TMR: What's Cerrado Verde's path to production?
JC: We don't have a timeframe, but given its modest size—330,000 tons (330 Kt) per year—it can get to production a lot faster than some of the larger projects we've discussed.
TMR: Is there advantage to being small and nimble in this space?
JC: I think there is. Verde believes that going into production quickly with a low capex will generate cash flow, prove management's ability to execute and the viability of its overall plan, and thereby induce further investment for phases two and three. Cerrado Verde should be attractive to investors who are somewhat risk averse.
TMR: Does the Brazilian government expect to be repaid for its investment, or is it considering an equity position?
JC: My understanding is that there is a loan component that must be repaid, but that's several years down the road. Part of the loan could be forgiven.
TMR: You wanted to bring readers' attention to an agricultural company that is not involved in fertilizer.
JC: That would be Input Capital Corp. (INP:TSX.V). Its initial public offering was last year. The company has a new idea: giving loans to canola farmers to help fund their working capital. In exchange, Input receives an interest in each farmer's canola crop. For example, it may give $2M to a farmer for what is effectively 1.5 Kt of canola per year over a six-year period, with a floor price for the grain set in advance.
This is a fascinating concept, considering that Canada is the world's leading canola producer. The potential market is quite large. Canadian grain farmers were squeezed by the extraordinarily cold winter of 2014. This resulted in rail delays whereby farmers weren't able to monetize their crops. They sat in storage bins, temporary storage bags or on the field waiting for delivery. This created some havoc in the agriculture space in general. Equipment companies saw their sales fall because the farmers didn't have the cash. Nonetheless, the farmers still had loans to repay, and this triggered higher interest rates. As a result, farmers are looking at nontraditional ways to fund expansion plans and working capital needs.
TMR: What does Input's new idea offer investors?
JC: It gives investors good exposure to agriculture with limited downside risk.
TMR: The streaming model in silver and gold has been enormously successful. How much of this have we seen in agricultural commodities?
JC: Input is the first publicly listed agricultural streaming company. Shares were floated at $1.60 and have since risen to $2.61. So we know there is investor interest; investors have seen the success of companies streaming other commodities. That said, I think there are investors waiting to see how well Input executes.
Input offers a quicker return. If you invest in Input, every year you get crops. It doesn't have to be canola. For example, a farmer facing a supply shortfall in canola can repay Input in other crops. I wouldn't be surprised should other companies pop up to follow Input's lead.
TMR: The company closed a bought-deal offering of $46M on July 18. This was oversubscribed by $6M, which indicates a fair degree of institutional confidence, correct?
JC: The financing confirms that Input is seeing more interest from farmers seeking to engage in streaming contracts. The company said in its last quarterly result that the pipeline of potential customers looks strong, having been boosted by the rail delays and attendant problems. We believe that when Input begins to deploy its new capital to further streaming contracts, this will further improve investor confidence.