$POTRF : SOPerior Fertilizer Corp. — The Definitive Analysis

Probable Realized Market Prices$645/t K2SO4 & $147/t H2SO4
Flagship ProjectBlawn Mountain
Fully-Diluted Shares171,900,000
Fully-Diluted Market Cap$8,595,000
Proven & Probable Mineral Reserves, 3% Cut-Off153,330,000 tons
Payable Product (LoM)* 16,096,051 K2SO4Eq tons
Estimated Payable SOP (LoM)10,603,000 tons
Estimated Payable Sulfuric Acid (LoM)24,135,000 tons
Alumina Resources (M&I)19,418,000 tons
Average Annual Production351,261 K2SO4Eq tons
AISC$287/t
LoM46 Years
Net After-Tax Cash Flow (Annual, Inflated)$125,751,438
Net After-Tax Cash Flow (LoM, Inflated)$5,784,566,148
Gross Value of Payable Product$10,381,952,895
Theoretical Market Cap Valuation$1,038,195,290
Theoretical Market Cap Growth11,979%
PMCV10 (Projected Market Cap Valuation at 10%)$6.04/sh.
Projected Book Value per Share$33.65/sh.
TAC10
Cost to Acquire$0.53/t
Cost to Build$32/t
OpEx (Millcreek Mining)$87/t
Total Acquisition Cost$192,396,098 ($1.12/sh.)

Notes: All Values in U.S. Dollars

*This analysis hinges on Payable Product tonnages, as opposed to a sum of Proven & Probable Reserves, including: Direct Feed-to-Mill, Medium-Grade Stockpiles and Low-Grade Stockpiles. Analysts will likely be expecting a much larger number (153.3 Mt) for valuation computations. That number isn’t of interest to us in this analysis, today, as our case is predicated on estimated payable product.

In the above calculations, we have elected to utilize K2SO4Eq tons in the stead of deducting sulfuric acid credits from our Direct Operating Cost Matrix. This has the effect of raising our independently-calculated AISC to $287/t, which is an increase of 36% from Millcreek Mining Group’s Cash Cost number ($211/t). It is of importance to keep this detail in mind when appraising SOPerior, as Cash Flow analysis using Millcreek’s Cash Costs look like this:

Net After-Tax Cash Flow (Annual, Inflated) $152,447,274
Net After-Tax Cash Flow (LoM, Inflated) $7,012,574,604

At present, Alumina, which trades for about $472/t, is classified as a waste byproduct of production. However, efforts are being made to develop a pilot plant 12 miles away from Blawn Mountain in Milford at the site of Tamra’s shuttered copper flotation mill to determine whether or not Alumina waste can be economically monetized.

The value proposition for SOPerior Fertilizer Corp. is as clear today as it was when we first started to accumulate a stake. Meanwhile, a handful of derisking events have occurred that lend further credence to the SOPerior story. Nevertheless, in spite of the positive news flow, we have chosen to be more conservative with our analysis than in the past. We have approached our investigation from the standpoint of an acquirer. Consequently, a bright, critical light has been trained on each ton, which no longer are analyzed as if created equal.

Conclusion

Blawn Mountain is economical at today’s SOP and sulfuric acid prices in North America and although we believe several avenues to production are available to SOPerior, we think it would behoove Compass Minerals to make an offer of $200M for the Project.

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