Editor’s word: This column is a part of InvestorPlace.com’s Best Stocks for 2022 contest. Joanna Makris’ decide for the competition is Arianne Phospate (OTCMKTS:DRRSF) inventory.
Everyone is aware of the most effective items are available small packages. At the highest of my checklist to purchase for 2022 is a microcap sleeper inventory: Arianne Phospate (OTCMKTS:DRRSF), a Canadian mineral exploration firm.
Hovering close to a $90 million market cap, Arianne is targeted on phosphate mining at its Lac à Paul greenfield venture in Quebec. The firm manages one of many largest phosphate reserves in Canada, estimated at 590 tons. Its belongings are additionally bigger, cleaner and extra pure than virtually any venture on earth proper now.
For these much less acquainted with phosphate, it’s a necessary ingredient in two rising product classes: fertilizer and electrical car (EV) batteries. The phosphate market is projected to achieve $45 billion by 2030 and presently rising at a wholesome 2.8% CAGR.
Fertilizers characterize round 87% of the world’s phosphate. While it seems like a sleepy business, latest traits have severely tightened the world’s fertilizer provide. Fertilizer costs have steadily risen this previous yr and agricultural economists anticipate per-acre fertilizer prices can be about $100/acre greater for corn and $50/acre greater for soybeans in comparison with final yr.
At the identical time, hovering world inhabitants statistics require agricultural manufacturing to extend by 60% by 2050 as a way to assist rising meals and feed demand. As North America battles to seek out the provides to gasoline its corn and soybean crop, agricultural producers might want to flip to new phosphate suppliers. And Arianne — the one large-scale supply of unbiased phosphate rock from a “low-risk” jurisdiction — is trying very interesting proper now.
You can purchase Arianne inventory now as an awesome long-term funding on the rising demand for agricultural phosphate. But you may as well purchase the inventory additionally as an possibility on one other potential upside shock.
Arianne’s phosphate has all of the high-purity qualities vital for use in LFP (lithium iron phosphate) batteries. In November, the corporate introduced that it’s working with an unbiased testing facility and a significant battery maker to course of, refine, and optimize its phosphate focus for potential use in LFP batteries.
With Arianne delivery below 50% of its output, an EV alternative can be a game-changer for the inventory. Here’s a better look.
Tightening Global Supply
As an unbiased Canadian phosphate provider, Arianne Phosphate has develop into more and more engaging owing to geopolitical and agricultural security considerations. The essential motive: China, the largest exporter of phosphate, has tightened its management over fertilizer exports, suspending all phosphate exports till no less than June of 2022. Russia additionally adopted swimsuit, imposing a six-month quota on numerous fertilizer exports.
The China embargo and tariffs imposed on phosphate from different international locations have immensely pressured the worldwide phosphate commerce. Outside of China, many of the world’s phosphate reserves are in Morocco (which accounts for roughly 70% of the whole reserves), adopted by Syria and Algeria. Other initiatives are situated in Congo, Angola, Trinidad and Tobago, Egypt and Jordan.
The provide disaster implies that these international clients, which mixed buy roughly 30% of China’s phosphate, at the moment are direct rivals with the U.S. for no matter phosphate provides stay accessible. Then contemplate the geopolitical tensions that exist between most Western agricultural producers and the international locations that offer phosphate. Approximately 75% of the traded phosphate rock on this planet is being mined in comparatively politically unstable international locations.
A Clean, Safe Place
Adding to geopolitical considerations are questions of safety — that’s, identified contaminants within the phosphates produced in lots of of those international locations. Roughly 90 p.c of the world’s phosphate is situated in sedimentary rock deposits, that are comparatively “dirty” (because of the presence of parts like uranium, cadmium and thorium) and barely comprise greater than a 28% focus grade of phosphate. In distinction, Arianne’s Lac à Paul venture relies round igneous deposits confirmed to provide a 39% focus.
As a Quebec provider, Arianne is well-situated in a pleasant authorities extra aligned with Canadian and U.S. farming pursuits. The firm has additionally been confirmed to fulfill greater ESG (Environmental, Social, and Corporate Governance) mandates for industrial corporations and miners, which require adherence to requirements on security, carbon dioxide emissions, chemical use and pollution in every step of the availability chain.
Finally, the corporate can be probably the most superior (shovel-ready) high-quality initiatives, with two long-term off-take agreements in place. Taking all of this into consideration, it’s straightforward to see why having a dependable, long-term home phosphate producer is essential to agricultural producers.
The LFP Opportunity
Arianne’s agriculture alternative is pretty simple, though at first look, it will not be horny sufficient for development traders. But, in case you look nearer, you’ll see that the corporate’s very top quality phosphate focus is getting consideration for one other, sexier motive: its potential use in electrical car LFP batteries. Not all phosphates are battery-grade, however Arianne has one of many largest, cleanest, highest grade phosphate initiatives on this planet.
I don’t have to persuade you on the subject of the expansion trajectory of the EV market. What’s essential is that this: provide disruptions are the first stumbling block for ramping up electrical car manufacturing. The pandemic additionally uncovered the overdependence of the world on China for key uncooked supplies. And whereas solid-state batteries are positively cool, they aren’t actually being manufactured cost-effectively at scale (but).
As a consequence, EV producers are more and more turning to phosphate (LFP) batteries for their value and efficiency traits. And they’re turning to new suppliers exterior of China to assist their lofty development projections. Tesla (NASDAQ:TSLA), the daddy of LFP chemistry, has already designed an LFP battery in China for smaller, entry-level automobiles. But in October, Tesla introduced it might change the battery chemistry to LFPs for all of its standard-range automobiles (Tesla will nonetheless use nickel-cobalt-aluminum batteries in its longer-range automobiles). This shift implies that LFP batteries may develop from round 15% international penetration to over 30% by 2030.
For Arianne Phosphate, this shift may characterize one other leg-up for the corporate’s long-term development. Even although phosphate demand for LFPs will stay a small proportion of the whole market, Arianne is in a superb place to promote a significant portion of its focus to battery makers.
The Bottom Line
Arianne Phosphate gives traders a steady, discounted play on a phosphate venture in a dependable and politically steady nation. Notably, agricultural suppliers like Mosaic (NYSE:MOS), CF Industries (NYSE:CF) and Intrepid Potash (NYSE:IPI) have skilled sturdy strikes on a tightening world meals provide. Most importantly, shares aren’t pricing in any respect for the choice on a rising market for LFP batteries.
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Disclosure: On the date of publication, Joanna Makris didn’t have (both immediately or not directly) any positions within the securities talked about on this article.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and basic public fairness investor, Joanna leverages over 20 years of expertise on Wall Street masking numerous segments of the Technology, Media, and Telecom sectors at a number of international funding banks, together with Mizuho Securities and Canaccord Genuity.
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