Arianne Phosphate (TSX-V: DAN) CEO Brian Ostroff on Completed Information Memorandum and Assembling a Project Finance Syndicate
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is CEO of Arianne Phosphate (TSX-V: DAN)(OTC: DRRSF), Mr. Brian Ostroff. Brian, how are you? Happy Halloween.
Brian Ostroff: I am well. Thank you and Happy Halloween to yourself and your listeners.
Gerardo Del Real: Thank you sir. I reached out and we were able to touch base because Arianne recently completed what I view as a very important milestone for the company and I want to get into the details of the Information Memorandum that you just completed. It's important for the financing of the project, future financing. Before I get into that, I want to, one, congratulate you but I also want to provide a brief overview, if you could provide a brief overview of the project and why it's important and then we can dig into the details of the Memorandum, if that's okay.
Brian Ostroff: Sure. As you say, this is a very big event. It might not seem all that sexy to investors, to their flipping around stocks and that, but this is a very important step when it comes to a project's development. We're sitting on a very large project and it's going to be a large project financing package and that means you have to answer a lot of questions for a lot of people. If you're going to put this in place you're going to have to go through a very thorough due diligence and that's what we've done and with that we now have our full Information Memorandum available to those parties that have expressed an interest in looking at being a part of the syndicate.
Gerardo Del Real: Excellent, excellent. Can we talk a bit about phosphate, the supply demand fundamentals, the security of supply issue and then your project because it truly is world class. Can we speak to that a bit, Brian?
Brian Ostroff: Sure. As you state, the supply demand fundamentals for phosphate continue to be pretty compelling. Certainly right now fertilizer is not on most people's minds. It's been a pretty rough time for this suite of fertilizers; potash, nitrogen and phosphate. But if you look a little below the surface and understand the different dynamics in those three nutrients, you come to realize that for all of it, things look pretty good for phosphate. Most of the world runs a deficit in phosphate, that includes here in North America as well as South America and western Europe and a lot of parts of Asia. This is obviously an issue as we look to feed ourselves. That deficit is made up by the Middle East and North Africa and if you're going to talk about security of supply, we need to realize that is a part of the world that we are reliant on if we're going to get our fertilizer.
The fact that Arianne is sitting on an extremely large deposit here in North America, obviously geopolitically it's in a good spot and the fact that Arianne can come a long way addressing the deficit here in North America, that makes this a very important resource.
Gerardo Del Real: Excellent. Now let's talk about the Memorandum. This was a 12 month process, if I'm not mistaken, that just takes the project and picks it apart and then is rechecked and picked apart by independent parties. Can we talk a bit about the process and just how rigorous it was?
Brian Ostroff: Sure. The company completed its feasibility report some time ago. Then from that continued to advance the project being able to really optimize the costs as well as move it through permitting. The very end of 2015, Arianne received its permits which then in turn started to set it up to go and put together the package to build the project. As you say, a little over a year ago, we did engage our project finance advisors and at that point most people believed that it could be a relatively quick process. The reality is that is just not the case. The approach of our advisors, and one that is absolutely the right approach, is you answer every question before it's asked.
Over the year, independent engineers and consultants come in to basically as you say, check and recheck and rip apart and really look at every aspect of the project and see that it is as advertised. Once you have that comfort level, you put together your financial model that is going to be key for your financiers. Going to show what kind of debt levels you can support, etc. A few months ago a teaser document was provided to a lot of the parties that are focused on project finance, that's the big global banks, it's the equipment manufacturers, it's the export credit agencies. The teaser was sent around and for those who would have an interest in being part of this syndicate, for them to come forward and sign NDAs.
We are fortunate on that front, there has been a lot of interest and many of these NDAs have been entered into which triggered the next set questions from the banks and these parties and brought in a whole nother round of independent engineers to start getting more details for the bank. It was really off the back of all of that that our final Information Memorandum was put together and has now been sent off to those parties who have expressed an interest. I'm very happy to say that we're still standing. That all of this due diligence really bared out what we've all believed for some time which is this is a very robust project, very special and that even in times where we're probably looking at trough pricing for phosphate, this looks like a very bankable deal.
