These fields are ripe for Harvest Minerals
“…With a share price of just 2.75p Harvest Minerals, offering exposure to South America’s vast agricultural markets, may be one to follow…”
With its abundant land, sun, and water Brazil is the world’s largest producer of agricultural commodities, which account for a third of the country’s GDP and nearly half of its exports. But it depends on other economies for its fertiliser, importing more than any nation other than China.
Harvest Minerals (AIM:HMI), producer of KPFértil, a direct application organic fertiliser that does not require complex processing or chemical alteration before it can be applied to crops, is working to position itself to take advantage.
As we reported in January when we identified the company as one of a dozen dark horse stocks to watch this year, Harvest, which produces its fertiliser at its 100pc owned Arapua plant, had hoped 2020 might be the year in which it would make a significant breakthrough into Brazil’s sprawling market.
Those hopes were stalled by the pandemic, which has hit Brazil particularly hard. With the second highest Covid death toll in the world, and new variants to contend with, the country continues to struggle to bring the virus under control. But since the outbreak Harvest has made progress on several fronts, laying the foundations for a better 2021 if conditions improve.
Last February, just before the pandemic struck, the company was awarded mining and environmental permits that will allow it to significantly step up production at Arapua, eventually to 400 kilo tonnes per annum. Harvest has increased the Project’s mining area four-fold to 78,894 square metres, and storage capacity three-fold to 30,000 tonnes.
The company has also completed a series of agronomical tests proving KPFértil’s suitability for cultivating a much wider range of crops, opening up big new markets. A major development, which Harvest had been working towards since 2017, was the approval of the product for as a source of potassium and phosphate for coffee plants, confirming it can be used to replace conventional coffee fertilisers.
In December agronomic tests found KPFértil demonstrated superior yield performance in sugarcane plantation areas compared with the widely used Bayóvar fertiliser, opening the way for Harvest to sell to the country’s world-leading sugar market. And earlier this year tests showed the KPFértil produced carrot yields that compare favourably with standard applications, nurturing a significant increase in soil nutrients.
In anticipation of entering these new markets Harvest secured agreements with Government of Minas Gerais – a key region for Harvest – to establish ties with local suppliers, and with the Banco do Brasil – the country’s largest provider of credit to Brazilian farmers – which will allow the company’s clients to access the bank’s credit lines to fund their orders of KPFértil up to a total of R$5.0m per client (about US$1.0m).
Last month the company announced it had exceeded its (Covid-adjusted) 2020 sales target, selling 54,155 tonnes of the fertiliser against a target of 50,000 tonnes. 82pc of sales had been placed in the second half of the year, auguring well for 2021. The company’s cash balance at 30 September 2020 was AUD$3,723,397 with a positive working capital position of approximately AUD$4,861,723. Harvest’s interim report to 30 June 2020 stated a loss of AUD$3,806,234) (2019: AUD$1,177,938).
A booming market
Harvest is seeking to take advantage of a strong upturn in demand in its target markets, the Federation of Agriculture and Livestock of the State of Minas Gerais reporting that production in the region hit a new record in last year of R$96.1 billion (about US$18.7bn), 24.3pc up on 2019.
That surge is an instance of increased worldwide demand for food commodities. Global food prices reached their highest level for almost seven years in January, the UN Food and Agriculture Organisation’s food price index rising 10pc over the previous 12 months to reach its highest level since July 2014, with demand sharply up for grain, oilseeds, soybeans, and sugar.
Harvest’s prospects for gaining a foothold in a vast and growing market seem promising – if Brazil can manage its recovery from Covid. The Brazilian economy does seem to be holding up relatively well, figures this month showing it contracted 4.1pc last year, one of the most resilient performances in Latin America, growing 3.2pc in Q4 2020 and 7.7pc in Q3. To put that in perspective, the Argentinian and Mexican economies shrank 10 and 8.5pc respectively in 2020 (for further context the UK economy contracted by 9.9pc).
The continued resilience of the recovery will depend on the Brazilian government’s ability to manage the pandemic and prevent the stimulus package that has helped shore up the economy, worth more than 8pc of GDP, from bubbling over into soaraway inflation and debt.
Over the past couple of weeks we’ve highlighted a few alternative options for gaining exposure the current surge in demand for commodities, including marble, helium and mineral sands. With a share price of just 2.75p Harvest Minerals, offering exposure to South America’s vast agricultural markets, may be another to follow.