price of $50/t or more. In our conceptual model we used
$30/t in years 1 and 2, and $45/t long term.
Product optimization – particle size, pellets?
During this marketing phase, Harvest will refine the production methods and product specification, mainly the
particle size. This effectively means finding the optimum crushing size and whether or not the fines material
needs pelletisation.
The main aim of this work is to maximise the efficacy of the product (agronomic efficiency) while ensuring it is
simple for the farmer to apply/spread. If pelletisation is deemed necessary, this would not add significantly to
our c$1m capex assumption for a 500ktpa operation.
Phase 1 - marketing and initial sales
Harvest is moving towards first production in late October, early November this year. The Environmental Licence
has been granted and a mining contractor was appointed the week before last. As per the Environmental License,
the contractor is permitted to start civil works, waste stripping and generally prepare for mining. This work should
take 30 days, after which the contractor will spend 40 days mining and stockpiling 50,000 tonnes of ore. The ore
mining stage requires a Trial Mining Permit which management expects to be granted in time.
Rolling production of 50kt
The Environmental Licence allows for 50,000 tonnes of rolling production over four years. This theoretically
allows annual production of up to 450Kt per annum, which is sufficient for a commercial scale operation and
more than enough for the Phase 1 marketing stage.
Maximus Resource
Phase 1 will involve mining the Maximus resource, currently 880kt. Note this is from only 3% of the mapped
mineralisation on the Maximus licence area.
Maximus JORC resources:
Material Type
Tonnes (Mt)
K2O%
P2O5%
CaO%
MgO%
Al2O3%
SiO2%
Low grade saprolite
0.52
3.88
3.28
6.48
6.3
7.81
34.28
K2 O high grade saprolite
0.20
5.24
3.29
5.56
5.45
7.9
35.77
P2 O5 high grade saprolite
0.16
4.01
4.62
6.85
5.44
7.63
33.75
0.88
4.21
3.53
6.34
5.95
7.8
34.52
TOTAL
Source: company
Initial sales
Phase 1 marketing will involve supplying the region’s farming operations with sample batches at an introductory
price which should increase over time. Customers will then commit to more tonnage as they confirm the efficacy
of the product and are satisfied that Harvest can deliver the required tonnage. Gaining stonemeal and/or
fertilizer certification will assist this process.
Based on likely product sales pricing and haulage costs, management expects the market area to be a radius of
approximately 200km around the Arapua project area.
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 8
Harvest Minerals
27 September 2016
Scoping study
Harvest commissioned a scoping study to assist with Phase 1 planning. The study estimated pre-production capex
of $0.8m and operating costs of $7/t of product. These numbers will have changed, primarily since Harvest is
now using a mining contractor when the Scoping Study assumed it would buy its own mining equipment. In our
forecasts we have assumed Phase 1 capex of $400k.
Probably the most useful piece of the Scoping Study was the pit design, mine schedule and waste dump planning,
see below.
Maximus pit outline:
Source: Company, Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 9
Harvest Minerals
27 September 2016
Phase 2 - full scale operation
A successful Phase 1 (2017 - 2018) will be defined by building an order book made up of large and small, medium
and long term orders, sufficient to develop a larger scale operation. Phase 2 is the basis of our conceptual
economic model and Harvest valuation. We have assumed a 500ktpa operation and made assumptions about
capex, volumes and sales pricing. However, given the simple nature of the operation (low strip, largely free
digging, and simple processing) we believe that our $1m capex estimate is realistic.
As we highlight in our Valuation & Risk section, this process could take longer than we have modelled and worse
case scenario, Harvest could fail to build a decent size market. This explains why we have used a 40% risk factor.
Once a market has been established, we would regard annual demand/sales of less than 150kt as disappointing.
