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I recently interviewed Eran Friedlander, the CEO of Dusolo Fertilizers (OTC: ELGSF). Dusolo is a phosphate miner operating in Brazil that capitalizes on its ability to provide the agricultural sector with direct application natural fertilizer at a significant discount to its international competitors. Most of Brazil's fertilizer supply is imported and attracts high transport costs, so Dusolo is in prime position to grab a huge segment of market share as it has no local competitors.

In the coming days I will be releasing a detailed analysis of the company so I would suggest following my work if you are looking to gain exposure to the agricultural sphere. The company is trading near its 52 week low despite the fact it transitioned to a producer with several sales contracts locked up and more on the way. At current prices I believe it presents a tremendous value proposition.

Tom: Hi Eran, thanks for your time today. I’d just like to start with the formation of Dusolo fertilizers. How did the company begin?

Eran: It started as a shell trading on the TSXV exchange. For a few years we were looking for a relevant or interesting project to RTO into the shell. That’s basically how we came about this mining project. I mean, the idea was to acquire a mining property in Brazil. Initially we were thinking iron ore but the more we learned about the mining sector in Brazil and the more we recruited people with relevant mining experience, the more we came to realize the best opportunities in the mining sector in Brazil are actually found in the agro minerals commodities sector. So, this is why we started looking for a good project for phosphate and that’s how these projects came about.

Tom: What is the unanswered question, the thesis for Dusolo Fertilizers? What activity is going to create the most shareholder value in the future?

Eran: Well the long term strategy is to become a mid-tier fertilizer company in Brazil. We believe that we have the skill-set internally to bring this company to a stage where we are a local producer of fertilizers throughout Brazil. We are currently working on identifying projects similar to Bomfim in different regions in Brazil so that we can accommodate the very strong demand for phosphate throughout Brazil from local projects located in close vicinity to the farms or the agriculture that consumes it.

So that’s our long term strategy. Then in the midterm or short term there are going to be a few milestones achieved. The first one is in regards to Bomfim. In Bomfim, you must understand that according to our estimates we have uncovered only 10% of the potential in terms of the resource that we have in place. We have a lot of upside potential from the geological point of view of the project. Since we have a significant deposit of a high grade, we started with the production last year by way of securing the required permits and the facility. We expect a lot of upside to come from the production of the first product, the direct application natural fertilizer and later on down the road we envision increasing and expanding production to other lines of business or other products and that would add additional value to the project and to the company. 

Tom: When do you plan on starting further exploration in the Bomfim Project?

Eran: Exploration is currently ongoing. Were just about to announce the completion of the first stage of drilling. So as we produce and expand the capacity of the facility that we have in place and also secure orders for this planting season, we are hoping to be able to make an announcement as to the results of the drilling campaign in the coming weeks as we expect drill results to be delivered by the lab starting end of April.

Tom: Do you have any competition with other companies in the area?

Eran: Not really and this is why this business opportunity is so compelling within what we regard to be our immediate marketplace which is 500km surrounding the project area. We are basically the only company with a project of this type, and by that I mean a project that enables us to produce direct application natural fertilizer. To produce this type of product you need the high grade material and at present we don’t know of any company who has a project or has the capacity to produce this type of a product so we really benefit from the advantage of being the sole producer of this product in the region. Now the only alternative is importation from overseas and that obviously translates to very high costs as a result of logistics and transportation costs, and especially now with the Brazilian Real weakening throughout the past four months. It has weakened by about 30% against the US dollar. That will lend additional support to our business. We expect a very strong sales season coming this year as a result of the weakening Brazilian Real.

Tom:  What types of crops are your customer growing?  Who do you envisage will be…in terms of sale contracts, the biggest purchasers for the coming year?

Eran: For this upcoming planting season, as part of our marketing we have segmented the market to five sectors. That includes sugarcane plantations, soy bean plantations, cow grass farmers, organic industries and reforestation or eucalyptus growers. We’re focusing on those five sectors by way of local distributors and some sales people that we have recruited with the relevant skill-sets and experience in these sectors.

As far as the planting season is concerned, it commences later on this month and lasts till the end of October. The first ones to kick off are the sugar cane plantations and that’s where most of our effort is focused at the moment.

Tom: Are you able to give a rough timeline as to when shareholders can expect some notice of any sales contracts?

Eran: I believe we are talking about a near term update with respect to sales. We have been very busy in the past three months in terms of approaching the market, informing them that we exist and we have the material available; and the past three weeks have been made very interesting for us sales-wise because we see a lot of positive feedback coming back as a result of the sales effort. So we expect additional sales contracts to the one that we announced earlier this year, the 40,000 tons, coming in the next days and weeks.

