Michael Underhill Itafos IFOS-X COMMENT Jan 22, 2013

(Market Call Minute.) Good Brazilian name. Fully financed. Good group of assets.

There has been a lot of insider buying, which is always a good sign. They’ve go into small deserted gold mines and chemically treat them in order to extract potash. Roads have already been built, so infrastructure is already there. Very low liquidity, so highly volatile.

If you invest in this, it is like buying a lottery ticket. They are looking at strategic alternatives, so every week they come out with announcements. Currently working with a company that may move in and take them over. That company has lent them a little money, although the interest rate is 15%. Right now the mines are not operating. Lost about $100 million in the last 9 months.

This produces fertilizers based on phosphate rather than potash. This has consolidated three projects including a mine in Brazil and a plant that it purchased very cheaply from Potash before its merger with Agrium. The price of phosphate collapsed but is now coming back. He sees this as a great growth story for the next up-cycle in agriculture. (Analysts’ price target is 3.90$)

This is a pure play in phosphate. It does mining and processing. He sees it as a special situation, likely to be taken over. Their original investment was a plant in Brazil, backed by Cargills. Then they purchased Conda Phosphate from Agrium as part of Agrium’s merger divestitures. This makes sense for Itafos because it has other projects nearby. If there is an ag cycle, this will be the go-to small cap name. (Analysts’ price target is $4.00)

Billy Kawasaki’s Insights - Billy’s most-liked answers from 5i Research. They have been growing their top-line quickly over the last quarters. Net profit margins are improving. Although debt is quite elevated, they have cash balances and equity positions that are decent. Valuation is cheap and future growth estimates are good.A smaller size so could see higher volatility. Unlock Premium - Try 5i Free