Phase 2 capex assumptions:
Capital items
Cost
(10.0)
Mining equipment
Process plant
(0.5)
Infrastructure
(0.5)
(11.0)
Subtotal
Contingency
(0.1)
Grand-total
(11.1)
Mining equipment - contracted
10.0
Balance
(1.1)
Debt
N/A
Source: Beaufort Securities
Phase 2 opex assumptions:
Operating costs
$/ton ROM
Mining costs (contracted)
2.0
Plant operating costs
2.0
Support services
1.0
Marketing
2.0
Total cost
Ore value
Profit
7.0
50.0
Margin
86%
43.0
Source: Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 10
Harvest Minerals
27 September 2016
Phase 1 and 2 tonnage and sales assumptions:
Source: Beaufort Securities
Arapua resource and upside
A large scale Phase 2 will depend on a large-scale resource. Management believes that its land package contains
upwards of 15Mt of mineable and marketable resources. The maps below show the small area where the 800kt
Maximus resource was defined, and demonstrate why 15Mt is probably a conservative estimate.
Maximus tenement map – resource area in red
Source: Beaufort Securities, Company
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 11
Harvest Minerals
27 September 2016
Maximus exploratory potential….10-15mt?
Source: Beaufort Securities, Company
Further Arapua exploration potential….
Maximus Prospect
Potential for 15Mt. Existing 800kt resource
from only 3% of mapped mineralisation
Arapua Prospect
Potential for large scale resource
Source: Beaufort Securities, Company
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 12
Harvest Minerals
27 September 2016
Potash project – next door to Vale’s depleted mine
Although not the current focus, Harvest’s Sergipe potash project is potentially very valuable. Sergipe consists of
two licences, Capela which borders Vale’s Taquari-Vassouras potash mine and Sergi, located 35km south. Sergi
has been drilled, has a resource (105mt at 21% KCL) and scoping study. Capela has had 3D seismic which has
identified “the potential presence of salt layers at relatively shallow depths of 235-325 metres”.
The attraction of Sergipe is that Taquari-Vassouras is nearly depleted and expected to cease mining operations
during 2018. Both Sergi and Capela are within trucking distance of the Taquari-Vassouras processing plant.
We see two potentially positive outcomes for Sergipe. Either Vale looks to acquire 100% of Sergipe from Harvest
or the two companies come to some sort of joint venture arrangement. Either way, Sergipe is potentially
extremely valuable. Our Harvest Minerals sum of the parts has a nominal $12.5m value for Sergipe and we see
upside risk to this number.
Sergipe Potash – Capela and Sergi
Source: Beaufort Securities, Company
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 13
Harvest Minerals
27 September 2016
Income Statement ($m) Jun Y/E
2015A
2016A
2017E
2018E
2019E
2020E
Revenue
Production costs
Gross profit
Exploration & other impairments
G&A
Other
Profit (loss) before tax
EBITDA
EBITDA margin (%)
Income tax expense
Profit / (loss) after tax
(0.8)
(0.8)
(0.1)
(1.6)
nm
(1.6)
(0.0)
(2.2)
(0.6)
(2.8)
nm
(2.8)
0.3
(0.2)
0.1
(1.5)
(1.4)
(1.4)
(1.4)
1.7
(0.9)
0.8
(1.5)
(0.7)
(0.7)
-39%
(0.7)
6.9
(2.0)
4.9
(1.5)
3.4
3.5
51%
3.0
12.4
(2.2)
10.2
(1.5)
8.7
8.8
71%
7.7
EPS
(6.1)
(4.0)
(1.5)
(0.8)
3.1
8.0
Source: Company. Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 14
Harvest Minerals
27 September 2016
Cashflow Statement ($m) Jun Y/E
2015A
2016A
2017E
2018E
2019E
2020E
