Harvest Minerals tops off busy period with strategic fertiliser deal
After delivering two pieces of potentially game-changing news in as many weeks, Brazil-focused fertiliser business Harvest Minerals is looking well-positioned in its ongoing journey towards profitability. With shares drifting slightly since leaping in May on the news that its flagship KPfértil product had been conditionally approved, is Harvest worth re-visiting follows today’s key distribution deal announcement?
Key deal
Today saw Harvest reveal that it has secured a strategic alliance with major Brazilian fertiliser developer, producer, and distributor Geociclo. Geociclo’s established sales force will market and sell Harvest’s multi-nutrient natural fertiliser KPfértil – currently produced at its Arapua project in Brazil- to several new agricultural regions.
Under the agreement, Geociclo will also grant Harvest unrestricted access to its MAPA-accredited research and trial production facility, which is expected to speed up the development of future products. Finally, Harvest will be able to store large quantities of KPfértil in Geociclo’s storage facilities. These are based in Uberlândia, Brazil’s largest agricultural region and outside the area initially targeted by Harvest’s sales and marketing function.
Commenting on today’s news, Brian McMaster, executive chairman of Harvest, said: ‘Geociclo is an internationally recognised agricultural company and we believe that this alliance will significantly enhance our sales channels and complement our existing arrangements with other parties. As market leaders in the Minas Gerais region, Brazil’s largest agricultural region, Geociclo have an established sales team that will now work to promote KPFértil.
‘Additionally, the Agreement provides further benefits, namely Geociclo’s extensive research and development facilities which our team will utilise to broaden our range of products. Geociclo’s existing MAPA accredited manufacturing facilities, capable of blending and producing these new products, allows us a fast-track to market. With the recent receipt of MAPA approval for KPfértil, we will continue to focus on sales and our objective of expanding production capacity at Arapua to build revenue and shareholder value.’
Bigger picture
Importantly, today’s deal follows the news last week that Harvest has received long-awaited approval from the Ministry of Agriculture (MAPA) in Brazil to register KPfértil as a remineraliser. Investors had been waiting for the approval since March when Harvest bagged a $2m contract to sell KPfértil to Agrocerrado, a significant fertiliser and agriproducts distributor in the region.
Agrocerrado agreed to buy an initial supply of 36Kt of KPfertil at $60/t, with supply coming from existing stock already produced at Arapua. Despite marking a major step forward, the deal only covered around 10pc of Arapua’s installed capacity. This led many to see MAPA certification as the next vital step in establishing KPfertil’s position as a completely natural product, potentially increasing local demand.
Today’s news seems to have confirmed these suspicions, with the deal thrusting Harvest into new territories and aligning it with some of its niche’s most prominent players. As at the time of writing, the market has reacted favourably to the news, with shares up 7pc to 19p. However, the company remains some way off the highs of 22.8p hit in May.
It is worth remembering that, alongside its announced sales, Harvest is undergoing a fully-funded programme to increase production of KPfértil at Arapua to support its existing and anticipated sales. Last week, it said it had advanced its business plan following the placing and commissioned an enlarged 320Ktpa modular processing plant. According to a research note by Arden released this morning, the business will be able to sustain mining operations for c.40 years at 320ktpa,
Now Harvest is licenced, debt-free, and so confident that it will secure more deals that it is expanding its processing capabilities, it will be interesting to see how shares perform in H2 2018 after a slight lull. More positive news and an increasing proximity to profitability could begin to attract further market attention. Indeed, Arden gave the firm a target price of 39p in this morning’s note – considerably above current levels.
You can hear Doc Holiday speaking to Mark Heyhoe of Harvest Minerals here
Click here to find Harvest Minerals website
Above: Mark Heyhoe presented at the UK Investor Show 21st April 2018
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