Palisade Research - Tue, Nov 28, 2017

Verde Agritech Skyrockets After $2 Billion PFS

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A little over 3 weeks ago we wrote about Verde Agritech (TSE:NPK) when it was C$0.41.

To quote us,

". . .The PFS will confirm the enormous disconnect between market cap and intrinsic value. . ."

And since then - the stock is up over 150%. . .

line graph showing NPK's rising price since write-up 3-weeks ago

What happened?

Well, on November 27 the company released their concluded pre-feasibility study (PFS).

And it was better than the market ever expected. . .

Some highlights of the study are. . .

  • Proven and Probable reserves of roughly 800 million tons of potash

  • Impressive potash grades of 10%

  • Capital Expenditures to launch phase 1 is only $3 million

  • Estimated after-tax net present value (NPV8) for the project is almost $2 billion

  • The estimated Internal Rate of Return (IRR) for investors is a whopping 290%

No wonder the stock was up over 90% in the first few hours since the news release went pubic. . .

Let's look at phase 1 - slated to produce 600,000 tonnes per year, selling product for $38.15/t at a cost of $14.53/t. This can be achieved with a minimal capex of $3.0 million.

This equates to cash flow of $14.2 million per year, or an NPV10 of C$60 million.

Verde Agritech's market is currently C$24 million.

Phase 2 offers significantly more upside.

For $17.1 million, production will be ramped up to 5 million tonnes per year. Due to scales of economy, costs will decrease by almost half, to $6.77/t.

At full capacity, this will produce cash flow of $118.1 million per year, or an NPV10 of $503.2 million.

Obviously, there are risks in achieving these lofty numbers.

However, even at substantial risk premiums, Verde Agritech is grossly undervalued.

We are still bullish.

And we're excited for what comes next for Verde Agritech going forward.

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 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.

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