Verde Agritech – Can This be the Largest Dividend Payer in Resources?

Adem Tumerkan July 24, 2018
Category: Research

 

Share Price: C$1.04

Shares Outstanding: 40.5M

Market Capitalization: C$42.7M

Cash: C$2.2M

Total Liabilities: C$1.5M

 

Verde Agritech’s (TSE:NPK, FRA:AZA, OTC:AMHPF)  Super Greensand project has an after-tax, net present value using an 8% discount rate (NPV8) of $2.0 billion and an internal rate or return (IRR) of 290%.

The mega project touts a reserve of 777.28 million tonnes – grading 9.78% K2O (potassium oxide).

There’s an extreme disconnect between this project’s economics and Verde’s market cap – something we attribute to the hefty price tag that the construction of the project comes with.

The recently released pre-feasibility study (PFS) states a CapEx – capital expenditure– that’s estimated at $369.5 million. . .

In current markets, it will be difficult to receive this type of funding – thus causing the extreme discount in valuation.

But what investors fail to realize is that the Super Greensand project will be built in three phases and will largely be self-funded come time for the largest expenditures – which comes in phase three.

Here’s the overview of the three phases. . .

Phase 1 production of 600,000 tonnes per year at a cost of $3.1 million

Phase 2 production of five million tonne per year at a cost of $17.1 million

Phase 3 production of 25 million tonnes per year at a cost of $349.3 million

The first two phases come with CapEx that’s very low and the numbers are unbelievable.

Let’s assume a scenario where Verde Agritech achieves just two million tonnes per year of production. . .

Off that alone, Verde Agritech will produce a net profit of C$57.3 million – or an EPS of C$1.42.

And when applying a conservative 10x-multiple to the earnings, it equates to a share price of C$14.00.

Such robust earnings also means that Verde can likely pay a thick dividend.

Putting that into perspective – if Verde paid investors 10% of their net income – using a dividend discount model the yield equates to a C$7.00 share price.

Therefore – there are two very important takeaways.

1. Phase two of the Super Greensand project has a very realistic CapEx;

2. Verde Agritech is extremely

The company’s currently building a $500,000 facility that’s projected to produce 45 tonnes per hour of Super Greensand. Verde expects the plant to be fully operational by early third quarter of 2018.

If this plant can achieve production of 300,000 tonnes per year – Verde Agritech has an intrinsic value of C$2.30 per share – or a gain of 103% from the current price.

That means the ‘worst’ case scenario still yields incredible value. Verde has a strong margin of safety with incredible upside – a billon dollar company in the making.

 

Palisade Global Investments Limited holds shares of Verde Agritech. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report’s from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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