Octagon Initiates Coverage of AMZ

MAX VICHNIAKOV, Octagon (02/08/2011)
"Strong macro fundamentals: Brazil's well-developed agricultural sector, relatively low natural fertility status of its soils and inadequate local supply of potash results in the country importing 90% of its potash requirements, thus creating strong demand for locally sourced nutrients.

Economically attractive project: Amazon is exploring and developing the Cerrado Verde Project, which has an Inferred resource of 64 Mt. with a grade of 11.17% K2O at a cutoff grade of 10%.Also attractive are the product characteristics. AMZ is developing and commercially testing a non-chloride, non-sulphate, slow-release potash-based product with superior capabilities to substantially increase Ca and Mg in the soil.

Growth potential: With the potential to add to the resource base through the exploration drilling campaign in 2011 and blue-sky potential, Amazon has the potential either to become one of the pre-eminent producers of potassium-based fertilizers in Brazil or an attractive takeover target.

We are initiating coverage of Amazon Mining with a BUY rating and a 12- to 18-month price target of $10. Our $9.94/share NAV is based on a DCF analysis for the Cerrado Verde Project, applying a 12.5% discount rate, a fertilizer price assumption of US$152/ton and using dilutive in-the-money number of shares."

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