DuSolo Fertilizers Inc. (TSX.V:DSF) CEO Eran Friedlander Podcast Interview

Midas Letter
Midas Letter
DuSolo Fertilizers Inc. (TSX.V:DSF) CEO Eran Friedlander Podcast Interview

DuSolo Fertilizers Inc. (TSX.V:DSF) CEO Eran Friedlander discusses the company’s imminent production on its Bomfim Phosphate Project in Bellos Campos, Goias State, Brazil. According to Friedlander, the company expects to initiate production of Direct Application Natural Fertilizer from its high grade phosphate pit within weeks, and sell the product to local farmers at 50 – 60% gross margin. He says the objective is to eventually be producing at least $30 million worth of phosphates annually.

Listen to the interview by clicking below

But the company’s productivity and output won’t be limited to just one project, or just one pit. On Bomfim alone, the company sees as many as 10 additional drilling targets presently. There are also two other major projects in the pipeline that the company will explore and develop out of cashflow from the Bomfim operation.

Full Transcript of Interview

James West:         Eran, why don’t you summarize for us please the opportunity for investors in DuSolo Fertilizers?

Eran Friedlander:   Well, I think the opportunity lies in two magic words, Brazil and fertilizers. The fact that we are focused on a country that has one of the largest demands or appetites for fertilizers in the world and very little lack of local fertilizers makes for a very compelling business opportunity.

We are focused on searching for phosphate, which is a very important ingredient in the production of NPK which is the most commonly used fertilizer in the world. And we have found it in large and good quantities in Brazil so we are now ready to go into production and start monetizing this discovery.

James West:         Okay. So ready to start monetizing, so you’re close to production?

Eran Friedlander:   Yes, we anticipate to be in production in as early as this year, as early even as the next few weeks.

James West:         Oh, very good. Okay. So, why don’t you summarize for us the Flagship Project and how you came to acquire it?

Eran Friedlander:   Well, Bomfim project is a project that is located in a very central location in Brazil, not far away from the capital, Brasilia. It is located within the Cerrado Region which is the largest agriculture region in the world, very large demand for fertilizers because we are talking about an area, a tropical area where there’s a lot of fair rainfall, the rain washes away nutrients from the soil, so farmers need to fertilize their land on an ongoing basis, sometimes twice a year. So for us, the positioning is perfect. It couldn’t get better than that. It basically, with our location, we are able to cater to a local community of farmers.

As far as the project itself is concerned, we have known through our top geologist that we employ at DuSolo, that this area is a very good area for exploration and development of phosphate projects . In fact our COO, our Chief Operating Officer, is a professor in the University of Brasilia, a professor of geology that worked in that area for the past 20 years. He is very familiar with this region and the geological potential of this region. And he was the one who identified this opportunity. He brought it forward to me and suggested that we will acquire this opportunity.

MbAC Fertilizer Corp. Creates an Opportunity

The reason why he was so confident of the potential is the proximity to an operating mine, the mine that is owned in fact by a Canadian company by the name of MbAC Fertilizer Corp. (TSX:MBC). They have developed a mine by the name of Itafos, which is less than 30 kilometers away from where we are located. And Dr. Campos, our chief operating officer, was the person who developed the geological model behind the discovery of that mine.

So with his knowledge and his experience in operating in this region, he basically came forward and suggested that the area, which we have acquired, the Bomfim area, is an area that in his opinion could contain a very large amount of phosphate in very good grades and quality.

So, we went out and they acquired this area about a-year-and-a-half-ago. We followed his advice as far as research is concerned. And the results so far showed that he was right. Basically, the geological model that he has developed and which has served us in exploration to date has enabled us to uncover ten targets – all of which contain a lot of evidence that they show the possibility of proving a very large deposit.

James West:         Okay. So, you’re targeting local sales and local demand. What is the local demand picture look like for those phosphates?

Eran Friedlander:   Well, we are in that area of Cerrado like I mentioned before, it’s an area where the demand is very high. It is an area where there’s very little local supplies so most of the supply comes from overseas. Therefore, there is a very significant opportunity here for a local player.

