Teeka Tiwari has a big teaser pitch out right now for “Deal #12”, which is launching with a presentation tonight (8pm EST, October 6), and will presumably lead into a sales pitch for his Palm Beach Venture newsletter (which has a list price of $5,000/yr, though those letters are never promoted at full price) — with the payoff being that he’ll connect you with private equity investments into companies that are not yet public, but hope to use a wave of private financing to raise enough money to make it to the next step, and perhaps get a public listing in the future. We haven’t seen the presentation yet, of course, so maybe he’ll be selling one of his other products… but he’ll surely be selling something.

This is a slippery area to operate in, because Teeka Tiwari and other newsletter pundits who try to steer folks to private placements are acting sort of like brokers and investment bankers, and want to give you that feeling that they alone can get you into this hot deal and get you the insight you need… but to stay at arms length a little he’s really just hinting at that investment in his ads, and probably in his presentation will tease it as a high conviction idea and recommendation, with boilerplate language about risk, but, once you cough up your $5,000 or $2,400 or whatever, will pass you off to the company itself so you can decide if you want to invest. Again, I’m guessing here just based on the many “pre-IPO” pitches we’ve looked at over the past few years, since Teeka hasn’t made the presentation yet, but most of them seem to walk that fine line.

And the hints he drops in the teaser videos, which have a “Indiana Jones going into the jungle to find treasure” vibe, including shots of Teeka climbing into a seaplane, are almost nonexistent… but I did pick up a couple things from the videos… mainly that he’s researching some kind of project or company in the Amazon river area, that his meetings about this project were in Brazil, and that one of the folks at the table with him at those meetings was Stan Bharti, the longtime junior mining investor and banker (he runs Forbes & Manhattan, which is a merchant bank, though I think of it as sort of a venture capital/early incubation/advisory firm for mineral exploration companies).

So what does that tell us?

Well, from that limited bit of information, the Thinkolator points us toward the active private fundraising campaign underway from Brazil Potash, a company that is trying to raise capital to get a little closer to construction on their first potash project, which they call the Autazes Project, in the Amazonas region of northwestern Brazil.

We can’t know for sure whether this is what Teeka will pitch tonight, of course, he didn’t actually drop many intentional or specific clues about the project, but we know that for a big marketing campaign like this, to a very large mailing list, it has to be a pretty accessible deal that can be done almost self-serve, without Teeka as the newsletter pundit holding your hand and getting too close to being a fiduciary who has to be legally looking out for your best interests, or deciding whether a risky private placement in a prospective mining company is the right match for your needs.

And that’s what we’ve got here, Brazil Potash has their website up, with a big bold “Invest Now” button, and their presentation for investors is ready for you to peruse.

What does the presentation say? Mostly it’s a big-picture argument about the opportunity that a big potash producer would have in a major agricultural area, where potash has to be imported from overseas… but we get into some details:  They are not quite in construction for this project, but are “near construction ready” and have a deal with CITIC Construction, the big Chinese state-owned global construction company, to both finance (with equity and debt) and build the project (though I haven’t seen what the terms of that deal are, or how firm it is); They provide some projections for future EBITDA and offer comparisons for that hypothetical future against the current multiples of the big fertilizer companies, which tend to trade at an Enterprise Value (market cap plus net debt) of 5-8X EBITDA. If they can hit their projected “base case” production, which they do not explain in any detail in the presentation, that could generate $718 million in EBITDA in their base-case pricing scenario ($334/tonne for Brazilian potash prices — they’re been swinging up to $600 or so in recent months, but that may not be sustainable).

The company’s own website reminds us of the long time horizon and the inherent challenge in developing new mineral extraction projects — they say the began exploration in 2009, presumably identified their target area in 2010-2012, and have slowly been exploring and developing local relationships and completing feasibility studies  (their feasibility study was concluded in 2016, five years ago).

This is a project that has been planned for a very long time, and I imagine it’s of strategic importance to Brazil to build up a local supply of potash — or, if several of the potential projects in the interior of the country end up being developed someday, perhaps even build up an export industry for potash fertilizers (if you’re shipping potash from Canada to the interior of Brazil, the transportation costs could easily be half of the price by the end).

