Amazon Mining Holding Plc (TSX-v: AMZ; C $9.28)

Potential NAV of $125.85 per share

Recommendation TOP PICK (maintained)

12-Month Target Cdn$11.50 (maintained)

How Blue is the Sky at Cerrado Verde?

We have begun to sharpen our pencil recently regarding the

potential upside of Amazon’s Cambridge process. The Cambridge

process could allow the company to produce a conventional

potassium chloride (KCl) or potassium sulfate (SOP) and could

potentially generate up to four billion dollars of value for

Amazon shareholders.

We have previously put forward an NAV of $42.12 per share

in the event the Cambridge process is successfully scaled up.

Based upon recent meetings with Amazon management in Belo

Horizonte, Brazil and conversations with staff tasked with the

scale-up of the Cambridge process, we believe this figure could

materially understate the potential of the project.

Our original Cambridge NAV was based on a two million tonne

per year operation at an operating cost of US$250 per tonne. We

are coming to the view, though, that a successful Cambridge

process could result in a plant designed to satisfy all domestic

potash demand in Brazil and that cash costs could be closer to US

$200 per tonne vs. our more conservative US$250 per tonne

assumption.

In a world where the Cambridge process scales up well and

runs as efficiently as Amazon’s engineering team believes it can,

the project has the potential to generate more than US$1 billion

of free cash flow per year. Assuming a five million tonne per year

project and a cash cost of US$200 per tonne, we arrive at an NAV

of $125.85 per share. Fantástico.

This figure is the blue sky scenario where everything falls

into place in Amazon’s favour and is by no means our base case

assumption. Our $11.50 target assumes a 10% chance of success with

the commercial scale-up of the Cambridge process. We note though

that Amazon’s in-house engineering staff believe their odds of

success are closer to 75%. We continue to rate the shares a TOP

PICK with a 12-month target price of $11.50 per share.

Analyst Coverage: Jaret Anderson