Ladies and gentlemen, thank you very much for joining us for another results presentation. Before I begin today's presentation, I would like to remind you about the disclaimer on the presentation Felipe is gonna be sharing. I would like to remind you that there are forward-looking statements. Actual results may differ, but I also would like to remind you of the series of warnings we make for people who choose to invest in Verde. It hasn't been an easy ride since we began the company several years ago. We've gone through several crises, and I think what we witnessed with the water issues on the road is a reminder about the sort of risks you can have when you're investing in a development, in a technology, in an early stage company.
Nevertheless, we carry on as optimistic as ever, working as hard as ever, as excited as ever to keep bringing the company, to keep moving the company forward. If you're watching it today live, thank you very much for your interest. If you're watching it on YouTube, thank you as well. Please remember that one way for you to help us, or one way for you to help other potential investors, other stakeholders who like yourself were interested in the company, one way for you to help us all is to click on the Like button, is to share, to forward this video to someone, to subscribe to our channel. This is how you tell Google that this content is of some merit.
As usual, for the first part of our presentation, we're gonna have our Chief Financial Officer, Felipe Paolucci, going through the presentation, going through the results, and then afterwards, I will be addressing the several questions we've already received from many of you. What we tried doing was addressing some of the questions we received ahead of this meeting via email on the presentation Felipe is gonna be making. Some of those questions we hope will be answered by Felipe on the presentation. If you don't feel that it was the case, please do not hesitate to resend your question, and we will also be looking to answer them. Thank you one more time for your interest, and I look forward to talking to you a bit later on. Thank you, Felipe.
Thank you, Cristiano. Thanks everyone for joining the conference. I'll start now the presentation, and as Cristiano has said, the first chart here, we have the disclaimer, where we explain a bit about the risks and what's good for you and what's not and about our journey. This will be also available on YouTube later, so you can go into details on this disclaimer. First here, as usual, again, we have 5% coupon off for Super Greensand purchase at Amazon. Unfortunately in Canada we are sold out, but we do have available product for you to purchase or to recommend to anyone in the coming weeks in the Amazon U.S. Going forward for the fourth.
If you don't mind, just go back one slide.
This one? Cristiano, I can't hear you.
There it is. I'm sure many of you are trying to decide what you're gonna be giving as a Christmas gift. I'm sure many of you might be looking at Black Friday deals, and some of you might just be looking at improving your garden or getting ready for the season next year, and it's a joy to be able to offer our product on Super Greensand. It's also very useful to be selling it on Amazon. It was fantastic. I was in a presentation last week, and I was giving the presentation. Someone asked, well, you know, it's a new product, but what is it, is it like? Is it a good product? Is it validated? I was very fortunate because I could just open the Amazon.com website.
I went there, and there are over 100 reviews on the product so far, among thousands of people who have bought the product, but 5 stars or 4.5 stars. I think it's very good that the product is available for each and every one of you to go ahead and try the product as well. Thank you, Felipe.
Welcome. F irst, on the summary part, we've highlighted here, one of the issues we had in the last period relates to the road issue, what has limited our logistics corridor to Plant 2, which is now resolved and peak season purchase order had to be turned down. Despite that, the growth experienced throughout Q3 reflects yet again the efforts and dedication of our team, the market's growing demand for our product. With Plant 2 commission, Verde is expecting to continue its growth trajectory and improving bottom line. The company is no longer sold out and is receiving orders for 2022 and 2023. On Q3, the key highlights, we have, and again, related to cash, we remain with ability to generate significant free cash flow in the long term.
We can see also that the cash utilized from investment activities has increased in Q3 to CAD 13.8 million compared to CAD 0.8 million last year. Trade and other receivables increased over 250%. We end up on September with CAD 29 million in receivables compared to CAD 8.2 million, which is as expected and in line with our cash flow projection. The total use of cash for CapEx and working capital in September increased to CAD 19.1 million.
