Centrex Limited (ASX: CXM): Poised to benefit from the soaring fertiliser prices

Marc Kennis Marc Kennis, March 23, 2022

Record high phosphate prices can push up the share price

Centrex Limited (ASX: CXM) is a mineral exploration and development company in Australia that explores for phosphate, potash, zinc, lead, gold and copper deposits. Its flagship project is the Ardmore Phosphate Rock Project located to the south of Mount Isa in Northwest Queensland. The company was formerly known as Centrex Metals Limited and changed its name to Centrex Limited in December 2021. The company was incorporated in 2001 and is based in Adelaide, Australia.


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According to Centrex’s latest update on the Ardmore Project, trial plant commissioning and the first production of phosphate rock is expected to take place in July 2022, with the first shipment in August 2022. Given the global shortage and record-high prices of various fertilisers, including phosphate, we believe Centrex’s Ardmore Phosphate Rock Project is getting its initial production plant running at about the right time.


2022 is going to be a good year for phosphate players, including Centrex

Let’s begin with Centrex’s price chart and see what moved the share price since the beginning of 2021.



Centrex Limited, Daily Chart in Semi-log Scale (Source: Metastock)


❶ Commencement of mining at the Ardmore Project.

❷ Appointment of Samsung as Centrex’s sole and exclusive Marketing Representative for sales into Korea, Japan, Indonesia, India and Mexico.

❸ Centrex raises $4m at 9 cents per share.

❹ Increasing phosphate prices brings attention to the stock.


Increasing energy and natural gas prices throughout 2021 led to lower output by fertiliser producers as their cost of production increased. In July 2021, the tight fertilisers market led the Chinese government to ban the export of fertilisers, including phosphate, until at least June 2022, to secure its domestic supply. China has been the largest exporter of phosphate in the world, accounting for approximately 30 percent of the world’s phosphate trade. The export ban by the Chinese government pushed fertiliser prices to record highs last seen in 2008.


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We expect record-high fertiliser prices to last until at least the end of 2022

Energy prices are one of the main costs in fertiliser production. High gas and coal prices have made it unviable for many EU and Australian producers to operate at full capacity. On top of that, the recent sanctions on Russia’s oil industry have further increased the costs of energy, making production even less viable for fertiliser producers. Under the circumstances, we don’t see China lifting the ban on fertiliser exports until at least the end of 2022.


Shortage of fertilisers can become a national security threat in several countries

Fertilisers shortages can cause serious food shortages for hundreds of millions of people in the medium term. In addition to the current shortage of fertilisers, there are now fears that Russia, which accounts for some 13% of the world’s fertiliser production, might consider banning the export of fertilisers as a retaliatory measure to Western sanctions. This makes a local supply of fertilisers an important ambition for countries, including Australia.


Australia’s phosphate is the best replacement for Chinese phosphate

The biggest exporters of phosphate after China are Morrocco and the Middle East. With Chinese phosphate now off the market and significant freight costs due to high fuel prices, east Asian countries will find Australian phosphate cheaper than anywhere else. Centrex already has an offtake agreement with Samsung for at least 20% of its production capacity and is in negotiations with several other customers for the rest of its product.


The Ardmore Project has a high valuation

According to the project’s August 2021 updated DFS, with an annual production of 800kt and a 10-year life of mine, the project has an NPV of $207m and an IRR of 52% with a payback period of less than 2 years. According to the latest project update by the company, the current benchmark phosphate price shows a 38% increase to US$172 compared with the benchmark price used in the updated DFS. This increase in the price of phosphate increases the profitability of the project by more than $30m annually, in our view.


The risks

According to the August 2021 updated DFS, the project has a capital cost of $78m. Centrex plans to raise this capital through a mix of debt and equity. We expect this capital raise to take place towards the end of 2022, after some success with the initial production plant. Given Centrex’s current small market capitalisation of $46m, we expect this capital raise to have a significant dilutive impact on Centrex’s share price.

Other risks include fluctuations in the price of phosphate and operational risks, which can affect the profitability of the business.


Our suggested action plan: Buy at 9 cents

We are very bullish on the prices of fertilisers, including phosphate, for the foreseeable future. However, we think the upcoming capital raise will be detrimental to the share price, at least for a short while. The latest capital raise took place at 9 cents per share in October 2021. Considering the significant increase in the price of phosphate since then and the likely success with the initial production plant, we see 9 cents per share as the bottom for the next capital raise price. Therefore, we see prices near 9 cents as good buy opportunities.


Our price target is 15.5 cent to be reached within 6 months

We believe the upside potential for Centrex shares is A$0.155 with an indicative timeframe of 6 months. We suggest 7 cents as the stop-loss level (the green line on the chart). If the price breaks below this level, then from technical analysis perspective, there’s a high chance for the price to fill the gap towards 4.5 cents (point 2 on the chart).


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