Potassium & Phosphates
Fertilizers flourish with National Fertilizer Plan
Phosphates make up 1.3% of Brazil’s total mineral production. The agribusiness contributes approximately 30% to the country’s GDP, but the country imports approximately 85% of all fertilizers. The Russia-Ukraine conflict caused a peak in macronutrient prices, providing fertilizer companies with higher profit margins. The crisis also highlighted Brazil’s vulnerability in terms of supply. The strong internal market, government support and resource potential have placed the fertilizers segment in third place for investment, after iron ore and socioenvironmental projects, with a predicted 2023-2027 capex investment of over US$5 billion.
The Potássio do Brasil potash project in Amazonas is one of the projects that is benefiting from the rush in investment. The project has a reserve of 2.2 million t/y for and LOM of 23 years, with the potential for growth. The company, which requested its installation license in August of 2023 with intention to break ground in early autumn 2023, is essential to the government’s plans to increase domestic potash production, with the capacity to produce 20% of Brazil’s total demand. Adriano Espeschit, CEO of Potássio do Brasil, said: “The project is essential not just for Amazonas and Brazil, but also for the world because of the five meals that the world consumes, one comes from Brazil. For example, 75% of the orange juice in the world comes from Brazil.”
For Mosaic, Brazil’s largest fertilizer company, Latin America is a growth engine. The company is prioritizing investments in Brazil, including at the Taquari-Vassouras mine in the state of Tocantis and at the Fospar port in Paraná, to enable larger shipments. Corrine Ricard, president of Mosaic, explained that a major barrier to fertilizer self-sufficiency is the difference in tax treatment between imports and domestic production: “The current tax regime disincentivizes domestic production, making it more efficient to import fertilizer. Secondly, infrastructure deficiencies make it difficult and costly to transport products from mineral concessions to agricultural areas. Also, there are inconsistencies in federal and local regulations that make the permitting process for developing projects lengthy and complex.”
Nevertheless, Ricard identified Brazil’s National Fertilizer Plan as a positive step to improving the situation. In 2022, the federal government enacted the 2022-2050 National Fertilizer Plan with the intention of reducing Brazil’s dependency on imported fertilizers. The plan targets an increase of domestically produced fertilizers to 55% of national consumption in 2050 from 15% as of 2022. The decree established a National Council on Fertilizers and Plant Nutrtion (CONFERT), which will coordinate and set PNF initiatives and facilitate public-private cooperation. The plan demonstrates the Brazilian government's understanding of the need for resource independence, and is widely seen as an effective and clear step by the government to overcome the country's current weakness in fertilizer production. The private sector has responded positively to the plan.
Itafos (TSX: IFOS), a producer and explorer, has three projects in Brazil: Arraias, a producer, and Araxá and Santana, which are juniors. “The National Fertilizer Plan is an important kick-off which in this first moment seeks a reduction of fertilizer imports. However, the investments in the sector will rely on a clear and reliable environment from a legal, regulatory, and political standpoint,” said Felipe Coutas, country manager at Itafos.
Itafos broke financial results records in 2022, with revenues of $593.3 million and adjusted EBITDA of $224.8. The company attributed those numbers both to strong production and improved market fundamentals for the agricultural sector. Factors such as the Russia-Ukraine conflict caused a peak in macronutrient prices, which contributed to a higher profit margin on the company’s products.
The company is actively investing to strengthen their operations in Brazil, including technology to reduce the need for tailings dams. The company’s new SCADA system, meanwhile, will allow them to completely connect the complete mining facilities. In Brazil, they aim to continue developing the Santana project and restart SSP production and sales at Arraias.
The mining sector has the opportunity to use the critical nature of fertilizer production to push for a stronger position for the industry politically. Luis Vessani, president of EDEM Projetos, identified the imbalance between the agribusiness and mining sectors as a key challenge to Brazil’s push for fertilizer self-sufficiency: “Agribusiness has a stronger political presence, overshadowing the mining sector.”
Aguia Resources (ASX: AGR) found the Lucena deposit in northeast Brazil, and has begun working on developing the Três Estradas phosphate discovery. The Três Estradas project will be the first phosphate mine in the southern region of Brazil, estimated to produce 300,000 t/y, 10% of the existing demand within a 300 km radius of the site. The benefits of producing local phosphate will include a lower cost due to reduced logistics costs. Indeed, having access to cheaper phosphate will enable the agricultural producers in Brazil to increase their profit margins.
The major priority for the country when specifically focusing on fertilizers must be increasing the country’s current ability to mine potassium. Júlio Nery, director of sustainability and regulatory affairs at IBRAM, stated: “Agribusiness plays a huge role in the country’s economy, but we import over half the country’s needs for phosphates. We have new phosphate projects, so what we really need is new potassium mines, as we only have one operation and it only covers 5% of Brazil’s demand.”
Indeed, the ability to produce fertilizers domestically is a matter of self-sufficiency and stability. Currently, many of the primary global fertilizer producers are in states of conflict or, for various reasons, geopolitically challenging. Flávio Moraes da Mota, head of the extractive and base industries department at the BNDES, the Brazilian development bank, stated: “Food security is a particular issue in Brazil due to our dependence on imported fertilizers.”
Increasing domestic fertilizer production is a national priority and demonstrates the essential contributions the mining industry offers to the Brazilian nation and people. The government, aware of how essential the fertilizer segment is, is all in on fertilizer projects. Phosphate mining projects benefit from strong government support, both in terms of permitting and capital access. Aguia, for example, secured 50% of the capital costs for the construction of their phosphate mine from the local development bank.
Image courtesy of Mosaic