Operating cashflow
Profit/ (loss) before tax
Share based payments
Depreciation
Impairments
Other
Sub-total
(1.6)
0.1
0.0
0.8
(0.8)
(2.8)
0.0
0.0
(2.8)
(1.4)
0.0
(1.4)
(0.7)
0.0
(0.7)
3.4
0.1
3.5
8.7
0.1
8.8
Changes in working capital
Decrease/ (increase) in receivables
Increase / (decrease) in payables
Decrease/ (increase) in inventories
(Gain)/loss on foreign exchange
Sub-total
Interest paid
Taxes paid
Operating cashflow
(0.0)
0.0
(0.1)
(0.9)
(0.9)
0.0
(0.0)
0.2
(2.7)
(2.7)
(1.4)
(0.7)
(0.1)
3.4
(0.7)
8.1
Investing cashflow
Purchase of property, plant and equipment
Purchase of intangibles
Sustaining capital
Other
Investing cashflow
(0.0)
(0.6)
(0.6)
(0.0)
(0.8)
(0.8)
(0.6)
(0.1)
(0.0)
(0.7)
(0.0)
(0.0)
(1.3)
(0.2)
(0.1)
(1.6)
(0.1)
(0.1)
Financing cash flows
Equity financing
Warrant exercise
Issue costs
Borrowing
Other
Financing cash flows
2.5
(0.1)
2.4
5.2
(0.4)
4.8
0.5
0.5
-
-
-
Net change in cash
Cash start period
FX effect
Cash end period
Net cash (debt)
0.9
0.5
0.1
1.5
1.5
1.4
1.5
(0.2)
2.7
2.7
(1.6)
2.7
1.1
1.1
(0.7)
1.1
0.4
0.4
1.7
0.4
2.2
2.2
8.0
2.2
10.2
10.2
Source: Company, Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 15
Harvest Minerals
27 September 2016
Balance sheet ($m) Jun Y/E
2015A
2016A
2017E
2018E
2019E
2020E
Non-current assets
Property & plant
Intangible assets
Total non-current assets
0.0
1.4
1.4
0.0
4.0
4.0
0.6
4.1
4.6
0.6
4.1
4.6
1.9
4.3
6.2
1.8
4.3
6.1
Current assets
Cash and equivalents
Trade and other receivables
Inventory
Total current assets
1.5
0.0
1.6
2.7
0.1
2.8
1.1
0.1
1.2
0.4
0.1
0.5
2.2
0.1
2.3
10.2
0.1
10.3
3.0
6.8
5.9
5.2
8.4
16.4
Current liabilities
Trade and payables
Short-term borrowings
Other
Total
0.7
0.7
0.1
0.1
0.1
0.1
0.1
0.1
0.4
0.4
0.6
0.6
Non-current liabilities
Medium and long-term borrowings
Other
Total
-
-
-
-
-
-
TOTAL LIABILITIES
NET ASSETS
0.7
2.3
0.1
6.7
0.1
5.8
0.1
5.0
0.4
8.0
0.6
15.7
Equity capital
Share capital
Reserves
Other
Accumulated loss
Total
14.2
2.7
(14.6)
2.3
21.3
2.8
(17.4)
6.7
21.8
2.8
(18.9)
5.8
21.8
2.8
(19.6)
5.0
21.8
2.8
(16.6)
8.0
21.8
2.8
(8.9)
15.7
TOTAL ASSETS
Source: Company. Beaufort Securities
THIS RESEARCH BROCHURE IS A MARKETING COMMUNICATION: It has not been prepared in accordance with legal requirements designed to
promote the independence of investment research and is also not subject to any prohibition on dealing ahead of the dissemination of investment
research, although as a matter of policy Beaufort Securities Ltd requires its employees not to deal ahead of the dissemination of the reports.
Page | 16
Harvest Minerals
27 September 2016
Recommendation Breakdown
During the three months to end-August 2016, the number of stocks on which Beaufort Securities has published recommendations was 297, and the
recommendations were as follows: Buy - 112; Speculative Buy - 118; Hold - 63; Sell - 4.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.
Disclaimer
This report is published by Beaufort Securities (“Beaufort Securities”). Beaufort Securities is Authorised and Regulated by the Financial Conduct Authority and is
a Member of the London Stock Exchange.
This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal
requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of
investment research in COBS 12.2.5. However, Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of nonindependent research, except for legitimate market making and fulfilling clients’ unsolicited orders.