We had additional loans that we had to make, but it was also, again, planned, and was already communicated to the market when we started the CapEx for Plant 2 and the access road that we would use a bit of cash flow and a part of it on loans, as we've made. On profitability side, you can see that revenue increased by 156% in Q3 2022 to CAD 27.3 million compared to CAD 10.7 million in Q3 2021. In Brazilian reais, the growth is close. It's 140%, so over BRL 109 million compared to BRL 49 million last year.
On sales by volume, also a significant increase on 23% in Q2, to 189,000 tons compared to 150,000 tons in 2021. On gross margin side, we remain with a strong gross margin on 78% compared to 77% last year. On EBITDA, before non-cash events, increased also 123%, in Q3 to over CAD 8.1 million, compared to CAD 3.6 million last year. In the end, our net profit increased by 103% in this year to CAD 6.47 million, compared to CAD 3.12 million last year. On operation side, in October 2022, the company has announced that its second production plant, Plant 2, achieved its nameplate production capacity of 1.2 million tons per year.
Plant 2 was commissioned on August 31, 2022. In parallel, Plant 2 was undergoing an expansion process to be capable of producing 2.4 million tons per year. Adding to the Plant 1 capacity, which is 0.6 million tons per year, total capacity of the company for 2023 is expected to be 3 million tons per year. The Plant 2 total capacity we do expect to achieve by the end of this year. A bit on Q3 financial statements. On the left side, you can see the quarter results, Q3 2022, then with Q3 2021, the comparison, and then year-to-date scenario. I will just highlight a few numbers here, but I have some more details in the coming charts.
Also, any other kind, like, kind of detail, please let us know on your questions, or you can see also in our statements that were, like, publicly published on, at SEDAR. I'd like to highlight on this chart here is just related to the gross profit, which increased over 159% year-on-year to CAD 21.2 million. In the period of the year to date, we are on CAD 49.3 million on gross profit. Gross margin is not that good to compare now because I have another chart that shows the gross margin is including freight impact, which is quite relevant.
What is a good number here also to share is the EBITDA. The EBITDA, which is one point, CAD 8.1 million compared to CAD 3.6 million, and especially on a year-to-date basis, where the growth was over 466%, achieving CAD 22.6 million this year-to-date, compared to CAD 4 million last year. This is very significant growth and important number to highlight. On this chart, you can see the numbers. It's a bit easier to compare in year-on-year and quarter-by-quarter because it's per ton. You can see in the first table the operational summary on tons per ton sold, and then revenue production and gross profit per ton. In the second table, you can see the same numbers, but removing the freight impact on revenue. The gross margin decreased from 78% to 66%.
The good part of it is that year-on-year or year-to-date we are much higher, from 62% to 68%. In quarter-over-quarter, we are pretty flat, and a small decrease of 1% only, quarter-over-quarter. We have 66% excluding freight from revenue of gross margin this quarter, last quarter. Now you can see in the left side the sales tons, total sales since we had the first factory operating in 2018, per quarter and per year. You can see here a bit of the seasonality of the business, how Q2 and Q3 normally are higher than the other quarters. This year we do expect also a strong Q4, especially because of the support of Plant 2.
In the right side of the charts, we can see the revenue per year and also per quarter. We concluded last quarter with CAD 27 million compared to last year, CAD 10.6. For example, in 2020, we had CAD 3.9 million. In 2019, CAD 3 million. The first year we had the Plant 1 operational, we had less than CAD 1 million of revenue. This chart is just excluding the quarter impact, but you can see year-on-year growth of the company from 2018 up to the expectation for this year. We came from 29,000 tons in 2018 to 700,000 tons. It's like over 20x higher.
The revenue side, you can see that we came from CAD 1.3 million in 2018, and we have a latest estimated revenue for this year of CAD 86.6 million. On EBITDA also, it's the first time we show this kind of chart, but it shows here a comparison with 2018. You can see once again the growth of the company. We had a net loss on EBITDA of over CAD 1.4 million. Then 2019, the company was like flat. Then for 2021, demonstrating a positive EBITDA, and this year over CAD 31 million expected on EBITDA for 2022.