Gerardo Del Real: Excellent. You mentioned the potential economics and one of the key takeaways from these studies was that this will have, this project will have a cash operating cost that should make it amongst the most competitive in the world. That's really interesting to me because you have a market cap right now of approximately $75 million dollars Canadian. The second thing that was interesting, a takeaway from the study and something that was made public before but I imagine was looked into with more diligence was just how low in contaminants, how clean the phosphate concentrate that will be produced will be. Can you speak to that a little bit because you obviously have great economics? You obviously are in an incredible jurisdiction. The clean concentrate is important because that's what going to allow for that end product that makes it desirable to the companies and the financiers that are looking to come in. Can you speak to that a bit, Brian?
Brian Ostroff: Absolutely. You really touch on two aspects. First, Arianne does have an igneous deposit that allows it to make a very, very clean concentrate. Most of the world's phosphate comes from a deposit that with it comes levels of radioactivity because of the elements like uranium and radium and thorium. As well, they have heavy metals, particularly cadmium.
Actually your question is very well timed. Last week the EU Parliament did officially vote to put limits on cadmium content in the phosphate that will be coming into Europe. This is going to affect most of the world's phosphate. You're going to start to see a much greater awareness and a much greater demand for clean phosphates like ours. Certainly that should provide for a premium pricing, etc.
The other aspect that you bring up, aside from all of the technical due diligence that the project went through, there was also the commissioning of an independent global phosphate market report. In that it looked at overall supply and demand, the different types of rock, etc. What definitely came out of that is what we all know which is demand continues to grow on an annual basis for phosphate. That's going to continue. We are going to need new production if we're going to meet that demand. Depending whose work you look at, that is anticipated really by about 2021 that we will see or we will have to see new production come online to meet the demand.
And work was done on where Arianne would fit into this. The fact that we have this clean, high purity rock, certainly the belief is there will be a lot of demand for our product, that rock like this will continue to trade at substantial premiums to say benchmark phosphate. Looking at us on a cash cost curve, we are extremely well placed. Certainly as parties look to get involved in this project through debt, through equity, they will be happy with the numbers that they will see and should support a successful project financing.
Gerardo Del Real: Excellent, I encourage everyone to go to Arianne's page on the Resource Stock Digest website or go directly to the website. Brian, how can people get a hold of you if they have any questions?
Brian Ostroff: Certainly I can be reached at my email which is firstname.lastname@example.org or if you go to our website there are phone numbers and I can be reached that way. I really try and be open to all those who have an interest in phosphate and Arianne and I will look forward to any inquiries that any of your readers may have.
Gerardo Del Real: It's a fascinating project with some pretty fascinating macro drivers. It's a sector that's really overlooked and I appreciate you taking the time and explaining some of those fundamentals to us today. Brian, is there anything else that you'd like to add?
Brian Ostroff: Yeah, I'd really like to just add as I'd started, for investors there really is the belief that the process should be relatively quick and you either have a workable project or you don't. The reality is it is a lengthy process, we engaged our project finance advisors a little over a year ago and investors have made the mistake of a year has gone by and they have not put their project financing in place and that's raised some doubt. The reality is it takes time. These guys come in and you have to answer a whole lot of questions. It's been a year and what we have now is a fully documented project with all the answers that we anticipate the potential financing partners want to see. Now it's at this point we get to move from the due diligence stage to looking to actually source and negotiate our financing package. It's really at this stage that the fun begins.
Gerardo Del Real: Fantastic. I'm looking forward to it and, Brian, you have an open invitation to come on the show any time I'd love to hear updates as those materialize.
Brian Ostroff: Thank you very much.
Gerardo Del Real: Thank you, Brian.
Brian Ostroff: Take care.
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