Why Centrex’s (ASX: CXM) share price doesn’t need any fertiliser

Marc Kennis Marc Kennis, May 25, 2022

Who is Centrex? 

Centrex Limited (ASX: CXM) is an Australian mineral company focused on the development of its Ardmore Phosphate Rock Project located to the south of Mount Isa in Northwest Queensland. 


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We first wrote about Centrex on 23 March 2022 with a buy recommendation at 10 cents per share based on increasing fertiliser prices and the attractiveness of the company’s Ardmore Phosphate Rock project. CXM took off two days after we published our article and rallied to a high of 21 cents in one go, exceeding our initial price target of 15.5 cents.  

In our previous article, we mentioned that the biggest risk to CXM is the capital raisings it needs to undertake for the development of its Ardmore Phosphate Project. Centrex took advantage of the elevated share price and raised $16m in a combination of share placement and entitlement offer at 14 cents per share, a massive 33% discount to the last traded price on 1 April 2022 at 21 cents per share. 

The addition of approximately 114m shares to Centrex’s shares-on-issue caused about 23% dilution, which, coupled with the sell-off in the markets driven by high inflation and increasing interest rates, took down CXM to its medium-term uptrend at 10 cents in the following month. 



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


❶ Commencement of mining at the Ardmore Project. (Company Update) 

❷ Appointment of Samsung as Centrex’s sole and exclusive Marketing Representative for sales into Korea, Japan, Indonesia, India and Mexico. (Term Sheet Signed with Samsung C&T Corporation) 

❸ Centrex raises $4m at 9 cents per share. (Centrex Successfully Completes $4m Share Placement) 

❹ Increasing phosphate prices brings attention to the stock. 

❺ Centrex raises $16m in a combination of share placement and entitlement offer at 14 cents per share and signs a conditional offtake agreement with Ravensdown Limited. (Share Placement and Entitlement Offer)(Contract Signed with Ravensdown for Trial Shipment) 

❻ Contract Signed with Ballance Agri-Nutrients for trial Shipment. 


The market for phosphate is only getting tighter 

In the previous article on Centrex, we explained how the increasing fuel prices, stretched supply chains and the Russia-Ukraine war have led to a tight market for fertilisers. We also pointed out how the fertiliser shortages can cause serious food shortages for hundreds of millions of people in the medium term. 

Well, two months later and we have been proven right as an increasing number of countries are now banning exports of certain agricultural products and fertilisers to secure their domestic supply. This has pushed phosphate rock prices to a thirteen-year high of about US$250 per tonne, representing a 45% increase in the last two months. 


Centrex doesn’t need to worry about finding customers 

With the worsening fertilisers market, customers have already been lining up at Centrex’s Ardmore Phosphate Project, counting down for its production to begin. 

On 4 April 2022, Centrex signed an agreement with Ravensdown Limited, a New Zealand-owned agricultural cooperative company, for a 5,000 wet tonnes phosphate rock trial shipment and a first right of refusal to purchase 20% of the production at the Ardmore Project for the first three years. 

On 12 May 2022, the company signed a similar agreement with Ballance Agri-Nutrients Limited, a New Zealand farmer-owned fertiliser cooperative company. According to Centrex’s announcement, with the signing of this agreement, the Ardmore Project has 90% of its first three years of production allocated to major customers in Australia, New Zealand and Asia.  


Higher valuation for Ardmore Project  

The Company’s updated Definitive Feasibility Study (DFS) in August 2021 used a benchmark rock phosphate price of US$125 per tonne. When we wrote about Centrex on 23 March 2022, the rock phosphate prices had increased to US$172/t. Since then, the rock phosphate prices have further increased by more than 45% to US$250/t in less than two months. This is twice the rock phosphate price used in the August 2021 DFS and represents a substantial upside to the calculated NPV of the Ardmore phosphate project. 


How to play CXM 

CXM broke its short-term downtrend after the announcement of the conditional off-take agreement with Ballance Agri-Nutrients Limited (point 6 on the chart). The share price is now dealing with the resistance level at 15.5 cents (the red line on the chart). As the market remains bearish, we think CXM will struggle to break this resistance level in the short term. 

With the market for fertilisers to remain tight in the foreseeable future, we expect CXM to grow alongside its long-term uptrend (the blue line on the chart) in the medium term and reach its previous high of 21 cents in the next few months. As such, prices near 12 cents are attractive, in our view. 


Stop loss at 10 cents 

Our suggested stop loss is a confirmed break below 10 cents. A break below this price level would mean that the medium-term uptrend is broken (the blue line on the chart) and from a technical analysis perspective, it substantially reduces the chances of short term price appreciations. 


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