MBAC to develop phosphate mine in Brazil

Brazil has a problem. Agribusiness already accounts for a quarter of the economy and it’s one of the few places in the world where farmland is actually growing but the country is short on fertilizer — it imports 70% of what it consumes.

The Brazilian government has taken note and is targeting to become self-sufficient by 2015; it’s offering tax incentives to local producers and is even considering starting its own state fertilizer company.

Antenor Silva, president and CEO of newly-listed MBAC Fertilizer (MBC-T), has also taken note, and he has big plans to capitalize on Brazil’s fertilizer shortcomings.

Silva, a director and former president and chief operating officer for Yamana Gold (YRI-T), created MBAC about a year and a half ago, rounding up a savvy team of mining and fertilizer types. The company got started by acquiring a few exploration projects and a small phosphate mine, Itofas, in southeast Tocantins state, a strategic location in central Brazil. Now Silva wants to take Itafos from being a small phosphate producer to one that produces a value-added phosphate fertilizer called single super phosphate (SSP) by the second quarter of 2012.

MBAC announced officially on April 26 that it would go ahead with development of Itafos having completed a National Instrument 43-101 technical report.

The report outlines plans for a mine and beneficiation plant that would generate 330,000 tonnes of phosphate rock concentrate per year at 28% P205. The phosphate concentrate will be used to produce 500,000 tonnes per year of SSP by adding 170,000 tonnes per year of sulphuric acid which will also be produced on site.

MBAC is also looking into the potential to increase in scale down the road to produce 1.08 million tonnes of SSP per year plus 100,000 tonnes of sulphuric acid and 190,000 tonnes of F160 (16% P2O5) by 2015. That’s about half the size of the largest operation in the country.

MBAC had its initial public offering on the Toronto Stock Exchange in December 2009 and currently has $80 million in the bank with a plan to spend $45-50 million in 2010.

“We are finishing a feasibility study for the plan in April and then we will buy equipment for the plant and start construction services for the beneficiation plant and sulphuric acid plant this year,” Silva explained during an interview at MBAC’s Toronto office back in March.

Silva knows what he’s doing. A Brazilian with 40 years experience in mining, he was involved in the development of four of the five major phosphate mines and the only potash mine in Brazil.

“Brazil started producing phosphate rock on a large scale in the 1970s,” Silva says, stressing there have been no new mines since 1986. “I was involved in this project since the beginning as a young engineer.”

A new process had to be developed back then because the phosphate deposits in Brazil are a type of carbonatite, different from the sedimentary phosphate mines in the United States, Morrocco and Jordan/Canada?.

“Then after that, using the same metallurgical process developed for the initial plant, through an engineering company, we started as a team to develop the other Brazilian mines,” Silva recounts.

Those mines are the biggest operations in Brazil today, and several are now owned by Brazilian powerhouse Vale, which has plans to become a leading global player in the fertilizer business. Through acquisitions and organic growth Vale expects it will be one of the top players within seven years with an estimated output of 3.3 million tonnes of phosphoric acid and 10.7 million tonnes of potash.

Just in January Vale bought Bunge Participacoes e Investimentos S.A. (BPI), Brazil’s second largest phosphate producer, for US$3.8 billion. About $2.15 billion of the total went towards BPI’s 42.3% stake in Fosfertil, the largest producer of phosphate and nitrogen crop nutrients in Brazil, supplying 22% and 23.4%, respectively of the country’s consumption.

Itafos, on the other hand, is a very small open pit operation right now. Ore is crushed and ground and then sold to farmers for direct application. The company plans to produce about 100,000 tonnes of the crushed phosphate rock per year for the next few years as it’s able to get the SSP operation up in running.

The company has been busy since it bought Itafos. MBAC drilled 20,000 metres in 2009, another 28,000 metres in early 2010, defining enough resources, management feel, to merit developing a mine.

Measured and indicated resources have more than doubled since the last count in November, now standing at 28.3 million tonnes grading 4.3% P2O5, plus 4.2 million tonnes grading 4.1% P2O5. Wardrop Engineering, which calculated the resource, used a cutoff grade of 2.8% P2O5.

Other inferred resources have been identified in five zones outside of the pit, but adjacent to the near mine blocks amounting to 56.9 million tonnes grading 6.05% P2O5.

“We certainly have enough resource to warrant the engineering and acquisition of equipment and we certainly have the payback phase guaranteed,” says Luis Bizzi, vice president of exploration.

At the time, in March, the company had nine drill rigs operating, three different labs doing assays and qualifications.

Total capital costs to reach production (including reclamation) have been estimated at US$126 million, plus US$24 million in taxes, part of which will be refunded, and US$19 million in contingencies.

Using a discount rate of 10% the internal rate of return on the project is 26.3% while the net present value is US$140 million. The payback period is 3.45 years after start up and the report used an SSP price of US$249 per tonne as the base case, increasing by 2% inflation per year.