On earnings per share, our EPS, we of course came from -0.04 then to 2022, where we do expect to achieve CAD 0.50 per share of earnings per share. On SG&A, we show the first part of the chart on sales expense and then general expense. We can see significant increase in most of the rows and items. This was expected to support our business. We had additional headcounts on sales, we had additional investment on marketing, additional license on IT and software, for example. The key point here, which is the big portion of the expense, they are related to freight.
You can see that the expenses with freight in Q3 was CAD 9.2 million, and in the year, close to CAD 19.2 million. I have a chart that demonstrate and explain a bit why we had this big increase on product delivery freight expenses, w hich is now the left side here, we can see FOB against CIF. We can see that now in Q3 2022, we had 78% freight CIF, which means that most of the product, the company has hired third-party logistics to deliver the products to the client. We can see that this trend remains as is, but I do not expect to have much more than that in next year.
Seventy percent to 80% is a number that is normally a high number, but it's getting flat nowadays, and this is our expectation that it remains as is. In the right side, the general expenses, I will just show a bit on the three key points in the general administrative expenses, fee-based sales agents, and sales and marketing expenses. The one of the key change here is, was related to general administrative expenses, where we had CAD 450,000 in management bonuses to our team that we had already accrued for 2022. Sales channel, we could divide our sales into direct sales, which is made by our internal employees.
We have also the sales agents that sell Verde products among other products of other companies to the farmers. Also the distributors, which we provide a discount in the price, and then they resell to the final client with the margin that we agreed before. What you can see in the left side on Q3 2022, like, over half of the sales, they were made by our internal team, which is good surprise because, we have much more sales agents in the market than internal employees selling our products. In other hand, it's a good opportunity for growth.
As you can see, distributors were a small amount this year, only in Q3, only 8%, and year- to- date, only 13% of the sales were made through distributors. On loans, as I've mentioned before, we've had some additional loans that we raised this year. They were mostly for working capital or equipment. In the end of the day, it went up now in September 30 with CAD 19 million on payments to be made on loans and loans to banks, most of them with big banks in Brazil.
In addition to it, what we had, and we have already disclosed that in our G&A, it was a loan with Banco do Brasil, which was made in October, a total of CAD 5 million with five-year terms. That our business it will be the last one for this year. We do not expect to have additional loan during 2022. This chart, the first comment here can say that, Verde has achieved its EPS, EBITDA and revenue, and sales guidance for Q3 2022. In the table below, what we can see is a comparison with the prior year.
If we can highlight some here, I would say on Q3, where you can see a significant growth in every row, like EPS from CAD 0.06 to CAD 0.12, EBITDA from CAD 3.6 million to CAD 8.1 million, revenue from CAD 10.6 million to CAD 27.3 million, and also on volume from 153,000 tons to 189,000 tons. There are very strong numbers that demonstrate the growth we had year-on-year or quarter-on-quarter in this case. On economic scenario, we have the first table comparison from the U.S. dollar and Brazilian reais, and then in the second chart, Canadian dollars against Brazilian reais. We can see that, well, we do have the most impact that we have now is on Canadian dollars.
We can see that we are close to BRL 4 per dollar at this moment. Last year we were like a bit higher, maybe BRL 4 or BRL 4.20. Our expectation for 2023 that we are working on now is BRL 4.4. Because the situation is quite unstable, and we're not sure if this BRL 4 per dollar will remain until the end of this year. Potassium chloride price, you can see also now a decrease in price in the last two months especially. We are now close to CAD 700 or CAD 640 per ton. Last year we were at the same time, maybe CAD 600 or CAD 500, on average.
In the second chart, also it's important to mention that diesel and crude oil prices are quite flat in the last like six days in Brazil, although with the new president, et cetera, we might have some impact here as well. We have the conflict in Ukraine with Russia that also impacts our diesel price, which goes directly in our freight expenses. This is a very relevant point to be analyzed and be because it's the biggest impact in our cost for sure. We currently use crude oil for to produce the product and also to mine, produce and also to deliver to the customers is the key impact. Well, Cristiano, this is what I have in terms of numbers.
