MIDA S SHARE TIPS: Fertilizer maker Harvest Minerals set for rapid growth
Mining is important in Brazil, but agriculture is also big business. The country is the fourth consumer of fertilizers in the world, after China, America and India. But it produces only 4 percent of the necessary fertilizers, the rest is bought abroad.
Imported fertilizers have tripled in price over the past two years, putting severe pressure on the price of agricultural products, from soybeans to coffee and sugar.
These goods are grown in abundance in the fertile state of Minas Gerais, a few hundred miles from Sao Paulo and Rio de Janeiro. Here, Harvest Minerals has developed the Arapua Project, a plant to produce pure organic fertilizer from weathered lava that is simply ground, bagged and sold directly to local farmers.
Resilience: Shares in Harvest fell 23 per cent to 13p in eight weeks after Harvest wrote down some non-core assets and wrote off old bad debt.
Harvest was founded in 2015, and farmers were initially wary of its KP Fertil fertilizer brand. But word got around, and now Brazilian authorities have recognized KP Fertil as a bona fide dirt spreader.
On June 30, chief executive Brian McMaster reported a 149 per cent rise in sales at Harvest to A$4.9m (£2.8m) and said profits should be strong this year. The group reports in Australian dollars because it was originally listed and registered in Australia, although it is now listed only on AIM.
McMaster also said it expects to sell 150,000 tons of fertilizer this year, up 76 percent from 2021. This should lead to higher profits as McMaster has already experienced three price increases in the last six months and a fourth is imminent.
However, shares in Harvest fell 23 per cent to 13p in eight weeks after Harvest wrote down the value of some non-core assets and wrote off 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, customers continue to return, and the group should be one of the main beneficiaries of the Russia-induced upheaval. McMaster even talks about dividends for shareholders.
Harvest also bought another asset, Miriri in northeastern Brazil. The site will take time to develop, but McMaster hopes to create something similar to KP Fertil.
The Midas Verdict: Midas recommended Harvest in 2018 when shares were trading at 17p, so the current price of 13p is a blow to investors. However, they have to stick to stocks. Brazil is in desperate need of more homegrown fertilizers, and now that KP Fertil has been tested and certified, Harvest’s sales and profits should grow rapidly. Brave investors could even take a punt at current levels.
Bidding for: PURPOSE Ticker: HMI Contacts: harvestminerals.net or 020 3940 6625