That said, there’s no real infrastructure there yet (part of the plan for this project even includes building a 100-mile electric transmission line), and these projects always take a crazy long time to come to fruition, with many opportunities to fail along the way — back in 2013, according to this Reuters story, this same project was being talked up by these same backers, with a potential $1 billion fundraising in the works (that didn’t happen), part of funding what they said at the time was an estimated $2-3.5 billion project, and at the time they hoped to begin production by 2017 or 2018.

I assume some of the delay, at least in fundraising to move the project forward, has been due to potash prices — they peaked in 2008 on Chinese demand, faltered a bit in the 2008-9 financial crisis, then were strong for a few years coming out of that, but really weakened beginning in early 2013 and have been mostly flat to disappointing over the past seven or eight years… until prices spiked higher this year, getting back to near those 2012 levels in most places (there’s no one spot price for most fertilizers, so you’ll see lots of different prices quoted, but they’ve all been rising this year… and rising more for retail buyers).

Brazil Potash says they’ve invested $180 million in the discovery to date, and will invest $2 billion by the time construction is completed at Autazes (capital costs are $2.3 billion, according to their feasibility study)… and that completion date will likely be about five years after they start the “installation and construction” phase, which is not yet underway (the reports talk about “production in 2025,” but they also indicate a 4-1/2 year timeline from starting construction to production, so those 2025 estimates must be quite out of date now). This is not just a mine, though that’s a big enough project on its own, they also have to build the processing plants and the infrastructure to support them — there is some infrastructure for barge shipping, since there are a lot of agricultural exports out of this area, so they don’t have to build tons of roads, but it’s not a simple project.

So that would mean, IF they can hit that $718 million in EBITDA in five or ten years when the project is at commercial production, and if the $2 billion they expect to need to complete construction is all the capital they require to get there, that the EV/EBITDA for Brazil Potash, with an EV of perhaps something like $2 billion at that point and $718 million in EBITDA, would be about 3.  That sounds reasonable, but remember we’re talking about many years in the future.  If you apply a discount to that future cash flow and assume it takes eight years to get to that level, and that the discount rate is 10% a year because this is an inherently risky project, then the net present value of that $718 million for the first year of full commercial production would be about $335 million today.

So on that front, we’re assuming that the project will end up costing about $2 billion and that, if they raise that $2 billion and the mine is built eventually, the investment, in 2029, might generate something like $335 million a year in 2021 terms, which means an EV/EBITDA of about 7, right in the middle of where the big potash producers generally trade.

We don’t know how much of that $2 billion will be equity and how much will be debt, or what the terms of the financing might be, but this almost certainly won’t be their last or largest equity raise.  If we make more optimistic assumptions, of course, and say they’ll be producing faster, maybe in five years instead of eight… or that potash will be in the $600s instead of the $300s at that time, or if the fundraising and financing from CITIC is on great terms, then the projections could change pretty dramatically, but that’s the general idea. They can end up worse than that scenario as well as better, to be clear, and the default expectation for mining projects should always, in my mind, be that they will take far longer and cost far more than investors are led to expect. Miners are optimists, and bless them for it because without that optimism nobody would take on these 10-year or 20-year projects with uncertain returns, but whether or not you want to invest in those kinds of projects is up to you.

The primary unique value here seems to be that this planned project will be local to Brazil, and therefore will have a ready customer base nearby who can pay a premium price relative to Potash that has to be shipped in from Canada or Belarus. And that is probably strategically attractive, and I’ll also give them some credit for having a construction financing deal in place with CITIC that means they might not be scrapping for loans and could build fairly quickly once they get the green light, assuming CITIC is still feeling supportive at that time, but it’s just really, really hard to build a new potash industry from scratch in the middle of nowhere. That’s not the kind of thing that a scrappy bunch of private placement investors who are ponying up $50 million would generally be targeting.

The big picture argument is pretty clear and sensible:  Brazil is one of the breadbaskets of the world, they are a major exporter of agricultural products, but they have to import almost all of their potash (and many other fertilizer inputs).  Potash is mined from ancient sea beds, and is a necessary fertilizer for industrial agriculture, mostly produced by massive projects in Canada and Eastern Europe/Russia and somewhat controlled by de facto cartels in those two regions (the Eastern cartel, Belarussian Potash, collapsed when Russia pulled out in 2015, which is part of the reason for the relative price weakness from 2015-2020, Canpotex is still operating as the North American cartel, owned by Mosaic (MOS) and Nutrien (NTR), so things have gotten a little more complicated in the past decade… but it’s still a business dominated by a handful of massive producers).