RELIANCE ON THIS NOTE FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE AN INDIVIDUAL TO A SIGNIFICANT RISK OF LOSING ALL
OF THE FUNDS, PROPERTY OR OTHER ASSETS INVESTED OR OF INCURRING ADDITIONAL LIABILITY.
By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of Beaufort Securities. When distributing this
document, Beaufort Securities is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to
this document. Accordingly, Beaufort Securities will not be responsible to any recipient for providing the protections afforded to its clients.
Beaufort Securities may affect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive
remuneration for the publication of its research and for other services. Beaufort Securities may be a shareholder in any of the companies mentioned in this
report. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to Beaufort Securities or the
Group, which is not reflected in this material. The remuneration of the author of this report is not tied to the recommendations on any shares mentioned nor
to the any transactions undertaken by Beaufort Securities or any affiliate company. Further information on Beaufort Securities’ policy regarding potential
conflicts of interest in the context of investment research and Beaufort Securities’ policy on disclosure and conflicts in general are available on request. Please
refer to http://www.beaufortsecurities.com/important-info.
This document is not an offer to buy or sell any security or currency. This document does not provide individually tailored investment advice. It has been
prepared without regard to the individual financial circumstances and objectives of persons who receive it. The appropriateness of a particular investment or
currency will depend on an investor’s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for
all investors.
Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount
invested. The listing requirements for securities listed on AIM or ISDX are less demanding and trading in them may be less liquid than main markets.
This document is based on information Beaufort Securities has received from publicly available reports and industry sources. Beaufort Securities may not have
verified all of this information with third parties. Neither Beaufort Securities nor its advisors, directors or employees can guarantee the accuracy,
reasonableness or completeness of the information received from any sources consulted for this publication, and neither Beaufort Securities nor its advisors,
directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its
contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded
by the applicable law). This document is not to be relied upon and should not be used in substitution for the exercise of independent judgment.
This document includes certain statements, estimates, and projections with respect to the anticipated future performance of securities listed on stock
exchanges and as to the market for these shares. Such statements, estimates, and projections are based on information that we consider reliable and may
reflect various assumptions made concerning anticipated economic developments, which have not been independently verified and may or may not prove
correct. No representation or warranty is made as to the accuracy of such statements, estimates, and projections or as to its fitness for the purpose intended
and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only and may change without
notice. Other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this
report. Those reports reflect the different assumptions, views, and analytical methods of the analysts who prepared them. This report has not been disclosed
to any of the companies mentioned herein prior to its publication.
The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further
distributed to any other person or published, in whole or in part, for any purpose. Other persons who receive this document should not rely on it. Beaufort
Securities, its directors, officers and employees may have positions in the securities mentioned herein.
Company Disclosures for:
Harvest Minerals
The following disclosures apply: 7
Definitions of Disclosures
1. In the past 12 months, Beaufort Securities Limited or its affiliates have had corporate finance mandates or managed or co-managed a public offering of the
relevant issuer’s securities or received compensation for Corporate Finance services from the relevant issuer.
2. Beaufort Securities Limited expects to receive or intends to seek compensation for Corporate Finance Services from this company in the next six months.
3. The investment analyst or a member of the investment analyst’s household has a long position in the shares or derivatives of the relevant issuer.
4. The investment analyst or a member of the investment analyst’s household has a short position in the shares or derivatives of the relevant issuer.
5. As of the month end immediately preceding the date of publication of this report, or the prior month end if publication is within 10 days following a month
end, Beaufort Securities Limited and / or its affiliates beneficially owned 1% or more of any class of common equity securities of the relevant issuer.
6. A senior executive or director of Beaufort Securities Limited or a member of his or her household is an officer, director or advisor, board member of the
relevant issuer and / or one of his subsidiaries.
7. Beaufort Securities Limited acts as corporate broker to the relevant issuer.
The investment analyst who is responsible for the preparation of this investment research is employed by Beaufort Securities Limited.
Beaufort Securities is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchan ge
© Beaufort Securities Ltd, 131 Finsbury Pavement, London EC2A 1NT
Registered in England & Wales No. 2693942