I will pass to you now so you can move on with the Q&A section.
Thank you very much, Felipe. Several questions we have here today, Felipe. They're all on our financials. My suggestion is if you also open the Q&A section, we can go over each of them together, and then some of them you might just jump in and answer them, if that's okay.
Okay.
The first question: Why were your freight costs in Q3 significantly higher than Q2 on a per CIF pound basis? O f course, if I'm you know, misanswering anything here, just jump in. But here's diesel prices going up. Anything else in addition to diesel price going up, Felipe?
Yes. We have two points here that's good to highlight, everyone. We have the diesel price, it's the cost per ton. However, we can have also mixed change. You can sell for further distance sometimes, for example.
Oh, yeah.
From Mato Grosso or South Brazil or North. For sure this will not be demonstrated there in the presentation, but this will also impact a lot the cost per ton sold on freight.
Okay. Second question, I think you've answered it as well. The second question: Why were your cost of goods sold in Q3 significantly higher than Q2 on a per ton basis? The answer is because it's being shipped further away, especially in Q3, where there's a lot of demand coming from Mato Grosso state, where you have soybeans and some other states which are further away.
Just some point here on cost of goods sold. It's important to highlight here that here the diesel price that was like 6% higher or 45% higher than the prior quarter. The inflation scenario in Brazil, that we had also 10% inflation on each kind of cost that we have in the factory. This is also very relevant for the business. Last point is that we had an increase on big bag sales and big bags cost like, it's very, very important for the total cost of the product, and it had an increase of maybe 20% quarter-over-quarter or year-on-year. This impacts us.
Yeah. Next question is a very technical question here. Fixed asset questions. Note number five, Felipe, shows fixed asset classes, including one called land and buildings, which generates no depreciation. This suggests that all acquisitions were land, as any buildings would depreciate. Would you please consider changing this asset class to be just land to avoid confusion? Depreciable buildings would be in plant and equipment. Do you wanna answer that?
Yeah. That maybe I will verify. I might agree. Makes sense, your point. I think it will not be relevant at all, since the amount is very small. Okay, I'll take this point and revert later, if you need to can change, no problem. I'll write it down.
Next question. Is Super Greensand profitable in the mid to longer term as it's bulkier than more concentrated competitors, so costs more in delivery? As I understand it, Lula should be promoting small farmlands over extensive pastures. Is it good for Verde or should it have no impact? Are you commercially targeting small farmers as well as bigger ones? The answer to the first question is that we are very competitive, even in states which are further away. For you to have a very detailed analysis of how competitive we are, I would like to suggest you have a look at our pre-feasibility study. The marketing study chapter goes into a lot of detail, looking at freight costs, weighted average FOB, depending on market penetration, depending on production scale.
There's plenty of data there discussing this question. The other question about Lula promoting small farmlands, w e sell to everyone. I mean, we have a whole wide range of customers, all the way from smaller ones with less than 30 hectares to very big ones. The next question is also a technical question, Felipe.
Yeah.
Verde made significant expenditures on land in Q2, CAD 2.1 million.
No, that's a comparison of 500,000 variance between one and the other quarter. It is year-to-date number. What we have here, we have a lot .
Yeah.
Oops, sorry.
Sorry. Let me just finish reading the question. O therwise people, you've been able to read the question, but people in the audience, they can't see the question yet. The good question here is, Verde made significant expenditures on land in Q2, CAD 2.1 million, in Q3, CAD 2.7 million. Can you please provide details on what land was acquired for these amounts?
This is how it is demonstrated in the financial statement. This is a variance that we had up till June CAD 2.1 million on this row, let's say, classified as that, and then CAD 2.7 million. The variance is like CAD 500,000, and most of it was expense with land, investment in lands like license, like payments to open bit more the road. This is all classified there. What we had to pay to some farmers or that to provide our access to our Plant 2. This is the number.
What you're saying, this isn't necessarily acquiring land.
No.
