The Next Bull Market Move Interview - Brian Ostroff, CEO of Arianne Phosphate

Earlier this week I caught up with Brian Ostroff, CEO of Arianne Phosphate. We talked about the growing demand globally for phosphate, the value proposition for juniors with the right assets in this market, and the recent exciting news for Arianne that will continue to push their project forward.

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On The Next Bull Market Move, we have Brian Ostroff who is the CEO of Arianne Phosphate. How are you today, Brian?

I'm doing well. Yourself?

I am very good. Let's talk a bit about your background, and let's start by perhaps going over some of the highlights of your 30 year career within the resource space. Can you share with us some of your successes?

As you mentioned, I've been at this for about 30 years. I have been a capital markets guy, having started my career with RBC. I was always was attracted, even back then, to small cap and mining. Then I spent some time with a US mergers and acquisitions firm, and then back here as a proprietary trader for a large Canadian bank, and then ultimately at Windermere. So I've been here at Windermere for the last ten years, little bit more. I'm a partner here. 

In essence, Windermere is a resource/mining fund. So our approach is really that more of kind of a private equity. So as a group we don't do a whole lot of trading. We find little companies that we think have a lot of potential going forward and become a significant investor in them.

Let's briefly go over the phosphate market. The last five or six years have been pretty much a bear market for the space. But the demand, that includes a growing world population, keeps rising. Can you talk a bit about this?

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Sure. You know I think you pretty much hit the nail on the head. The demand for phosphate does grow every single year, roughly two to three percent. So an additional four to five million tons a year is required. That's regardless of whether the economy is good or bad. It really is a fairly straight line ascent.

For a lot of investors, I think they do know that phosphate of course is used for fertilizer. It's one of the three macro nutrients - potash and nitrogen are the other two. I'm not sure that investors really know the difference between the three though. I think that's a key thing to understand. Certainly when you look at phosphate, the supply-demand dynamics look compelling. 

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Most of the world runs a deficit in phosphate: North America, South America, western Europe, most of Asia. That deficit gets made up by the Middle East and North Africa. So there's an argument to be made with regards to security of supply. So as population continues to grow and as dietary habits around the world continue to move more and more towards protein, we're going to continue to see a growing requirement for phosphate. One has to ask where is that going to continue to come from?

And as you said, yes, the last five to six years has been a fairly difficult time in pricing, but that demand keeps growing. Now, one of the things that is interesting is because pricing has been a bit of an issue, the industry itself really has not continued to grow at the pace that demand continues to grow.

There's a saying in the whole commodity business that a cure to low commodity prices are low commodity prices. That's really what we've seen. So over the last five, six years, prices have come down. A lot of expansions haven't occurred. A lot of green field projects just haven't moved forward. We'll come to this, I imagine, in a little bit with regards to Arianne, but it really is the only large scale project that has continued to advance over the last few years. So after a pretty dreadful pricing period of 2012-2017, we did see price increases through 2018, up roughly 25% for phosphate. Those increases have by and large held; drifted back maybe a little bit. But that demand is definitely there.

Let's move on to your company, Arianne Phosphate. Let's talk a bit about the exciting news you had within the last few days and what it may mean for the company going forward. Could this signal a shift in interest for companies like yours? Can you talk about that?

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That's a great question. As I had said, over the last five, six years, a lot of phosphate projects just hadn't moved forward - Arianne really being the anomaly. Since 2012, the Arianne project has moved forward. It's based in Canada, the province of Quebec. 

It is today the world's single largest green field phosphate deposit. We make a very high purity phosphate, very clean. We don't have a lot of the deleterious elements found in most phosphates around the world. Infrastructure is well located. We've got a power dam 30 kilometers away from us. We have haul roads in place. The haul roads head down to a large river. A port is in place, although we will need a loading facility in the north shore.

But again, over that period of time, the project has advanced and advanced to a point now that it is fully permitted. We have a collaboration agreement with the First Nations. We have strong government support. The government currently has about a seven percent stake in Arianne. So things have moved along very nicely, really in the shadows of a bad market.

