MIDA S SHARE TIPS UPDATE: Fertilizer maker Harvest Minerals is ready for a growth spurt
Mining is big in Brazil, but agriculture is also big business. The country is the fourth largest fertilizer consumer in the world, just behind China, America and India. Yet it only produces 4% of the fertilizer it needs, buying the rest abroad.
The price of imported fertilizers has tripled in the past two years, putting intense pressure on the cost of agricultural products, from soybeans to coffee to sugar.
These foodstuffs are grown in abundance in the fertile state of Minas Gerais, a few hundred kilometers from Sao Paulo and Rio de Janeiro. This is where Harvest Minerals developed the Arapua Project, a site to produce pure organic fertilizer from weathered lava, which is simply crushed, bagged and sold directly to local farmers.
Power to stay: Harvest shares fell 23% to 13p in eight weeks after Harvest wrote off the value of some non-core assets and wrote off an old bad debt
Harvest was founded in 2015 and farmers were initially wary of its fertilizer brand, KP Fertil. But word got around and KP Fertil has now been recognized as a real manure spreader by the Brazilian authorities.
On June 30, chief executive Brian McMaster revealed Harvest sales had risen 149 per cent to A$4.9m (£2.8m) and said this year should deliver strong profits . The band states in Australian dollars because they were originally listed and registered in Australia, although they are now only on AIM.
McMaster also said it expects to sell 150,000 tonnes of fertilizer this year, a 76% increase from 2021. This should translate into increased profits, as McMaster has already driven three price increases to the past six months and a fourth is imminent.
Yet shares of Harvest have fallen 23% to 13p in eight weeks, after Harvest wrote off the value of some non-core assets and wrote off an old bad debt. This left Harvest with a pre-tax loss of A$4.2 million.
The future, however, looks much brighter. Arapua is winning new business, returning customers and the group is set to be one of the main beneficiaries of the unrest caused by Russia. McMaster even talks about dividends for shareholders.
Harvest also purchased another asset, Miriri in northeast Brazil. The site will take time to develop, but McMaster hopes to produce something like KP Fertil there.
Midas verdict: Midas recommended Harvest in 2018 when the shares were at 17p, so the current price of 13p is a blow to investors. They should stick to stock, though. Brazil desperately needs more local fertilizers and now that KP Fertil is proven and certified, Harvest should see sales and profits grow to match. Brave investors might even try their luck at current levels.
Traded on: OBJECTIVE Teleprinter: HMI Contact: harvestminerals.net or 020 3940 6625