Its costs associated with the capital expenditure associated in developing infrastructure access. Is that what you're saying?
Yes, yes.
Okay. If this question wasn't answered, please, you know, if you still have some, you know, if you still want more clarification, please ask the question again and we're gonna come back to it. The other question, how much has been invested in the road improvements to September the thirtieth, 2022, and how much will be spent in Q4?
Well, the total CapEx we have projected for Plant 2 and access improvement in Brazilian reais is around BRL 120 million. Up to September, it was like, I don't have exactly the number here, but probably 70% of it or 80% of it was already spent or paid. Sometimes paid, sometimes not accounted yet. We do expect to finalize this by December, and some of the investments will remain for Q1 due to the rainy season that has already started, but most of it was already signed and compromised with the companies.
Thank you, Felipe. Where have you accounted for the road improvement expenditures? Since Verde does not own the road, it cannot under GAAP be included in fixed assets. Have you immediately expensed these costs or have you included them as prepaid expense?
So far, it is still prepaid expense, but we need also to analyze, and we are talking to the auditors and we believe that it's gonna be used as CapEx. Yes, and although it's not ours, it's an expense that is accepted by auditors to be used as CapEx.
Have the auditors confirmed that yet, Felipe? Or still need to wait for the confirmation?
Still wait for the confirmation.
Any news regarding the U.S. listing? We're working on it. How happy are you about the stock in comparison to the actual results and forecasts? -15% since great Q3 results announcement. If there's one thing I've learned about our share price since I started the business 17 years ago, is that it very rarely was capable to completely mimic what I value of the company. I hope that answers the question. Can you please comment on the Plant 2 costs incurred this year? Q1, CAD 2.8 million. Q2, CAD 10 million. Q3, CAD 10 million, c ompared to the capital budget forecasts you have provided previously.
Well, the Plant 2, so up to last month was our still investment, not cost. It will become cost when we decide it's 100% done and start to deliver from there, et cetera. Most of the costs you can see here so far is still related to Plant 1 to deliver product to the customers.
Next question. Now that we have a partnership with Lavoro, at what point will we start producing granulated product? Does having a granulated product appeal to a much larger customer base? Our granulation is that as soon as you get to a point where we believe the market for the powdered version of our product has saturated, we will then deploy capital investment in a granulation plant, so we can enlarge the size of that market. But as you may expect, given how sold out we've been over the last few years, that point hasn't arrived yet. Next question. Do you have a forecast for total capital expenditures for 2022?
Yes. The projected CapEx for this year remains around, like, I said before, BRL 120 million.
Next question. K Forte, BAKS leaches less and Bio Revolution makes more potassium available for plant uptake. Is it not the case that less of Verde's potash could be used per ton of KCl than the current 6-to-1 ratio? The answer for this question is potentially, yes. When you listen to some of the testimonials on our website, there's a lot of anecdotal evidence towards that. Some of the trials, they suggest this might be the case. However, for the time being, we are staying away from the very complex situation where you're telling farmers to apply less nutrients per hectare because you have a greater efficiency. A lot of companies have failed phenomenally badly in the last few years by trying to promote that sort of situation.
Because we're not increasing the cost to farmers, because in a lot of situations we can actually reduce that cost, we don't really need to justify that at this stage. The next question. Given the massive budgets of the likes of huge competitors such as Nutrien and Mosaic, can Verde really afford to give money in the form of dividends or do share buybacks? Is this money not needed to compete and stay ahead with new technological developments and potentially acquire new projects? We have no intention of acquiring new projects. We believe there's plenty of organic growth to be developed. There's plenty of upside in our current technological portfolio.
Addressing the first part of the question about dividends or share buybacks, we believe that as soon as the board decides there is capital available for that purpose, which wouldn't sacrifice our growth, I'm pretty sure we would be looking at ways to return that money to shareholders. Next question. With the development of Bio Revolution, is there any scope or merit for using this technology, as well as developing other new technology for use with any sulfate of potash projects and acquiring them? Yes, there is potential, but it's not our focus. Let's also remember that sulfate of potash, which is another source of potash, although it doesn't have as much chloride as potassium chloride, it's still a salt. So most probably not the best environment for you to be adding microbes to.
