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ASX:MNB

Minbos Resources Ltd

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ASX:MNB
- Minbos Resources Ltd
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$0.043

Last Price

Investment Memo:

Minbos Resources Ltd (ASX:MNB)

- LIVE

Opened: 19-Dec-2022

Shares Held at Open: 8,644,973


What does MNB do?

Minbos Resources (ASX: MNB) is seeking to build high-margin phosphate fertiliser supply business with the potential to dramatically transform Angola’s food security and crop yields.

MNB is also seeking to develop a green hydrogen/ammonia business powered by cheap hydro-electric power that would cut the reliance on natural gas in producing ammonia, also located in Angola.

What is the macro theme?

MNB is targeting phosphate production for fertilisers, as well as green ammonia for use in fertilisers and in explosives.

These two products each have strong tailwinds supporting high prices and ongoing demand. Fertiliser prices are at near record highs and food security is an increasingly important global issue.

Angola is a potential agricultural powerhouse and MNB is positioning itself as one of the very few local fertiliser product producers in the region.

Green ammonia, used in fertilisers and explosives for mining companies, is to be made with hyro-electric power, reducing the reliance on high priced natural gas and without the carbon footprint.

Our Big Bet for MNB

MNB delivers a 10x return by building a profitable phosphate project AND progressing its green ammonia project.

Why did we invest in MNB?

Short timeline to high-margin phosphate production

Armed with a robust DFS, and with construction underway, we look ahead to first production at MNB’s phosphate project in late 2023. The project is leveraged to fertiliser prices, so the forecast high fertiliser prices and supportive supply-demand dynamics should support the years ahead will work to benefit the project.

Capanda green ammonia project

MNB is exploring green hydrogen / green ammonia production potential in Angola. It is leveraging its support from the Angolan government to ensure access to the country’s local hydro-electric power at what may be the world’s cheapest energy rates.

What do we expect MNB to deliver?

Objective #1: Finalise plant construction and first production

  • With construction underway at MNB’s phosphate project, we look ahead to first production of its phosphate product by the late 2023 target.
  • We want to see MNB secure the required $40M in financing to complete construction.

Milestones

in-progress Secure financing to fund construction completion

in-progress Complete construction of phosphate project - targeting late-2023

not done First production

Objective #2: Offtake Agreements or supply MoUs

We want to see offtake agreements and MoUs signed ahead of initial production - should occur no later than later 2023. A great result would be having an offtake agreement signed/underwritten by the Angolan government. As the project is considered of “National Importance to Angola”, we think this is a possibility.

Milestones

in-progress Enter sales and offtake agreement discussions with Angola’s largest commercial farms

complete Offtake agreement 1 signed - Grupo Carrinho

not done Offtake agreement 2 signed

not done Agreements regarding phosphate battery offtakes

Objective #3: Green Ammonia Project progress

  • Technical study is now underway with results expected in six months
  • We want to see MNB sign an Electricity Supply Contract to secure supply of hydro-electric power upon completion of successful studies under the current supply MOU with Angola’s national energy operator.
  • Sign technical, offtake, and investment partners for the development of the proposed Green Hydrogen/Ammonia Project.

Milestones

complete Completion of technical study

not done Sign binding agreement for hydro electricity with Angolan power network operator

not done Sign technical, offtake, and investment development partners

What could go wrong?

Sovereign risk

MNB has strong and demonstrated Angolan government support — the government wants to make Angola self-sufficient in fertilisers and to increase agricultural production to ensure food security.

However, investing in Africa does bring additional sovereign risk. The country suffers from high levels of bureaucracy and an underdeveloped financial system, as well as corruption, poor infrastructure, ineffective ports, abundant but unskilled labour and high costs on the ground for businesses.

Therefore, being in this part of Africa means that geopolitical risks form a significant part of MNB’s overall risk profile.

Funding risk

While Angola is not appealing to some investors, completion of the DFS should assist in securing any further financing required to complete construction.

In the 24 months leading to the DFS, anticipated construction costs increased significantly with CAPEX estimates of US$52.6M (complete construction capital costs in the DFS) being well above those in the earlier scoping study (US$22.4–27.9M). Yet building costs inflation goes hand in hand with commodity price and fertiliser price inflation, so MNB’s forecast margins remain high.

The DFS estimated CAPEX remaining of US$40M, but MNB has since said that simplifying the flowsheet would deliver “significant CAPEX savings”, while inflation has also moderated since the peak inflation seen at the time of the DFS release.

Commodity pricing

MNB’s phosphate project is highly leveraged to fertiliser prices. As per the DFS, a ~20% increase in fertiliser prices increases the project’s NPV by $60M (current NPV base case is US$203.4M)

The fertiliser spot price has more than doubled in a year and the supply/demand imbalance could still be further stretched. We expect any further fertiliser price rises to further increase the project NPV.

As for farmers facing increasing costs of fertilisers, the simultaneous food inflation does offset their higher costs, meaning demand for fertilisers should continue.

What is our investment plan?

We have been Invested in MNB since taking a position at 3c in August 2020. Since then, MNB hit a peak of 18.5c in March 2022 before the share price began to trend back to its current 8c level after a material 11c capital raise was completed in July.

We executed a Top Slice in the first part of the 2022, but also increased our Investment as part of the 11 cent capital raise.

While the share price is off its peak, we are holding for further re-rates as mine construction is completed, offtakes are signed, phosphate production begins, and progress is made on the green hydrogen/ammonia side of the business.

Our investment plan in MNB Investment Memo #2 is to hold a significant position into first production, if the share price nears our 1,000% gain target we will likely sell another ~25% of our position to take some profit and achieve Free Carry.


Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 8,645,000 MNB shares and 1,562,500 options at the time of publishing this memo. The Company has been engaged by MBN to share our commentary on the progress of our Investment in MNB over time.

Our Investment Summary

Date of Initial Coverage

26-Aug-20

Inital Entry Price

$0.030

Returns from Initial Entry

43%

High Point

600%