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Great Quest on a Great QuestBob Moriarty Fifteen years ago the brightest star in the investment sky was any commodity that China needed. Chinese demand drove the prices of everything from gold, silver to nickel and moly to the roof and beyond. All those commodities have come back to earth. With the incredible investment by the big three iron companies, iron prices may not recover for decades. Iron is a commodity that may well decline to below the cost of production until supply and demand balance out. Other commodities may well follow. But what of the next fifteen years? What are the commodities we know are going to be in high demand? What are the slam-dunk investments where you put in nickels and take out dollars? Energy and any analog of energy is the easy answer. We know peak oil is real. And peak oil has nothing to do with running out of oil, only with running out of cheap oil. There is a lot of energy around but it is going to cost more and more to extract all the while population is increasing daily. For the foreseeable future, land, water, food and the inputs to our food supply are going to be in increasing demand as population increases and globalization shows the 3rd world what they are missing. Phosphate is one of those inputs to increasing production of food for a hungry and getting hungrier world. As the demand for food increases, the value goes up and relative cost of all fertilizers goes down. Someone called me recently about advertising on 321gold. The fellow, Jed Richardson, CEO of Great Quest, suggested I follow the company. What I learned was interesting. I am a believer in peak oil. We began running out of cheap oil in 2005 and the new normal is $75 and up. Food and energy are going to get a lot more expensive in relative terms in the future. So I went to the Great Quest website and read their corporate presentation. Naturally it’s mainly about Great Quest and their big phosphate project in Mali. But there is important information for anyone concerned about investing for the future. Since the year 2000, 62% of all large land purchases were in Africa. In the next 15 years, agriculture will more than triple in Africa from $280 billion yearly to over $880 billion. Great Quest intends to profit by such growth. They have outlined a 50 million ton phosphate deposit running an average of 24.8% P2O5 valued at about $315 per ton. One of the key elements to Jed’s plans for GQ is to capitalize on the difference between world prices for phosphate and African prices. In Thailand, an average cost of fertilizer is just about $53 a ton. The same ton of fertilizer in Mali costs an average of $282 a ton. By producing high-grade phosphate fertilizer locally in Mali, Jed can sell it at a discount to world prices to capture market share yet still maintain a high profit margin. He has a two-part plan for monetizing his Tilemsi deposit. Phase 1 will be a Pilot Plant doing some 25,200 tons of high-grade phosphate and 10,400 tons of medium-grade material per year. The capex for the Pilot Plant will be a tiny $16.3 million and shows a 29.5% IRR. The company already has an off-take agreement in place with a local distributor. The purpose is to acquaint the local market with a local supply of fertilizer. The high-grade 35% P2O5 material will bring in $450 a ton and the medium-grade 27% P2O5 will be worth $330 a ton. The PEA for Phase 1 shows an operating cost of $124 a ton and an after tax NPV of $17.3 million. The Tilemsi deposit received their environmental permit for Phase 1 on June 4, 2015. Now the company needs to apply for their exploitation permit before they can begin construction. Great Quest intends to operate the Pilot Plant for a year before putting the main and larger production facility into operation. The numbers for Phase 2 get simply silly. A capex of $158 million is necessary to build a 500,000 tpy plant with an operating cost of $92 a ton and a projected IRR of 55% and incredible after tax NPV of $432 million. Over time they intend to double the size of the plant to 1 million tons per year. Their selling price FOB plant will be half of what farmers in Mali are paying today. I love the story of Great Quest. Granted, Mali has had checkered political issues in the past. By and large those problem areas are in the far North of the country and shouldn’t affect Great Quest operations. The company is told a peace process and agreement should soon be in place. That will placate investors but I don’t think it will have any effect on the plans of Great Quest. The company is in the right place at the right time with the right management team and product. I liked the story enough to participate in the recent private placement at $.30. Their biggest problem is communication and getting the message out to the market. With an after tax NPV of $450 million the company is absurdly underpriced. As investors become friendlier to resource shares, I expect a rapid reevaluation of the share price to something more reasonable. Great Quest is an advertiser, I am a shareowner and as such, of course I am biased. Do your own due diligence, the company has some excellent and informative information on their site. Great Quest Fertilizer Ltd ### Bob Moriarty 321gold Ltd |
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