Analyst Actions: Verde Potash Coverage Initiated With Outperform Rating at Scotiabank

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Investment Highlights:

We have initiated coverage on the common shares of Verde Potash plc (Verde) with a 1-Sector Outperform rating. Verde is developing the Cerrado Verde potash project, a 3 million tonne per year scalable potash project in the heart of Brazil's agricultural region. If Verde is able to finance the $600 million price tag for the first 0.6 million tonnes of capacity, it could begin selling potash in 2015- 2016. Our one-year target price is C$9.75 per share, representing a 50% discount to our NAV of $19.75 per share.

Several positives. (1) Sustainable transportation advantage; (2) Brazil in a net deficit position for potash through at least 2025; (3) local development banks seemingly eager to provide financing; (4) capacity growth partially funded from cash flow; and (5) a patent pending for the production process.

Stock catalysts. Over the near term, we are focused on (1) the release of a definitive feasibility study; (2) a potential salt agreement; (3) the Q1/13 approval of an environmental impact statement ( EIS ); and (4) progress on equity and debt financing.

Valuation. To arrive at our $19.75 per share un-risked NAV, we use a long-term real-dollar weightedaverage potash price of $654/tonne (DEL Cerrado), which on an FOB Saskatchewan basis is close to what producers are earning today. We estimate that Verde Potash requires an equivalent potash price of $275/tonne (FOB Saskatchewan) to break even. We see our un-risked NAV rising by at least 8% if Verde Potash is able to move to its upside scenario of a 4 million tonne project.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

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