Organic fertiliser supplier Fertoz will look to tap the potential of the global carbon credit market, on the back of an oversubscribed $5 million placement announced today.

Led by JP Equity Partners, Fertoz (ASX:FTZ) said the raise will allow it to ramp up a new division of its company – Fertoz Carbon – while also providing working capital for its thriving core business in organic fertiliser.

The company is positioning itself as a first mover in the carbon credit market, as it looks to take advantage of a material long-term growth opportunity.

Last month, Bloomberg ran a story in which the global head of carbon trading at Trafigura Group stated the carbon market had the potential to be 10 times the size of crude oil trading, as the world seeks to limit the impact of climate change.

The introduction of emission caps, particularly in the US and Europe, have highlighted the importance of carbon credits as organisations adjust to an increased focus on their environmental impact and output.

And speaking with Stockhead, Fertoz non-executive director Stuart Richardson said it creates a “real opportunity for farmers in our key markets to potentially generate an additional income stream”.

In basic terms, businesses currently producing emissions can offset their environmental impact by purchasing certified carbon credits from individuals or businesses – in this case farmers, through anticipated deals facilitated by Fertoz.

Fertoz Carbon helps create credits for its farming customers by fertilising and planting on traditionally non-farmed areas of agricultural sites with native cover species, turning non-income generating areas of farmland into Co2 sinks, which absorb carbon and generate credits which can be on-sold to emitters.

Additionally, carbon credits can be generated on traditional crops using farming practices that result in no disturbance to top soils, thereby locking the carbon in with the planted crop and performing nature’s role of sequestration of Co2 and carbon generation.

Mr Richardson said he anticipated around $2 million of the raise would go towards hiring the right people to grow the carbon business.

“There’s no capital expenditure required to get this thing up and running, it really is about getting the carbon specialists and soil analysts who are qualified with the right skills for our North American and Australian operations,” he said.

“Carbon is the new big game in town. EVs and battery metals are the big game, there’s no doubt about that. But the world is on a path to decarbonise, hence this early stage carbon opportunity.”

“There’s a need to reverse the impact of Co2 to reverse the climate impact – that means there’s a huge opportunity in decarbonisation.

“We need the people to measure, verify and certify the carbon, so that we’re credible.”

Carbon prices in Europe – the world’s largest market – have surged almost 60% this year and Bloomberg expects them to rise further, should further EU reforms expected this month take effect.

Europe has set a goal of reducing its greenhouse gas emissions by at least 55% by 2030 from 1990 levels as part of the Green Deal.

It’s a sentiment reflected to different levels the world over. A total 127 governments, responsible for more than 60% of global carbon emissions, are either considering or already implementing commitments to net-zero carbon under the Paris Agreement.

“If you believe climate change is a global threat, then solving it is a real investment opportunity,” Richardson said.

Fertoz is also in discussion with potential partners in the fields of carbon measurement, recording and certification.

Two-fold growth for Fertoz

While expansion into the booming world of carbon credits will take up part of the capital raise, the remaining $3 million will be put to use in Fertoz’s booming organic fertiliser business.

Fertoz’s rock phosphate product is proven to increase crop yield and generate significantly lower Co2 emissions in manufacturing compared with commercial fertilisers.

The company recently committed to starting up mining operations at its Fernie phosphate deposit in Canada, on the back of record demand for its product.

Richardson said the company sold 2,100 tonnes of its product in all of 2020, and has orders for more than 10,000 tonnes of its organic rock phosphate in H1 for delivery into 2H 2021 alone.

“We need the capital to grow the business and the organic sales are taking off, it’s fair to say, with a bigger focus on doing the right thing by the soil,” he said.

“That’s what it comes down to.”

Fertoz expects its base business to be cashflow positive and self-funding by the end of the year, which would then allow it to fund its push into the carbon markets.

“Eight years ago we began the process of pegging every rock phosphate deposit of high grading phosphate in North America,” Richardson said.

“Today, it’s one of our largest strategic assets. We think we own the largest deposit base of more than 6 million tonnes of certified organic rock phosphate.”

The Fertoz placement will take place across two tranches, with shares issued at 15c each – a 0.6% discount to the company’s 15-day volume weighted average price of 15.1c per share.