Next question. How much can Plant 1 and 2 still expand, and by when? I think the short answer is that on the site we have for Plant 1, it's pretty much expanded to as much as we've planned for, and that's the same situation for Plant 2. The short answer here is on those two sites, there's no expectation for expansion. Of course, we do have the other expansion plans which would be executed in different sites.
The other question is the product still sold out? No, it hasn't been sold out since we commissioned Plant 2, Q2 or since it ramped up. It's the first time for a change that we have product available for immediate delivery.
As you might have seen from the results put out by other players, by other agricultural players, which is public information, the third quarter, and most likely the fourth quarter of this year, have been some very difficult quarters for fertilizer sales in Brazil. You can see that in the numbers of some of the large producers. Of course, we're an exception in terms of our growth and in terms of our market share, but we were able to grow. This is important to be registered. We were able to grow in a very, very challenging market, both Q3 and Q4, as you've seen from the results and the statements from the other companies in this space. They've given plenty of reasons for that situation or for why it turned out to be that way.
Next question: Why is Bio Revolution being sold at a 90% discount? This is a promotion, a deal we offered at the end of the year to try to incentivize demand in Q4 and Q1, which are always and will always be our slowest quarters, given the climate, given the rainy season, and given the fact most of farmers will not be applying for any fertilizer during those quarters. Next question: How much was the price difference between FOB and CIF per ton in 2022 Q3? If I understood this question correctly, we had CAD 144 as a final price per ton and FOB CAD 95 per ton. Apparently, this is on the presentation.
The next question: Can you please elaborate the sales initiatives discounts you plan to put into place for the next two quarters, and what financial impact those efforts will have on cost profitability? We now have a very big plant with a lot of production capacity, and we have some slow quarters. We definitely will not be selling at a loss, but we will try to make sure farmers who have demand for product for very specific reasons at those slow months will consider us as potential vendors. Part of that more aggressive strategy will require offering discounts. Especially given the situation you have with potash fertilizers in Brazil, there are record inventories of potash sitting at Brazilian ports.
A lot of potash was brought into Brazil during the earlier part of the year with an expectation that there could be a shortage later in the year. This created gigantic inventories. To give you an idea, some of that inventory is even being re-exported to other countries from Brazilian ports, which I guess is good news. You're also finding other people willing to raise the price and sucking up some of that bigger inventory.
Next question: What's generally the difference between independent sales channels and distributors in terms of how they get compensated for their sales efforts? How is the business split, which does roughly come from each of those? There's now on the presentation a slide where we show we divide it by direct sales.
Those are the ones, of course, our own team will be responsible for, j ust from a demand generation and then from a relationship point of view. We have what we call independent agents. Independent agents a re responsible for generating the demand. Once the demand is generated, the relationship is looked after by us. We have a smaller percentage, which is comprised of distributors who will be buying our product from us and then selling it forward to their own customers. There's a slide addressing that in detail. I get quite anxious how the number of questions doesn't stop growing here, but at least the number of people joining our call has increased significantly since we began.
For some of you who might be interested, we have nearly 100 people live right now interested in Verde. I'm very thankful. If you're watching it on YouTube and you've liked things so far, please do not hesitate to click that like button. This is one way to help us. This is one way to tell Google this is good content, and other like-minded people might also like to hear what we have to say. If you're watching it live and you're among the nearly hundred people here, as soon as this is live, if you remember to go back and hit the like button, this is another way to help making this content more visible to other users.
Next question: What do you plan to do to control production costs? What can Plant 2 contribute to lower these, and which level of production costs should we reasonably model going forward? A couple of good questions here in terms of cost control. Certainly the fact it's a bigger plant, it will allow us to dilute some of the fixed costs. The other advantage comes from the fact that with Plant 2, we don't need to transport the product all the way from the mine to the plant where it gets beneficiated, s o there is a saving there. Your last question here about what should we reasonably model going forward. I think it's a hard one for us to answer here, given the volatility you have on oil prices, the exchange rate.
