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 Sun Jan 16, 2011
Express 2011-01: Research Report Focus - Amazon Mining Holding plc
    Publisher: Kaiser Research Online
    Author: Copyright 2011 John A Kaiser

 

Kaiser Express 2011-01

January 16, 2011

Kaiser Research Focus Report - Four Winners with Double Digit Potential for 2011

Some KRO recommendations have done extremely well since the start of 2009 and the obvious question as we head into 2011 is where do they go from here? Today we focus on four recommendations we believe have the potential to achieve double digit prices during 2011 as their stories evolve to the next level. These four companies stand out in that their stories are not a function of general market trends, meaning it will be the fundamentals that drive higher prices, not market sentiments. Atac and Peregrine are emerging discovery plays whose upside does not hinge on higher gold or diamond prices; it is all about how big and rich their discoveries are at prevailing prices. Quest and Amazon are "pounds in the ground" development plays which are possible solutions to rare earth and potash supply problems for which there are few competing solutions, none of them short term. All four have the potential to become very high profile during 2011.

Hysteria will also sweep the fertilizer market as food prices soar thanks to the combined onslaught of weather induced crop failures and demand growth from emerging economies. It will look like a repeat of 2008 but this time around nobody will be able to argue that surplus money rather than supply scarcity is driving inflation. Cranking up interest rates to chill this type of inflation is not an option in the United States where a premature rise in interest rates would collapse the real estate market and plunge the American economy into depression. Instead higher food prices will spur a rush to plant more crops elsewhere and to enhance harvests through extra fertilizer application. Rising potash prices will put extraordinary pressure on Brazil which is 90% reliant on potash imports, and thus give fresh impetus to the efforts of Amazon Mining Holding plc to tap its enormous resource of a silicate based form of potash called glauconite to supplement Brazil's fertilizer blends with ThermoPotash. That angle will help Amazon achieve a $10-$15 price during 2011, but the possibility of a $50 plus price target was opened up by the disclosure in December 2010 that Amazon had filed a patent for a process developed by a Cambridge scientist which purports to be a cost-effective way to convert the glauconite at Cerrado Verde into conventional potash products that would be a complete substitute for Brazil's imported potash. If effective this process would not just solve Brazil's potash security of supply problem, but be potentially applicable to other at surface glauconite deposits around the world. It will take more than a year to deliver proof that the process works, but because the ThermoPotash solution alone makes Amazon worth $10-$20, this junior will also probably disappear in a bidding war during 2011.

Amazon Mining Holding Plc (AMZ-V: $7.85)

