Stonegate Agricom (SNRCF) is developing phosphate projects. I need to figure out just what's going on here. Morocco dominates the worldwide market for phosphate and can dictate prices across the entire production chain, so any production change from that country will impact the valuation of any phosphate producer in the world. One thing limiting the ability of Morocco to hold prices down through overproduction is the rising demand for fertilizer worldwide. Emerging market consumers want more meat in their diet and farmers need more fertilized cropland to meet that demand. Phosphate concentrate is probably the better part of this business sector to operate because fertilizer producers want more of it.
The CEO has a background in mining engineering but hasn't worked in that field in several years. Technology and processes do change. The good news is that the general managers at each major project are qualified engineers with experience in phosphate and coal projects. A coal background is useful because coal deposits have uniform geologies that resemble phosphate deposits.
The company's Paris Hills, Idaho project has road access to a Union Pacific rail line a few kilometers from the property. Their Montaro project in Peru also appears to have ready access to a rail line. Having logistics in place is always good news. Both properties have NI 43-101 reports on their MII resources, but of course I need to evaluate 2P reserves to make an investment decision. Phosphate producers should monitor a project's calcite, minor element ratio, and chlorides but those don't appear to be significant problems for Stonegate Agricom.
Two economic factors determine the viability of any resource extraction project in the world: the spot price of the commodity in question, and the cash cost of extracting the resource. The price of phosphate right now is about US$185/ton. Expanding the date range on that Index Mundi chart to 30 years reveals that the worldwide long term average price of phosphate ranged from $31-45/ton until 2007, when it spiked to over $400 and then crashed to $90 in 2009. I do not know what happened in that time frame to cause such a spike. This is important to note, because if the new normal price floor for phosphate is now over $90/ton then previously unprofitable deposits outside Morocco will be economically viable. The risk for any producer is the possibility that Morocco could flood the world phosphate market with production that drives the cost under $90/ton.
The Paris Hills 43-101 report estimates a cash cost of $73/ton, with an upfront capital cost of $149M. That cash cost definitely makes the project viable at present market prices and it will probably remain viable over the entire life of the mine (unless of course Morocco pulls the rug out from under the world price). Funding the capex is a different story. Stonegate Agricom's most recent quarterly financial statement on SEDAR is dated September 30, 2012. They had C$7.3M cash on hand on that date; averaging their three-month and nine-month net losses gives them a monthly burn rate of about C$700k. They can survive until late July 2013. Raising capital may not be a problem for them if they continue to secure loan facilities from Sprott Resource Corp. as they did on August 21, 2012.
A lot of junior explorers and producers want to hit it big in phosphate and potassium/potash plays. These companies are a lot riskier than the big producers like PotashCorp that dominate this sector. Meanwhile, Stonegate Agricom will probably keep chugging along in pursuit of capex funding for Paris Hills.
Full disclosure: No position in SNRCF or other companies mentioned at this time.
