I have a 20% position in MBC.TO right now call me nutz but I don’t think it should be as cheap as it is right now. April 1st is going to be interesting when they report! It has so many advantages over its compitition being based in Brazil, never mind great assets, committed financial backers, and insiders who are heavily invested . The guy who had the best analysis on MBAC that made me get excited about this name a little while back is still a bull Robert Winslow and this is what he had to say recently in an interview with Business Insider.
There is one development stage fertilizer company that we're most intrigued by, and that's MBAC Fertilizer Corp. (MBC:TSX; MBCFFOTCQX), because its finance risk is now largely behind it?it is about to move into production in the next few months or so. It has a phase one phosphate project in Brazil called Itafos, right in the Cerrado, which is the breadbasket of Brazil. It also has another phosphate asset to the north of the Cerrado. This company has a logistic advantage because half of the phosphate fertilizer manufactured in Brazil uses imported rock from Africa. We are extremely interested in this stock and it has our Top Pick rating in the sector. We have a $5.25 target on the stock with an Outperform rating. Frankly, the company is a potential acquisition target because there are parties that appear to be aiming to consolidate the phosphate fertilizer sector in Brazil.
Here is what he said a few years ago that put this name on the map for me
RW: MBAC Fertilizer Corp. (TSX:MBC) is developing a phosphate project in Brazil. We like this one because, from a transport-cost perspective, it's advantaged logistically. Brazil is a large Ag-based, or Ag-centric, economy and about 25% of its GDP is driven by this sector. The country has a tremendous amount of arable land that can be expanded to help feed the world and also has an enormous amount of fresh water. So, it's got the fresh water and the land. We think agriculture will drive that economy for years and years to come. So, that's the macro view and the overlay on why we like Brazil.
Now keeping that growth in mind, consider that Brazil imports half of its phosphate and 90% of its potash. So, the country is beholden to imports for its fertilizer even though it's an Ag-centric economy. MBAC's phosphate deposit in the Cerrado is next door to the growing region that's like the Brazilian breadbasket. With this project, the company is looking at mining phosphate ore and converting it to single super phosphate (SSP)?a type of phosphate fertilizer that has sulfur in it. In phase one, MBAC is looking to bring on 500,000 tons of production by summer 2012; so, we're less than 18 months away from that. There also are prospects for phases two and three (in other words, not just 500,000 tons), but it could go up to 1.5 million tons (Mt.) of single super phosphate or other phosphate fertilizers over the next five years or so.
We estimate MBAC has a transportation advantage in the neighborhood of $60?$90/ton because, right now, the brunt of the phosphate rock that comes into Brazil comes from Morocco. Once it's on vessel in Morocco, it has to cross the ocean, land on the coast of Brazil and be offloaded and import duties will be paid. After the material is put on a truck or rail, it must be transported all the way up to the Cerrado. That whole transportation-and-logistics situation costs a tremendous amount. MBAC can eliminate that cost because it has this deposit right in the Cerrado. So, we think that advantage is competitive and sustainable. We expect MBAC to drive significant economics with this project. We're looking at about $65 million of EBITDA for phase one, and we believe that can grow to north of $200M of EBITDA with phases two and three.
TER: With that transportation advantage, it wouldn't take a lot of capital to double.
RW: Well that's the other thing. Unlike a lot of these junior stocks we talk about, the financing (on phase one) is largely done. MBAC recently raised a little over $40 million of equity and now has about $90 million of cash on the balance sheet. Now, the company's securing debt facilities with IFC and the local banks in Brazil. So, we're looking at the company just dotting the "Is" and crossing the "Ts" on these agreements. It has a bit of due diligence to do but it's very close to being done. We've got a $6 target on the stock. It's trading at around $3 now. We believe MBC could be a $15?$20 stock inside four or five years. |
