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 Nasdaq, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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