As to whether the actual project is worthy of investment, or this management team is worth the risk, I can’t say that I’m convinced at the moment — it’s not impossible, of course, sometimes a new company with crowdfunding works out and becomes a big company and goes public, to great fanfare, and they’ve certainly got some marketing firepower on board with Teeka and Stan Bharti so that might give the company a boost in marketing terms, should they push through to a listing in Canada in the next year or two, it worked pretty well for Flora Growth (FLGC), which the two similarly collaborated on and which had a solid IPO this year and got popular for a little while (though I’d rather short that stock than buy it even now, down 75% from its highs), but when it comes to Brazil Potash I’ll just watch from the sidelines, personally.

Why is that? Well, mostly because I didn’t see a lot to love in the SEC filings. They have to file registration materials and financials with the SEC, similar to what you would do for an IPO, even though this is a private offering and the company is not listed, and I usually find that kind of disclosure more helpful than the sales-focused presentation in helping to get a bigger picture… though reading them takes time. I’d suggest at least going through the most recent semiannual report, filed just a couple weeks ago on September 20, to get a more clinical picture of the status of the project, and also reading the actual offering filings if you can stomach more research.

What’s the actual plan? They intend to raise $50 million by selling 12.5 million shares at $4 each (they say the minimum is 625 shares, so that means at least $2,500 per investor). Of that amount, $400,000 has been raised since the offering was initiated a little over a year ago, back in July of 2020. The offering has been amended to some degree, but the meat still looks the same and the latest version is dated August 9, 2021.  There are about 130 million shares outstanding from prior financings over the years, with the vast majority held by executives and board members (including Stan Bharti), so the total share could if the deal is successful would be about 142 million, giving an implied market cap, at that $4 offering price, of $568 million.   They’ve raised about $20 million  through private placements and option exercise over the past four years.

The feasibility study they cite in their offerings was completed in 2016, though I didn’t find the actual study available anywhere for closer review (I didn’t look that hard, I admit), and it contemplates a $2.3 billion capital cost and production of 2.44 million tonnes per year of muriate of potash for 34 years. That would have a wholesale value of $1.2 billion a year, theoretically, at $500/tonne potash prices, but we do not get any detail about cash flow potential or what the operating costs of the mine are likely to be, or what potash prices they require to make the project feasible (that should be in the feasibility study, in case you look hard enough to find it).

In terms of timing, they say that their main remaining impediment to getting the green light and beginning engineering and construction work, aside from the fact that they don’t currently have the money to do anything, is that they have a couple steps left in official permitting, with the most meaningful of those being the consultations with the indigenous peoples of the area, something that they say has been delayed by COVID restrictions and could take about six months to complete once restrictions are lifted.

As of June 30, they had current liabilities of $11.9 million, including a $1.2 million loan which is in default (to Sentient, which also has a director on the board at Brazil Potash), and only $275,000 in cash to meet those liabilities, so you can see why they need capital. They say that if they raise the full $50 million in this Reg A offering, then they will have enough capital to get through their next two years (so far they’re about 1% of the way there, after a little over a year, so I’ll leave it to you to guess why they flew Teeka Tiwari and his film crew to the Amazon to try to get him excited about it). They have to raise at least half of that amount to get through permitting, according to their estimates, but if they raise all of it they can also begin some of the preliminary engineering work.

Aberdeen International, which is connected to both Stan Bharti and Brazil Potash’s Ryan Ptolemy, has lent the company $149,000 to help get them through to December, but that’s just a stopgap, one of several short-term loans the company has gotten over the past year or two. And reading that part of the filings might help to give a bit of a skeptical mindset — when you think of this as a company that two years ago was signing on to a $1 million loan that required both a $200,000 “set up fee” and a 30% interest rate, it colors your assessment of the safety of an equity investment here, and the protection that larger investors demanded in order to take the risk of investment.  Most of the subsequent borrowing has also been from related parties, and mostly at 12% a year with very short borrowing terms. The broker that’s managing the offering is Dalmore, which is a familiar name in Reg A+ land, they’ve been leading of a lot of the private placement deals we’ve seen teased over the years (you can see a bunch of their other current deals here, in case you’re curious — a few of them may sound familiar from other “pre-IPO” promotions).

