Palisade Research - Mon, Feb 27, 2017

Double The Expected Resource - Gensource Potash Continues to Deliver (V.GSP; AGCCF)

picture of a field


  • Current Price: C$0.17
  • Shares Outstanding: ~275.1 million
  • Market Capitalization: C$46.8 million
  • 52-Week Range: C$0.04 - C$0.225
  • Cash: ~C$3.0 million

Chalk another milestone up for Mike Ferguson, Rob Theoret, and their hardworking team at Gensource Potash.

The last update we released in November 2016, outlined a non-binding MOU of a transformational JV with the Essel Group. Under the terms of the JV, Gensource will vend-in a project from its Vanguard area, as well as its project execution team. In turn, Essel will earn 70% of Vanguard by paying for the rest of the feasibility study (~C$5 million) and financing the construction of the project (~C$250 million!).

Gensource is now one step closer to their FS, releasing an updated resource. And this resource is double than what they have originally indicated! The report defines a resource in the Vanguard area of 145 million tonnes of indicated potash, and 320 million tonnes of inferred potash.

With 3D seismic already underway, Gensource plans on releasing a bankable feasibility study by the end of April or early May. However, there is an extremely important catalyst in the near-term, being the finalization of the Essel JV. We expect that news to hit the wire sometime towards the end of the month or the first week of March.

Lastly, in macro news, India scared potash producers when the Indian government ministry proposed slashing potash subsidies by 17% in the next financial year to reduce fiscal deficit. We believe this is to scare Canpotex and Uralkali into lower prices when negotiating annual contracts.

How distribution to farmers normally work is, a major buyer will negotiate a price with potash exporters, and then will resell to distributors. By the time fertilizer ends up in the hands of a farmer, there can be mark-ups as high as 50-100%! The more hands that handle the potash, the more expensive it becomes. Everyone needs to be paid.

Essel is positioning itself to buy directly from the source, and will sell directly to farmers, saving them and end-users significant costs. The win-win situation is apparent: Gensource receives a guaranteed stream of income, Essel receives much needed potash, and best of all, the once disadvantaged farmers of India can breathe a bit easier.

Gensource is up 83% since our last update, but the market has still been slow to realize its portfolio of assets. We reiterate, the Vanguard area will be able to produce 6 to 8 more projects. It is a large land package and thanks to Gensource's modular production plan, this cookie cutter JV model could be replicated time and time again. Gensource's market cap is currently C$47M and each project is worth at least at C$285.5 million. It is the only potash company that makes sense.

Palisade Global Investments Limited holds shares of Gensource Potash. 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 is obtained 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. publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

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