Itafos (IFOS.V/ITFS): Absurdly Cheap
Itafos is trading at 4x P/E despite higher phosphate prices since last year and well-run operations. Moreover, the phosphate market is expected to be undersupplied in the next few years.
Disclaimer: This post reflects my personal opinions and is for informational purposes only. It is not investment advice. Readers should do their own research before making any investment decisions.
Introduction/Thesis
Itafos is a very cheap company with a simple business model that involves mining and processing phosphate rock into fertilizer. Phosphate fertilizer is a necessity for farming and has no substitute. However, high-quality phosphate supply is constrained in the US. Globally, supply is expected to fall behind demand growth until at least 2030. Opening a new mine can take years. US phosphate mines take around 8 years to open after a feasibility study. Management has started to engage with investors amid the disconnect between fundamentals and valuation. They were generous enough to speak with me on two occasions.
Currently, Itafos has a market cap of $381 million, enterprise value of $377 million, P/E of about 4x based on LTM of earnings, and P/B of 1x.
It trades on the Toronto Venture Exchange and US OTC market.
Business
Itafos is a Houston-headquartered phosphate fertilizer producer and one of four key producers in the US, representing 7% of the phosphate market’s capacity. It produces in the US with its vertically integrated business Conda in Idaho, where the company mines and processes phosphate rock to produce monoammonium phosphate (MAP), superphosphoric acid (SPA), and byproducts.
MAP is the second most widely used form of phosphate fertilizer, used with almost all types of crops. SPA is a key ingredient used to manufacture liquid phosphate fertilizers like ammonium polyphosphate. Phosphorus is an essential macronutrient for crops and there are no substitutes for phosphate fertilizers. Itafos has a five-year contract with J.R. Simplot, that began in 2024, to sell all of its MAP production, while SPA is sold on the spot market.
The company’s current mine in Rasmussen Valley is expected to produce until mid 2026. A separate mine called H1/NDR has been developed and is expected to start producing in mid-2025 and produce through mid-2037. Development of Conda will continue into 2027 with $6-8 million of annual capex to start on extending the project’s life to the middle of the century and beyond. Conda made up 95% of revenues in fiscal 2024.
Management claims that their facility is notably more efficient than Mosaic and Nutrien, the two publicly traded players, due to proper maintenance spending. Figures provided by Itafos show higher utilization and EBITDA margins than either Mosaic or Nutrien. The largest player in the industry, Mosaic, recently announced $100 million in investments to restore capacity in their phosphate facilities after maintenance issues. Itafos has publicly said that maintenance capex is their priority in capital allocation.
Outside the US, Itafos owns two phosphate projects in Brazil and one in Guinea-Bissau. Their Brazilian Arraias mine currently produces sulfuric acid and is being restarted to produce fertilizer, though it will likely just be a small bump to earnings due to low phosphate quality. The other Brazilian asset Santana and the Guinea-Bissau asset Farim are in development stage and would require a large amount of capital to start up. Management has publicly said that they are exploring options for monetizing these assets, such as finding financing for development. I believe there is a possibility they sell the assets as well. The Farim asset, in particular, holds more reserves with a higher grade than Conda. However, it would likely sell at a major discount due to its location. Each asset could be worth tens of millions, if not more.
The company also holds around 10% of outstanding shares, additional options, and rights in St. George Mining after selling their rare earths project Araxa to them earlier this year. This stake is currently worth around $5 - 6 million. St. George is expected to release a preliminary feasibility study on the project in late 2025.
Market
Supply and demand trends for phosphate rock and fertilizer are incredibly strong in the US and globally.
In the US, the majority of phosphate rock consumed comes from domestic production, with an expected 23Mt consumed and only 3.5Mt imported in 2024, according to the US Geological Survey. More than 95% of phosphate rock mined in the US was used in feedstock primarily for phosphate fertilizers. The majority of finished phosphate fertilizer products are produced domestically as well, with 6 million short tons produced in the US compared with 1.4 million imported in 2023, according to the USDA.
The US market is somewhat insulated from the global market due to countervailing duties and tariffs. In 2021, the US imposed these countervailing duties on phosphate fertilizer imports from Morocco and Russia, which currently sit at rates ranging from 16.6 - 47%. The DOC and ITC are currently undergoing the five-year sunset review on these countervailing duties to determine if they will remain. In 2019, before the countervailing duties, Morocco and Russia made up 80% of phosphate fertilizer imports, according to the USDA. In 2024, they only made up 4.5%. The baseline Liberation Day tariffs will likely reduce imports from the remaining countries.
Therefore, US production trends are incredibly important to the market. US phosphate production is trending down. Production of MAP and DAP, the two most commonly used types of phosphate fertilizer, has fallen by almost half since 2010, according to The Fertilizer Institute. Management believes this is due to declining phosphate rock supply, especially high quality phosphate rock, and capital restraints on building new projects. US Geological Survey (USGS) data shows a decline in production of phosphate ore from around 50 Mt in the early 1980s to around 20 Mt in 2023. A 1984 USGS Circular wrote about predictions at the time, since proven to be true, that “easily minable, low-cost reserves of phosphate rock would be exhausted, and that by the end of [the] century, instead of being a major exporter of phosphate rock, the US might become a net importer”.
On the demand side, the US farming industry has held much steadier than the phosphate industry for the past two decades. Principal crops by acres planted have fallen slightly through the years, especially during floods in 2019. Planted acres were at 328 million acres in 2000 and 315 million in 2024, according to the USDA.