And that’s about all I’ve got to share with you at this point — it’s a great big-picture idea, obviously there’s a huge economic case to be made for building a potash production industry in Brazil if the resources are there, because they waste a lot of money and energy importing the stuff… but such projects are massive and capital intensive, and I’m not so interested in the small-picture opportunity here once I look over the basics of the deal.   And I am especially not interested in committing to a private equity investment that may or may not ever become liquid, and a fundraising that may or may not be successful enough to get Brazil Potash out of the hole, let alone get them another year or two further along in their quest to dig big holes.

That’s just me, though, and it’s easy to be skeptical about private placement deals that are being pitched way too aggressively to smaller investors… especially in the mining industry, which has featured these kinds of deals for years, though the relaxation of private equity rules has led to lots of similar investments in all kinds of industries opening up to retail investors, without even the restriction that you have to be an “accredited investor” (which basically just means, “rich enough to handle the loss”).

I love the idea of small investors being able to get in on tiny and speculative companies just as they’re being born, but I don’t love how easy it is for inexperienced investors to get sucked in to deals that are overly promotional… particularly given that all the “pre-IPO” language of these kinds of promotions tends to gloss over the fact that if they don’t ever have a “liquidity event” or an IPO, those private placement shares might be stuck forever, with no exit for shareholders.  Raising money by recruiting individual shareholders is much more cumbersome and time-consuming than raising it from an institutional investor or a big hedge fund… so why would a company do it?   Sometimes that’s the only option for raising money for small companies… but at least partly, I suspect, they do it because any bank or other institutional investor is going to push for much better terms, or demand more equity, and if you’re selling a private placement to mostly small individual investors, and you can market it well, you can try to get away with whatever valuation you want.

If you do dabble in these kinds of private investments — and I know it’s very tempting, because I find myself being tempted sometimes, too, and the dream of getting in early on a great project can be really intoxicating — just remember that the money is really locked up, an exit is generally not guaranteed, and most of these projects will fail to match your dreams, and many will fail completely.  Great results do come from time to time, so never say never, but logic tells us that in a world awash in capital, the best startup-type investments with the strongest valuations and the most compelling potential because of their products or their business model or their assets, or even their management teams, are not the ones that are being hawked to individual shareholders by internet pitchmen at a $2,500 minimum.

My general rule: If you’re making a private investment in a company, you’re really making a commitment — you should know that company much, much better than you know the public companies you invest in, and have a high degree of confidence in their plan and their management team. Think about what you would want to know if one of your friends asked you to invest in building out a new restaurant, and remember that you know where your friend lives and can call her about it whenever you want, or stop by and see how the work is going, and you have a certain level of trust because she’s your friend and you know she will try hard to avoid losing your money, even if her project might fail. If you’re just speculating on the possibility that a company might end up having a hot IPO in a couple years, and you don’t want to evaluate the actual company and think about the 10-year plan or what will happen with permitting or potash prices, then try to think of it as a really expensive slot machine pull… those can be fun, if you can afford it, but even as you’re pulling that lever you’re probably thinking to yourself that there are better things you could do with that money.

The best outcome for Brazil Potash is probably if potash prices continue to climb for a couple years and that leads to a bubble in the potash junior stocks, which would be a perfect environment for trying to finance their project and take the shares public, or having someone with deep pockets who might want to build some more fertilizer production capacity buy them out at a premium price, maybe a miner like Vale (VALE) or an agribusiness company like Bunge (BG) if we’re sticking with Brazil… but what the odds are of that happening, I have no idea. I’m a little skeptical, given the vast reserves from low-cost mines in Canada and Belarus that tend to keep pricing down (a lot of those mines have reserve lives of 100 years or more, and the only thing that keeps production down is transportation logistics and a desire to keep pricing reasonable), but sure, South America could certainly use some more local potash production, and stranger things have happened.

If you have a more optimistic take, or other thoughts on Brazil Potash or other private investments you’ve seen over the past few years, or even a better solution to this tease, please do jump in and share with a comment below. Thanks for reading!