At the present, MbAC is developing a production of SSP, which is one of the byproducts of phosphate. It is a phosphate-based fertilizer that has the largest demand in Brazil. And even when they are at full capacity, MbAC is going to supply only 25% of the local demand for this type of product. So obviously, there is lots of room for another company to take advantage of this huge potential. And we are aiming at being the next entrant into that space.

James West:         Okay. So, 75% of what’s used locally is imported. So, you’re obviously in the position to offer it at superior cost.

Eran Friedlander:   Yeah. Well, 75% at the moment is local. I mean the importation figure is larger than that at the present because MbAC is not operating at full capacity. Once they are operating in full capacity, which is according to their estimates a year from now, that’s when they are going to basically supply 25% of the local demand.

At that point in time, yes, there’s still a lot of room for capturing significant amount of market share and this is where we are planning to come into the picture.

James West:         Okay. So, what do you anticipate in the way of gross margins, production cost, et cetera?

Eran Friedlander:   Well, all depends because the way we are planning to grow into production is by first producing a very basic type of phosphate-based fertilizer. It is a product by the name of Direct Application Natural Fertilizer, and what it basically means is that we are going to scoop high-grade material off the surface, which we have in large quantities, crush it and then ship it to the farmers surrounding our project area.

The farmers have been using this material for the past five years. MbAC used to supply that material to them, but since they are now going into production of SSP, they have ceased manufacturing this material.

So basically, they have created the market for us and we can easily take advantage of the void that they have left in the marketplace by capturing the same market share to start with. And we plan to increase the market share and to increase the sales in the years to come. That is the first stage of production that we are planning for Bomfim.

In the second stage, we are looking into all possible routes to produce value added phosphate-based fertilizer. So that would include SSP but not limited to SSP. That would include also a MAP, DAP, all thermo phosphate. Basically, any type of phosphate-based fertilizer that is currently manufactured and sold in Brazil.

James West:         Okay. So, what is the revenue build look like for the company going out 12, or 24, or 36 months?

Eran Friedlander:   Yes. So, you asked about margins before-Direct Application Natural Fertilizer, the margins are very high. We are talking here margins at around 60% to 70%.

James West:         Wow.

Eran Friedlander:   – profit margin on our product that is very simple to produce and basically has zero transportation and logistics cost because the farmers come to the plant gate with their trucks. They load their trucks with the fertilizer and they go back to the field and spread the material on their soils. So, that is a very attractive opportunity, obviously. The issue for us with that product would be, first, the license that we are going to be operating under.

So, for the first couple of years we plan to operate under a license that is called, a quarry license in Brazil or an extension of the exploration license. And that would cover our production by 100,000 tons of finished product every year. But what we intend to do immediately after we start production is to apply for a full-blown mining license and that would enable us basically to sell an unlimited amount of product, obviously, depending on what the market can digest.

Our thinking as far as Direct Application Natural Fertilizer is concerned, that we can capture about 30% of the existing marketplace for this type of product and its alternatives so basically, somewhere around 300,000 tons a year. This product sells for around $100 per ton. So, we think that within two to three years, we can sell somewhere around 20 to $30 million a year of Direct Application Natural Fertilizer with the same profit margin that I mentioned before which is around 60 percent to 70 percent.

James West:         Wow.

Eran Friedlander:   As far as the second stage of production is concerned, there, we’re talking about a product that sells for a significant premium. So, anywhere between twice to four times the price of a Direct Application Natural Fertilizer with a profit margin that’s around 50% that’s based on MbAC’s estimate and at much larger quantities. So, like I said before, MbAC at full capacity is going to supply 25% of local demand for SSP which stands at around 500,000 tons per year.

We plan to build a facility with the same capacity. So, somewhere around 500,000 tons to supply one of the products that I’ve mentioned before whether it’s DAP, MAP, thermo phosphate. All of them are suitable candidates at the moment depending on lab results and economic studies.

Once we are in production of these products, so obviously, the revenues and the profits will increase significantly. I think MbAC cost estimates show that they can sell somewhere around a hundred and some million dollars a year of SSP and make profits of around $50 million. I think that is a fair estimate of size we are concerned as well.

James West:         So, how does your geology compare to MbAC’s?