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Amazon Mining Holding plc is a London based junior with a major conceptual potash play in southern Brazil where the goal is to marry the lower solubility of an energy intensive fertilizer product made from a potassium bearing silicate called the Verdete Slate with the nutrient poor, well-drained acidic soil of the "cerrado" region which could be very productive farmland if the traditional KCl based fertilizer did not wash so rapidly out of the soil. The company's goal is to demonstrate that ThermoPotash, created by melting the glauconite and limestone in a rotary kiln and quenching it to create a granular product, is cost-effective as a supplement for traditional fertilizer blends used by Brazil's agricultural industry. Since acquiring in 2008 the 100 km belt of glauconite which has a conceptual footprint of 15 billion tonnes with up to 12% K2O, Amazon has delivered an initial 43-101 open-pittable resource, initiated agronomic studies to demonstrate the efficacy of ThermoPotash, published a positive PEA for two development scenarios, and raised enough money to operate a 100,000 tpy demonstration plant during 2011 as part of a feasibility study expected to be done by the start of 2012. In addition Amazon has filed for a patent covering a process developed by a Cambridge scientist which purports to be a cost-effective method of converting glauconite into conventional potash products. If the process is feasible, it would enable Brazil to escape its 90% import dependency on potash and vulnerability to transportation cost escalation arising from higher oil prices, and Amazon in turn would be able to license the process to the owners of glauconite deposits elsewhere in the world..
Date Price
Recommendation Action Net
Cash
Net
Stock
Gain New Status
12/24/2008 $0.15 New BF MP Buy $0.10-$0.19 Buy 5,263 @ $0.19 $0 5,263 -21% BF MP Buy $0.10-$0.19
7/31/2009 $0.80 New BF Spec Cycle Hold 100%
$0 5,263 321% BF Spec Cycle Hold 100%
12/18/2009 $1.63 Good Absolute Spec Value Buy Buy 613 @ $1.63 $0 613 0% Good Absolute Spec Value Buy at $1.63
1/29/2010 $2.03 Confirm Good Absolute Spec Value Buy
$0 613 24% Good Absolute Spec Value Buy up to $2
4/14/2010 $1.94 Confirm Good Absolute Spec Value Buy
$0 613 19% Good Absolute Spec Value Buy $1.50-$2.00
8/11/2010 $2.08 Confirm Good Absolute Spec Value Buy max $2.00
$0 613 28% Good Absolute Spec Value Buy max $2.00
12/21/2010 $4.81 Confirm Good Absolute Spec Value Buy
$0 613 195% Good Absolute Spec Value Buy @ $4.81
Focus Comment
Amazon Mining Holding plc went public by IPO in early 2008 with a focus on precious metals in Brazil, one a longshot Witwatersrand style conglomerate play in the headwaters of the Amazon Basin, and the others a variety of farm-in prospects in established gold districts. Potash prices went through the roof during the first half of 2008, and while the market was crashing during the second half Amazon staked a 100 km by 6 km belt of greenish rock called glauconite which had been investigated during the eighties as a potential source of potash. Scientists had even developed a process whereby a whole rock based product called ThermoPotash could be created by heating glauconite and limestone in a rotary kiln until it melts, and then quenching it to create a granular product that could be applied as a fertilizer that supplies potassium as a nutrient and lime as a neutralizer for Brazil's acidic farmland soils. The hitch was that K2O is never more than 12% in the glauconite, and ThermoPotash is a whole rock product, unlike the conventional potash, potassium chloride, produced from deep evaporite beds in Saskatchewan which is 55%-60% K2O. ThermoPotash was never commercialized because its production and application cost vastly exceeded that of conventional potash even after accounting for transportation costs. The skyrocketing fertilizer prices of 2008 (KCl went from its $100/t long term rut to $1,000/t) were a wakeup call that the changing appetite of a developing Asia with its 3 billion people would put enormous pressure on boosting crop yields and planting less fertile lands. In effect potash was undergoing a structural demand shift similar to what base metals underwent during the past decade as China built infrastructure to accomodate the massive inflow of capital that shifted manufacturing capacity from West to East. And while infrastructure buildup is a cyclical driver of demand for base metals, albeit with a long timeline, food demand growth driven by rising standards of living resulting from structural changes in how an economy works is more of a linear nature in the absence of geopolitical shocks. Amazon's CEO Cris Veloso speculated that KCl would never return to $100/t, diesel based transportation costs were on a long term uptrend, and the size and intensity of Brazil's agricultural industry had no direction but up. So he staked a 15 billion tonne footprint of glauconite containing 1 billion tonnes of K2O locked up in a silicate mineral whose processing cost was well above the historical price of conventional salt based potash products. During the past two years Amazon has focused on fine-tuning the ThermoPotash production process, establishing the agronomic efficiency of ThermoPotash, and developing a marketing strategy for providing ThermoPotash as a supplement for existing fertilizer blends used by Brazilian farmers. In October 2010 Amazon published a PEA for two mining scenario rates of 1.1 million and 2.2 million tpy whose NPV respectively suggested price targets of $14 and $27. The next stage required Amazon to invest up to $20 million in a 100,000 tpy demonstration plant as part of a feasibility study due in early 2012. Amazon raised $14 million in December at $4.17 from institutions and fertilizer industry insiders and is now sufficiently capitalized to complete its feasibility study. ThermoPotash from the Cerrado Verde glauconite can at best represent 15% of Brazil's potash consumption because due to its weight it is not feasible as a full substitute for the higher grade KCl used in fertilizer blends. As such Amazon's project is only a small and partial solution to Brazil's potash import dependency. But in December the scale of the story underwent a quantum leap when Amazon filed a patent for a process developed by a Cambridge scientist under its sponsorship which purports to convert glauconite into conventional potash products at a cost competitive with current KCl prices. If the patent works, it has enormous strategic significance for Brazil because it would fix its potash costs at current potash prices, and, because Amazon's 100% owned Cerrado Verde property hosts an "infinite" supply of readily accessible potash, the current vulnerability Brazil's very important agriculture industry has to higher potash shipping costs and supply disruptions would disappear. In fact, if the patent process works, Amazon itself will disappear in a takeover bid, most likely by Brazil's Vale, which owns a lower quality belt of glauconite. 2011 could bring two different positive outcomes: a $10-$20 price target based on Amazon becoming a ThermoPotash producer, and a $50 plus price target based on ownership of intellectual property which, if proven to be effective, would be a game changer with regard to where the world's growing regions source their potash fertilizer, for there are many glauconite deposits around the world, some of them with a composition that may make them suitable for conversion into conventional potash products using a process licensed from Amazon.
 
 

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