My best stock idea (Aguia Resources as of May 26)

Time stamp this (7th May 26)... Aguia Resources (AGR AU) is trading at $0.02 (or 2 cents).

I just came back from a mining conference. Now feeling inspired to talk about stock. As of today, AGR is my best stock idea. Obviously, this is not investment advice. I am just sharing something interesting that excites me.

AGR is a junior miner listed in Australia. The key business for AGR is phosphate in Brazil. Farmers need phosphate to fertlilize their fields. AGR has a terrible history. It had delays after delays in bringing its mines "online".  Around 3-4 years ago, while it was applying for its various permits, it was prosecuted by the Public Prosecutor for failing to consult the local tribes. It took the court over 2 years to rule on the case (which it eventually won). But while it was waiting for the law suit to wind up, it had no choice but to raise rounds of additional funds from the stock market to keep itself going. As we know shareholders hate dilutions, the stock declined from over 10 cent to as low as 1 cent and a bit in the past few years.

Talk about a stock that has blown its investors to bits over the years.

The company is finally at the inflection point. It won the law suit last year and spent the past year to prepare to commence operation + finalizing the different permits. Per the company, its final permit is expected to be issued in mid to late May.

Because of the Iran war, other phosphate producers in Brazil are struggling (lack of sulfuric acid which is required to produced phosphate fertilizer in the country). It doesn't affect Aguia because its fertilizer is made with natural phosphate rock (just dig and mix literally).

This is the investment thesis. It will finally receive the mining permit in the coming 2-3 weeks. At that time, it can finally become a "real" mining company. Its phosphate resource will last for decades. The Iran war has created a favorable environment for AGR to win acceptance with local farmers.

It plans to grow production sharply from 0 to 150K tons then 300K tons then 600K tons in the next 3 years (by that time it will still only account for tiny % of phosphate needs in its surrounding region). Because of the Iran war, phosphate prices rising in Brazil as well (say from $160 to over $200 per ton now). When it reaches 600K tons in production, the company will be earning EBITDA (operating cash flow) of as much as $60-80M.

It is a tiny company with market capitalization of $40M (+ another 20% dilution).... So all up, let's call it MV of $50M.

By 2028, it would be earning EBITDA of $60M or so (assume bottom of co estimate range).

Remember it has decades of mine life left (plus it has a plan to grow to 1M tons by 2031-2032), we can value AGR at say 6X EBITDA. By end of 2028, AGR (the company) could be valued at as much as $360M.

But wait..... It also has a goldmine in Colombia (fully permitted and operational).... At the moment, it is not worth anything as it is tiny and loss making. But company believes it has exploration potential.

In summary, the Iran war is creating the opening AGR needs to win over the farmers in Brazil. Potential investors are making 2 bets - the government will greenlight the mine (by end of May) + AGR will be able to scale up production in the next 2-3 years to 600K tons.

Downside risk is if the government slow walks this application, it will dash hope of the phosphate mine from ever being approved. And current investors who remember the pain from years past will dump the stock en masse. 

I am leaning to the positive sides of the story. In my interactions with management, they were pretty straight forward and sensible. Did not try to over promise.  So far it has delivered the different milestones I was previously told.

My view is the phosphate mines will finally be approved in the coming weeks. Once it obtains the final permit, investor perception will change from a pie in the sky idea with checkered history to a operating company with cash flow (and can grow and grow for the coming years).

Upside can be sizeable (3-400% potential return as the company proves its skeptics wrong by 2028). If the goldmine eventually turns out to be good, upside will be further amplified.

PS. This is not financial advice. Personal opinion only. Do your own research. I may own the stock.