Eran Friedlander:   Well, obviously, like any CEO, I am going to say that we believe that we have a better product than MbAC in terms of the geology, but I think that at this point in time, we also have a lot of information that suggests that what I’m saying is actually accurate. We, on a most interesting target which is the Santiago target, we have drilled about 20 holes. We did a lot of detailed mapping, we’ve done some pit opening and we did a lot of the work in terms of removing vegetation from these areas.

What we have uncovered there is a huge outcrop of high-grade phosphate, something that is very unique in Brazil.

And that outcrop covers a very large area. The more work we do in Santiago, the bigger the area seems to be. And we know that this is very unique to the phosphate belt of Brazil and to Brazil as a whole.

So, we believe that that area alone should yield a very significant resource with very good values as far as the grade and the quality of the ore is concerned. And I think that eventually that could translate to a very significant resource all together, bearing in mind that this is just one out of ten targets that we have. So, if in that target we can already prove a very large resource, I mean, everything that we will be uncovering the other nine targets will come in as a bonus. And then, there are still a lot areas that we haven’t done any exploration at all. And we are very optimistic about finding even more targets.

So, the total resource is going to be a combination of a few ore bodies the same as in the case of MbAC and we think that in total, what we’re going to have is something at least as large, if not the greater and at the higher grades and quality.

I can go into geology even further and explain why how could that happen. But I think that what is important to mention here is when you look at this type of deposits, this is a deposit that was created by way of sedimentation. And the location might be of extreme importance as far as the creation of, you know, where most of the sedimentation occurred. We think that we have the heart of the phosphate belt as far as where most of the organic matter was captured and was converted into phosphate at later days.

James West:         Wow, it sounds very interesting. Why don’t you describe who are the major shareholders in the company, what percentage is owned by insiders, management, institutions, et cetera.

Eran Friedlander:   Yeah, well the biggest shareholder in the company is Haywood Securities. They hold about 50% of the company. Myself, I’m a big shareholder in the company and so, some of the managers and directors in the company, collectively, we own about 20% of the company.

And then, there are few large groups of investors who own an additional 15% of the company that includes M&G who has just bought a large stake in the company through a private placement. They have bought almost 10% of the company and they provided most of the recent capital that we have managed to raise for the company. Their intention is to increase their position over time so I think, that would come into play in the future as we raise more money to subsidize or basically cover our investment going forward.

James West:         Sure. Okay, are they a Brazilian group?

Eran Friedlander:   M&G?

James West:         Yes.

Eran Friedlander:   M&G is a UK-based fund. They are actually the biggest investment fund in the UK.

James West:         M&G?

Eran Friedlander:   They are owned by Prudential.

James West:         Okay, M&G.  So then, what are the near term catalyst that are going to drive shareholder value for investors looking to make an investment right now?

Eran Friedlander:   Well, think like I said before, we are very hopeful about going into production in the next few weeks or months. We are in the process of acquiring equipment and obtaining all the licenses for that type of activity.

We also started to inform the farmers about our intentions. They are familiar with the opportunity that we present in terms of them being able to get hold of this very much needed type of fertilizer locally.

So, I think that that would yield some orders as soon as we get everything set up for operation.

On top of that, what we are planning in terms of the exploration is to step out the former drilling campaign, which has yielded a very substantial initial resource report. We think that we can easily increase the initial resource report just by stepping out the drilling campaign on those three targets that we have already started drilling. The information that we have in hand shows that the ore bodies cover a much larger area than we have initially drilled. So, we are quite confident that additional drilling on those targets would increase their resource.

We have just recently announced that we have made an additional discovery of a tenth target. We would like to do some drilling there because of its proximity to Santiago which is our main focus area. We believe that if we can prove this last target is substantial, it could add a lot of potential to Santiago as well.

So that would be an additional catalyst and obviously, there are other options and opportunities that we are working on at the moment including some interest from large investors and some other opportunities. But they are still at the very early stage, so I can’t talk about it at the moment.

James West:         Sure. Okay. Eran, let’s leave it there for now, we’ll come back and check on your progress in three months’ time and see how you’re making out. I like to thank you for joining us today.

Eran Friedlander:   Thank you. Thank you very much for this opportunity.

James West:         Thank you.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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