Harvest Minerals Ltd.
- LON: HMI
- Shares Outstanding: 185.84M
- Share price GB$0.37 (12.02.2020)
- Market Cap: GB£6.88M
Recently, we interviewed Mark Heyhoe, Chief Operating Officer for Harvest Minerals, an AIM-listed organic natural fertiliser producer located in Brazil. CLICK HERE to watch the full interview.
Crux Investor has previously investigated potash investment, but this one is a little different. Harvest Minerals says it has a unique fertiliser product: KPfertil. Heyhoe claims KPfertil has significant cost, production and technical advantages; let’s unpack them.
- KPfertil is much easier to produce than many other fertilisers. It is found at surface in the form of a heavily weathered rock/lava. The only processing step required is for the material to be crushed. The conventional crusher appears to be a relatively inexpensive overhead. Once crushed, KPfertil can be applied to soil to enhance crops.
- At surface means KPfertil is cheaper to produce than conventional fertilisers. Heyhoe quotes a current production figure of around US$18 per ton, with a reduction to US$7.50 once Harvest Minerals scales up their operation. This is good news for farmers: Harvest plans to undercut the competition.
- KPfertil claims to be considerably more environmentally friendly than other fertilisers, given its organic, natural properties. The modular plant allows for more simple production than more conventional fertilisers: the product is excavated, trucked, homogenised, crushed, then is ready to sell. This is far less environmentally impactful courtesy of the simplified, more energy-efficient process.
- Heyhoe says KPfertil has some interesting consumer advantages. With KPfertil there is no leaching, the loss of water-soluble plant nutrients from the soil, due to rain and irrigation, which can reduce the yield of crops significantly. KPfertil goes straight into soil and stays there for longer than other fertiliser options. This is means farmers use less fertiliser and therefore save money in time and product. Studies have shown the remineraliser releases phosphate and other nutrients into the soil in a more gradual way, finding that it was over ten times as effective as TSP in sandy soil after 80 days.
So, what does their business model look like?
Harvest Minerals has performed “extensive” trials in order to the get the product registered; there have been numerous trials performed on KPfertil’s primary markets, such as coffee, sugar cane and maize. Last year, Harvest Minerals produced 50,000t of KPfertil for potential customers to test on their crops; now they have to wait for the reaction from the farmers testing the product.
In June 2018, Harvest Minerals had cash and had conducted trials efficiently, but they were missing something; the market wasn’t listening to their story. The company was offered a distribution deal by a local operator that Heyhoe says looked strong on paper. However, disappointing sales figures by their chosen sales partner left Harvest Minerals with a decision to make. They decided to bring sales in house and now have 10 salespeople and a sales manager covering the area. It’s hard to tell if that exercise has delayed their sales efforts in the market or whether it’s just slow getting traction in Brazil at this level. We appreciate it can take time to establish relationships and build trust in a new market, and a few more salespeople on the ground would have helped.
A recently financed 320,000t per annum processing plant is clearly under-utilised, because the testing period by local farmers means smaller orders until they are confident of the product. Even when they are confident of the KPfertil product, the farmers still have relationships with other sales forces and fertiliser companies. This is similar to the pharmaceutical industry: it takes time and the competition won’t let up. Hayhoe defends the decision to spend the money upfront to build a plant of that scale. The cost to build is around US$1M, with the hope that sales dramatically improve once the results of this year’s growing season are in.
The buying season for fertiliser is May to December. Heyhoe may be correct about the order in which they chose to spend their available cash. Current cash to hand is c.$5M and given current plans and the relatively low overheads and burn-rate should not need to go to market to raise more money anytime soon. It rests on how quickly the farmers and grouping groups take up KPfertil and how the competition responds.
The main difficulty with selling KPfertil is inherent in the nature of the market itself. While Harvest Minerals claims Brazil has the world’s fastest-growing fertiliser market, the simple reality is that local agriculturalists were unwilling to risk their entire harvest on an unfamiliar product; normal, prudent, and not alarming. The demand could be there, with 4.5M hectares of potential agricultural land between their operation and the nearest major Brazilian airport.
Heyhoe explains the company currently sells c. 50,000t of KPfertil per annum, to around 70-75 customers. Their largest customer constitutes 9% of total sales. In addition, Heyhoe says there have been ‘positive indications’ that farmers will move to 100% KPfertil use. The number of customers and quantity is unknown. Hayhoe is unwilling to speculate or give guidance as to what they are targeting: a major frustration to Harvest Minerals investors.
Harvest Minerals is waiting for a permit, and the management team is currently working on upgrading storage capacity so that it is more in line with the company’s production capability.
It is very early days, but the share price has seen little movement. We will continue to follow this story closely to see if they do what they say and to see how their competition reacts.
Company Website: http://www.harvestminerals.net/
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