Harvest Minerals (LSE: HMI), the Brazilian focused fertiliser producer, was up nearly 7% this morning after the company released an operational update. 

The company leads with news regarding its working relationship with Geociclo Biotecnologia S/A.  in July, Harvest announced that it had entered into a strategic alliance with Geociclo to enable the marketing and selling of the company’s KPfértil product.

As well as utilization of the sales team the deal also allowed access to of Geociclo’s MAPA accredited research and trial production laboratory and storage facilities. Harvest reports the alliance has been a success, however, Geociclo has sought judicial administration due to its existing liabilities and lack of available funding.

While at first this may sound problematic, the administration of Geociclo has actually created an opportunity for Harvest. The company has acquired the majority of the sales team, some support staff and Geociclo’s existing client database, allowing progress in developing new markets for KPfértil to continue. In addition, Harvest will no longer be required to pay commissions to Geolciclo.

KPfértil is produced at Harvests 100% owned Arapua Fertiliser Project in Brazil, a country that is currently trying to reduce its dependency on importing the potash it requires for fertiliser.

Harvest sells KPfértil to a number of distributors who deliver it to over 30 different farmers - with a further 12 currently testing it - ranging in size from small holders to some of the largest producers in Brazil.  

The Company now wants to double the size of the current storage facility to 20Kt and add additional silos to reduce the time taken to load each truck and expects this work to commence in the New Year.  The cost is expected to be less than US$300,000 and should be completed by Q2 2019 and will be funded via existing resources.  The company has been stockpiling around 4,000t of inventory in anticipation of the wet season. Harvest will focus its efforts on stepping up production during January and February, which tend to be quieter months, ahead of the ‘buying season’ starting in March.

The company also announces that KPfértil has been granted certification from the Brazilian Institute of Biodynamics as a fully organic and biodynamic product which the company expects will further enhance sales.

Harvest's Executive Chairman, Brian McMaster, commented, "During the year, we have been working hard to develop our brand and distribution channels for KPfértil.  Whilst contracts with distributors can allow us to leverage existing sales teams and their relationships in the market, direct sales through our own sales team are equally as important to building our brand.  We are therefore delighted to have acquired most of the existing sales, support and marketing team at Geociclo to support this strategy.

"We are pleased with the progress of the plant since it was commissioned. We are planning the expansion of our product storage capacity, which will be fully funded from available cash resources. We have recently slowed production due to early commencement of the rainy season, but the idiom 'every cloud' is even more true in our case as our customers are expecting a bumper harvest this year, which will mean they should be out in force to buy more KPfértil next year."

Author: Stuart Langelaan

Disclosure: The author does not own shares in the company mentioned above