Tom: In terms of the management team, what are some of the qualifications, some of the successes in the past that your team has had that’s relevant to the company?

Eran: I’m a great believer in experienced teams making up companies. From day one I was seeking to recruit the best people in this line of business in Brazil and we’ve been very mindful of that so if you look into the qualifications of each and every member in my team you will see that they all have phosphate related experience in their background. Most of them worked for the leading phosphate producers in Brazil and we have been fortunate enough to be able to assemble this team of capable geologists, sales people and mining engineers over the past couple of years since we started working at Bomfim. 

For instance, our VP Exploration worked for Vale and MbAC, companies who are very much involved with phosphate. Our VP business development also worked for multi-national companies. Some have specific experience in phosphate. We have recruited a couple of individuals who worked for MbAC Fertilizers on the production and on the sales side. So all in all we have a very good team of people capable of covering each and every aspect of phosphate from exploration to production and sales and marketing.

Tom: Jumping back to the production side of things, I understand that there were some upgrades of the facility to increase the capacity from 80,000 to 160,000 tonnes. How are the upgrades coming along?

Eran: Yes well we just received all the equipment that is required to expand the capacity. Basically we are talking about crushers and hammer mills and the installations are going to take place throughout the next couple of months so at the moment we don’t foresee any delays in terms of the expanding the capacity for this planting season.

Tom: In terms of revenue and cash flow, do you think that the company is going to need to raise any more money within the next 12 months or will the company be self-sufficient from here on out through sales contracts?

Eran: Well the budget that we have put in place for the company for this year has been planned so that we are not going to have to go back to the market and raise any more money. We wanted this year to be self-sufficient and not rely on the marketplace for any more fundraising and I’m happy to say that we are basically within the budget, so at the moment we don’t see any need to go back to the market and raise any more capital.

Tom:  What’s the company's cash burn rate?

Eran: Well you know it all depends because obviously there are fixed expenses and variable expenses. Expenses are also growing throughout the planting season when we need to employ more people. So now in preparation of the upcoming planting season we have to recruit more people who will work in the plant and some mining engineers and we need sales people, but as a rule of thumb, normally we spend about $150-$200,000.00 on a monthly basis. Depending on the operations of the company we spend more money but again within a budget so that we don’t exhaust our resources and have to go back to the market and earn some more funds.

Tom: What are your personal thoughts on the direction of fertilizer prices in the next two to three years?

Eran: It’s a bit hard to tell but we actually think that with our product we are very well priced. In fact, we are providing a significant discount to the farmers so eventually we believe that we will be able to increase the price of our product. By that I mean the direct application natural fertilizer, because basically you have to understand that the only alternative which is the imported phos-rock and by the time it arrives at our region it’s almost triple the price of the product we are selling. 

So at the moment we are keeping the prices low because we are trying to penetrate the market and establish a market share but I think as soon as we have the market share that we are aspiring to have, at that point in time we are going to start raising prices. So for us in the next two to three years we believe that the prices are going to go up.

Tom: Have you had any interest from any larger mining companies or fertilizer companies? If you don’t want to discuss this, that’s fine, but have you ever been approached by other companies to look at a joint venture or maybe interested in a takeover?

Eran: Of course we are in discussion with some major companies that operate in this space. I think one thing that is really important to remember is the fact that phosphate is a very local play so having phosphate, especially good grades of phosphate in the center of one of the largest agricultural regions in the world, lends a lot of support to our business and creates a lot interest surrounding our business. So of course we are talking to some major companies that are operating in this space but obviously I can’t give more details about the nature these discussions.

Tom: Yes no problem. Thanks for that.  In regard to the other properties being explored besides Bomfim, are there any studies going to be conducted for them in the near future or any permits that are going to be granted?

Eran: Well we believe that the current state of the mining industry presents some opportunities, and again, the long term strategy is to become a mid-tier fertilizer company in Brazil. We keep our minds and our eyes open for other opportunities within Brazil that have similar characteristics.  Also we have two other projects on our portfolio. We have some intentions to start explorations there, but again we are very mindful about our finances so we are waiting to see cash flow coming out from Bomfim before we go and spend it in other directions. Again because of the state of the market in general we don’t go back to the market and raise more capital at these valuations.

Tom: Just one more thing Eran, if there’s any information that you’d like to pass on to shareholders or potential shareholders in regards to the future of the company please take this opportunity:

Eran: Well I think that the company is at a turning point that. It’s a very important stepping stone for the company now to move into production of the full scale and I think that this year is going to be a very interesting year for Dusolo. I don’t know a lot of companies in the mining space who are able to do what we are currently doing at such a low cost with such large potential.  So basically if you look at the company from a risk/reward point of view, I think the company presents an excellent or investment opportunity.