Brazil Potash Corp. Water Tower Research Virtual Insights Conference

WTR Insights Conference featuring Brazil Potash. I am Dmitry Silversteyn, Managing Director of Chemicals and Materials Technology here at Water Tower Research, and I will be your host today. We are pleased to be joined by Matt Simpson, Chief Executive Officer of Brazil Potash. Welcome, and thank you for being here.

Thanks for having me on, Dmitry.

Before we begin, please note that Brazil Potash safe harbor statements can be found on the Investor tab of their website and in the latest presentations, which can be found at www.brazilpotash.com. We will aim to address investor questions submitted during today's conversation, or in the management series report that will follow. Please enter your questions in the chat. Investors interested in scheduling a meeting with Brazil Potash can indicate that interest within the conference portal. With the housekeeping items out of the way, let us jump right in. Matt, let us start at the highest level for investors who may be new to Brazil Potash. Can you introduce the Autazes project, its size, location, and planned production, and explain where the project stands today on the path from development into construction, and ultimately becoming a major domestic supplier of potash in Brazilian agriculture?

Dmitry, a lot of people might not realize this, but potash is a critical mineral with no substitute used to grow food, and I would argue it is much more important to eat than it is to have the latest iPhone or rare earth metal. The project is located in Brazil, which is the world's largest net exporter of agricultural goods, and also coincidentally the largest importer in the world of potash at about 22% of the global market. Our plan is to initially produce 2.4 million short tons, which will supply about 17% of Brazil's need. The basin in Brazil is absolutely massive because potash is formed by failed oceans. So you do not have a lot of these basins in the world, but where they do exist they tend to be absolutely massive in size. And we are fully permitted for construction, currently raising the funds to build this project.

Excellent. That's a good start. Thank you for that overview. The strategic rationale seems unusually easy to understand. Brazil, as you mentioned, is an agricultural powerhouse, yet it imports roughly 95%-96% of the potash it consumes. Why has such a large disconnect persisted? What advantage does producing potash within Brazil give Autazes, relative to products shipped thousands of miles from Canada or Russia or Belarus, the current major producing countries?

Dmitry, potash is a market that historically has been well balanced in terms of supply versus demand. The real issue here is a high concentration of supply within only three countries, being Canada, Russia, and Belarus. Because Belarus is a landlocked country, it's really arguably two countries that control 80% of this market, and that's led to massive volatility in pricing. in just the last five years, potash has been as low as $280, but also as high as $1,200. When you consider that there's only a 10-day planting season for most farmers, having that high volatility in pricing is very problematic. Potash prices this year have risen quite a bit, mainly because of transportation fuel costs, but also because about 12% of the potash that is supplied globally comes from Israel and Jordan and is now impacted.

Looking out, I think investors really need to watch what happens in trade discussions between the U.S. and Canada because the U.S., much like Brazil, imports 95% of its potash. But the difference is that Brazil's imports are largely based on the production global spread, whereas the U.S. imports 80%-85% of their potash from Canada today at zero tariff. Also looking out, we need to look at things like Super El Niño, where there's expectations that temperatures will be quite a bit higher this year. One of the big things potash does is helps plants survive stress, which means unusual temperatures, too much water, not enough water, insect bites.

Construction of this project is really important, Dmitry, because it ensures that the largest net exporter of our food has a domestic source of this critical mineral that mitigates geopolitical events along with any transportation issues such as rail strikes, port strikes, and even more recently, we're hearing now that there could be issues with water levels in the Panama Canal, which is how potash from Canada reaches Brazil.

Wow, that's quite an interesting setup and certainly speaks to the importance of the project that you're developing. One thing that differentiates Autazes from many development stage mining projects is that you're not waiting until construction to find customers. You've already contracted roughly, I think, 91% of the planned production, at least in the initial phase, including relationships with the major Brazilian agricultural groups. What does that level of commitment and commercial recognition tell you about the demand for domestic potash in Brazil? How important are those arrangements and agreements when you sit down with prospective lenders and strategic partners to put together the capital stack that you need to build this project?

Dmitry, you're spot on. Brazil Potash has pre-sold 91% of our production at market prices, which today are about $400 a ton, plus inland freight capture, which adds about $50 to $70 a ton against a cost of production of about $80. The margins are substantial. As I've already mentioned, Brazil is the largest net importer of potash in the world. But it's really important for the lenders to have certainty on our product being placed into customers that are well-financed and that can stand behind these purchase commitments. These contracts were put in place primarily to ensure that we provide comfort to the lenders of the debt for project construction, which are currently advancing their due diligence.

Excellent. Let's talk a little bit about government and what's going on there. The Brazilian government has done considerable work, I guess, in supporting domestic fertilizer production with President Lula just recently signing the Profert into law. I think it just happened this month. Can you explain what Profert and the existing SUFRAMA benefits could mean specifically for Autazes from potential construction cost savings to access to financing, and whether you view this as a meaningful change in the financing environment for the project and the level of government commitment to the project?

When potash prices hit $1,200 a ton back in March 2022, that's when Russia invaded Ukraine, Brazil's government really was concerned, and they put together a national fertilizer plan with the goal of reducing their nitrogen, phosphate, and potash imports from around 85% down to 45% by 2050. While it was great that they put together this document, there was no real teeth behind it. The first real meaningful thing that the government has done is they recently passed this legislation that you just referenced called Profert or pro fertilizer, and the legislation really does three things for us, Dmitry. The first is it has a reduction on import taxes and duties for equipment that cannot be sourced domestically in Brazil. That cuts our construction costs quite materially.

It also provides for government-backed lending for the construction of new fertilizer projects at preferred rates, and preferred rates means 3% government rate, which is phenomenal, especially when you consider the prime rate in Brazil is 14%. The final thing is it mandates minimum domestic content starting next year at 2%, ramping up to 10% by 2030, and it could go as high as 30%. For Brazil Potash, really the first two being the import tax and duty exemptions and the preferred financing from the government are the most material, tangible things that are going to benefit our project.

thereby lowering your construction CapEx and operating CapEx once things get going. That's actually a pretty good incentive for you to continue, and I guess the government is doing all it can to try to incentivize this project as well as other fertilizer projects in the country. That's great to hear because I think it's very difficult to get these things off the ground, especially at the scale that you're at, without government commitment. Let's talk about that a little bit more. Legal and permitting risk has historically been one of the biggest questions investors typically have about any construction project, but particularly Autazes. There were two important court decisions in August.