However, tariffs on US agricultural products could be impactful to farmers. As it currently stands, China has imposed 10% tariffs on US agricultural products and threatens higher rates. The EU, Mexico, Canada, and Colombia have threatened tariffs as well. A USDA article in April 2025 reports that “since 2013, the share of U.S. agricultural and food production (in terms of value) sold in international markets has remained steady at approximately 20 percent.”
There have been conversations about a program similar to the Market Facilitation Program, implemented after tariffs on the US in 2018, to reimburse farmers for tariff losses, though nothing concrete yet. Regardless of a tariff relief program, the US has already planned extensive subsidies to farms in 2025. The USDA forecasts direct government payments of $42.4 billion for 2025, a $33.1 billion increase from 2024.
The US still has some exposure to the global market through exports of fertilizer. In 2024, the USGS estimates about 25% of wet-process phosphoric acid, which covers almost all phosphate fertilizer production in the US, produced was exported in the form of DAP, MAP, merchant-grade phosphoric acid, and other phosphate fertilizer products.
Global phosphate trends are very strong. Mosaic expects global supply will not be able to meet demand even if demand grows slower than historically. Phosphate demand is being driven by population growth and biofuel growth. Notably, Mosaic claims that grain and oilseed yields need to accelerate from a 0.4% growth rate since 2000 to a 1.2% growth rate to meet the food and fuel demand, which necessitates fertilizers.
Mosaic also expects that China will decrease its phosphate fertilizer exports by 25% in the next 5 years. The country made up 24% of global exports in the past 3 years, according to The Fertilizer Institute, and has been limiting phosphate exports through quotas since 2022. It is doing so to protect domestic food security and phosphate prices. Additionally, greater lithium iron phosphate production for electric vehicles and energy storage will take away from global phosphate supply.
Barring a major disruption in US agriculture, both US and global phosphate trends suggest supply is not keeping up with demand. Moreover, development of a phosphate mine takes several years. Even after discovery and a feasibility study, it can take 8 years to prepare a mine for production in the US due to permitting, engineering, and financing. Even a state-run corporation like Morocco’s OCP Group can take 3-5 years to get a mine ready for production. A new mine will then need 1-2 years to ramp up production to full capacity. These kinds of characteristics are very compelling for the outlook of phosphate prices in the next few years.
Reason for Undervaluation
Until recently, Itafos was essentially an investment vehicle for their current majority owner Castelake, an asset management firm that still owns around 65% of outstanding shares. Itafos hasn’t made any earnings calls and hasn’t gone to any investor conferences until the recent Sidoti visit. Also, Itafos wasn’t profitable until 2021 and held a meaningful amount of debt in the past.
Today, Castlelake still holds two board seats. Management says that Itafos was originally part of their now wound-down natural resource arm. It is not a fund-constraint position for them. Itafos said during the Sidoti presentation that Castlelake is an “active participant in trying to find ways to unlock value”.
Management says there are discussions about uplisting to the Toronto exchange and preliminary talks about uplisting their OTC US listing. They uplisted the OTC listing to the OTCQX today. Their attendance at the Sidoti conference seemed to push its stock price up as well.
Valuation
It is extremely difficult to find a proper price target for Itafos since there are so few comparable companies and the two public players trade at a premium multiple unrealistic for Itafos’s size. However, a 4x P/E ratio based on LTM earnings is far too cheap, especially because MAP prices are meaningfully higher than they were in 2024. The company guides a similar production level in 2025 as was produced in 2024. Though MAP prices may fluctuate in the future, current prices suggest higher earnings in 2025.
At a reasonable 10x P/E on LTM earnings, Itafos would trade at around a $999 million market cap.
Risks
Itafos and phosphate prices are highly dependent on the US farming industry. In 2019, major flooding led to more than 19.4 million acres to be unplanted according to the USDA, the most since the figure started to be reported in 2007. Weakened US demand coincided with a sharp increase in phosphate fertilizer exports globally. This led to the DAP spot price in the US Gulf to fall from a peak of around $420/metric ton in September 2018 to around $240 in December 2019. DAP price is highly correlated with other phosphate fertilizers like MAP. Though countervailing duties and tariffs are currently in place to insulate the US from global price pressure, another major weather disaster could be impactful to Itafos.
The current threat of tariffs on US agricultural products could also damage the US farming industry. The impact of the trade war during Trump’s first presidency was significant for certain U.S. crops, particularly soybeans, which were directly targeted by Chinese tariffs. However, there was minimal impact on DAP prices in 2018, when tariffs were first implemented on US agriculture. Eventually, the US came to a trade agreement with trade partners during the first trade war and reimbursed farmers through the Market Facilitation Programs. Of course, things could be different today if the countries don’t reach an agreement with the US.
Policy changes like removing subsidies on the farming industry would be impactful, though unlikely due to the industry’s economic and political role. A decision to sunset countervailing duties on Morocco and Russia would be impactful, as well, but seems unlikely given the administration’s stance on domestic production.
Other risks include expanding global supply, though there would be visibility into this due to the delay before supply can emerge.
Conclusion
At a 4x P/E, Itafos is too cheap to ignore. Phosphate demand and supply trends suggest an increasing long-term price, which will translate to growth for Itafos. Additionally, management seems to be engaged in unlocking value.