Forbes & Manhattan To Drill For Potash In Brazil's Sergipe Next Week
--Forbes & Manhattan may become Brazil's biggest potash producer
--Two major potash projects in feasibility study
--IPO in Potash Brasil Ltda planned from late 2012
RIO DE JANEIRO -(Dow Jones)- Aguia Resources (AGR.AU), an Australia-listed fertilizer minerals company, will start to drill for carnallite potash at a major deposit in Sergipe state in Brazil's northeast next week, said Aguia shareholder Forbes & Manhattan, a Canadian merchant bank.
Aguia, which also has Australian and Brazilian shareholders, will spend $20 million over the next 12 months to prove the feasibility of the Sergipe project. The $1 billion project, managed by Forbes & Manhattan, should eventually produce one million metric tons a year of potash, guaranteeing the merchant bank's place as Brazil's top producer of the crop nutrient, said Helio Diniz, Forbes & Manhattan's vice president, Brazil operations, in an interview this week.
Brazil currently imports more than 90% of its potash, local demand for which is booming as Brazilian farmers use more nutrients to improve crop productivity to meet soaring global demand for food. Via its partnership in Aguia and its ownership of another venture, Potash Brasil Ltda, Forbes & Manhattan expects in future to produce up to 5 million tons a year, overtaking the country's current sole producer, miner Vale SA (VALE, VALE5.BR).
Vale's fertilizers operations director Marcelo Fenelon said last week Vale expects to produce 625,000 tons of potash this year, less than the full 750,000 capacity of its Taquari Vassouras mine in Sergipe, due to a technical problem.
Vale also hopes to develop a potash mine at Carnalita in Sergipe state producing 1.2 million tons a year. However, this project isn't yet confirmed as the deposit is on land belonging to oil giant Petroleo Brasileiro SA (PBR, PETR4.BR) which has also discovered oil there, Fenelon said.
Aguia's Sergipe project will produce potash by solution mining, which means it is pumped out of the ground mixed with water, Diniz said.
Aguia may sell debt or equity to finance the project, according to Diniz. "We have to demonstrate the resource first," he said. "We're planning to finish the feasibility study end-2012."
Aguia, which is also prospecting for phosphates in both south and northeast Brazil, may in future request to be listed on the Toronto Stock Exchange too, he said.
Potash Brasil Ltda, which has more than 50 shareholders, including Forbes & Manhattan and Diniz, recently held a roadshow to attract $50 million to $100 million to complete drilling at its Autazes Amazon Basin project in north Brazil.
Feasibility of the project--designed to produce 4 million tons a year of potash from 2017 in a $4 billion investment--should also be established by the end of 2012, when the company plans to hold an initial public offering of shares on Brazil's Bovespa stock exchange, to raise funds for the mine's development, Diniz said.
"We're working on a $1 billion to $2 billion range for the company's worth," he said. "We'll appoint banks to carry out an evaluation early next year."
As well as having large high-quality potash reserves, the project's worth is enhanced by its location at the confluence of the Amazon and Madeira rivers, on an established soybean export route which can handle Panamax-size ships, said Diniz, who is also managing director of Potash Brasil Ltda.
"We plan to start operations at 4 million tons per year of potassium chloride; this is equivalent to almost half of Brazil's potash consumption today," Diniz said.
Brazil currently imports over 90% of its potash requirement of about 8 million tons a year, mainly from Russia and Canada, according to national mining department DNPM.
Diniz said that Forbes & Manhattan had also bought rights to two silvanite potash deposits in Amazonas state, north Brazil--Fazendinha and Arari--from Petrobras in 2008 but that the Brazilian government subsequently canceled the sale as the deposits were considered of strategic value.
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