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As you had commented on, yesterday we did announce something that really could be a game changer for us. You know, we talked a little bit about demand. One of the big wild cards in demand here is China. So China really throughout it's history has been self-sufficient in phosphate. It's one of the few elements that they have not had to import. So they've been big producers and of course, big users of phosphate. 

There have been indications over the last little while, some industry analysts have come out and basically said that China now looks like it's going to be moving into a deficit. So of course, that could be significant. You're talking about a population of over a billion people that would then need to come into the phosphate market and be a buyer. Just for your listeners, India today is the world's largest importer. They're over a billion as well.

You've got two countries that make up roughly 35% of the world's population, both going to be importers, or are about to be importers. With that, I think that really winds up being a game changer in the phosphate market. So to that end, we announced yesterday an MOU with a large Chinese state owned enterprise, SINOCONST. Really with a view towards them looking to get involved in the project. They would do that really with an eye towards being able to construct and have access to the off take. That would be in exchange for them providing the financing for the project. 

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Now, of course, it is an MOU at this stage. No guarantees that it will turn into a final agreement. That having been said, this conversation has been underway for some time. At the very least, we have a strong working knowledge of what they're looking for. I believe they have a strong understanding of what we are looking for.

There are other parties that we are in conversations with as well. But certainly the fact that someone has now, I guess, publicly made that first step, I think will make things interesting and we will see what comes of it.

Can you share with us some specifics regarding Arianne in terms of your share structure? How much you personally own? And why should investors take a look at Arianne if they haven't done so?

You know to me it's really been, I'd say, a tale of two cities, in that within the industry we are quite well known. Most of the larger players in the fertilizer world know of Arianne and our Lac a Paul deposit. Again, I think the MOU yesterday is recognition of that. If China is in fact going into deficit and they realize that they need to do something; Arianne is a name that people look at. So as well known as we are in the industry, I'd say we're the exact opposite when it comes to the capitals market. 

For all of that, we've been an orphan. A lot of that has been really because the sector has not been widely watched. The perpetually declining prices over the last few years have really quelled any investor interest.

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So Arianne has advanced throughout this stage really without many people looking at it. So today, you've got a company that's trading at 4% of it's net present value, which is truly amazing for something that is fully permitted and shovel ready, let alone the high quality of the project itself and where it's located. 

So I think where the opportunity is for investors today is that someone can come in and be involved in a company many years after Windermere and myself became involved, and at valuations a lot lower. When we made our investments along the way, we had no idea how big the deposit was. Again, today it is the world's largest. There's never any guarantee of permitting. Now, we've got that. In early days, you don't have a full understanding of the economics. Today we know those economics are extremely robust.

So the opportunity really is the here and now, in that someone can come in today and not having suffered through the five years of pain, but be able to take advantage of the advancement over the last five years. So in terms of the capital structure, the company today has basic shares at standing of about 109 million. The largest share holder is Windermere. That's the fund that I'm involved with. 

They are on a fully diluted basis, sitting in and around 19%. Aside from that, I personally own about 3.6 million shares, all of which has been bought in the market or subscribed to through private placements. So when I sit here and say this is one of the - if not the - best thing that I've seen in my 30 years, I've certainly put my money where my mouth is.

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I think that it is an interesting opportunity today for investors, in that I think you're coming in at a good time. The other thing that the low commodity price has done is it's really eliminated a lot of the competition. If we are about to get an upswing here in the interest in phosphate, the pricing of phosphate, as people go and look to get involved in the sector, there's just not a whole lot of names. 

It really is an opportunity, again, because of quality, but also because of uniqueness. One of the things that I always say is that, "Look, I understand gold is sexy and oil is sexy. But you can't eat gold and you can't drink oil." Phosphate's something that really matters. There's just not a whole lot of it around for investors if they're looking to be involved in what I think is going to be a pretty good future for phosphate and phosphate prices.

Thank you very much for your time today, Brian. Much appreciated.

Thank you. I appreciate your time.

The Next Bull Market Move

For more information on Arianne Phosphate visit http://www.arianne-inc.com/en/

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