I would suggest you look at all, you know, what we've disclosed so far, look at the feasibility study, look at the oil price, make your own assumptions in terms of the number you would be using. Next question. The pre-feasibility study comes with a CAD 27.48 average freight cost estimate across regions. Why do actual delivery costs differ so much? Taking Q3 2022 total distribution costs divided by tons sold CIF, 145, it's CAD 62, approximately $46 . There was a range of average freight costs. The fact it's coming higher at $46 will be associated with some of the sales being made further away from where the mine is.
The other element here is that the pre-feasibility study was done thinking long-term, and it used a long-term oil price, diesel cost, a smaller number than where it is right now. I don't remember, but it is written on the PFS what this diesel oil price was considered, but certainly as a long-term price, smaller than the current price, which we like to believe shouldn't be with us for many more years. Next question. Why do you consider it to be reasonable to use the PFS as a valid reference point for project economics and NAV? It's an independent study which looked at the market, looked at the reserves, looked at the economics, and came up with a net asset value, came up with the project economics.
This is very normal for mineral resource companies like ourselves, be it in , you know, minerals or precious metals, to work to prepare those feasibility studies and which will come with those economics. It's down to us as the management team to do everything we possibly can to develop the assets to its full potential, b eing always cognizant of the challenge one would face developing such assets and all the risks associated with that. It's down to investors to look at all the different assumptions of the market and where the economy is going and what the potentials are, where the risks are, and try to come up with their own view in terms of valuations. Next question.
Plant 1 was fully operational at December 31, 2021 and had a total cost in the financial statement of CAD 2.1 million with a 600,000-ton per annum capacity. Plant 2 has 4x the capacity at 2.4 million tons, but at a cost to September 30, 2022 of about CAD 24 million, which is about 11x the cost of Plant 1. Can you provide details of why Plant 2 capital cost per ton is almost 3x the cost of Plant 1? I will leave that with Felipe on the account details. In terms of the expectation, my expectation is that some of the infrastructure investment for Plant 2 might have gone into that Plant 2 line. Is that what happened, Felipe?
No. We have some factors here. The Plant 1 was built maybe from 2018, 2019, the most of the expenses made there. The infrastructure inflation in Brazil in the last three years, like, iron, like other very relevant items to build anything, the inflation was like higher than 150% or 200%. This is one point that has this impact. We can say that some types of equipment, also in Plant 2, we do expect to have less maintenance expenses than t hey were purchased from the first, let's say, like first line supplier. Within the Plant 1, we used equipment like, we purchase used equipment as well. The Plant 2 just had brand new ones.
Some of these also had this impact, and the expectation is to recover these investments really fast with a lower cost per ton and lower maintenance, lower time with , like I said, maintenance at all. That's the key point.
Building Plant 1 was very high risk. We couldn't fund it in a more conventional way. I think some of you will remember that to borrow money to build that Plant 1, I had to sign as a guarantor of the debt, given the high risk they saw associated with the business at a very early stage. We did everything one could possibly be doing to save CapEx. As Felipe said, we bought a bunch of secondhand equipment. We used not , you know, the best suppliers for a lot of the stuff, and we do a lot of the work in terms of infrastructure.
For Plant 2, we did it a bit better. It's two very different plants if you visit them from our point of view. As Felipe said, what we expect as a result is a lower operating cost because we would expect lower maintenance. For example, to give you an idea, the sheds for storage, the first one is made of just simple brick, simple tiles. The other one is made of proper concrete. The foundations as well. There's a lot of stuff that was done properly on Plant 2, which wasn't necessarily the case because we didn't have the capital available back then on Plant 1. Now going back and fixing it just doesn't make a lot of sense.
Next question. Has Verde locked in sales volume for 2023? Yes. What portion of 2023 volumes have been pre-sold? We haven't disclosed that, but not a huge amount. Next question. Please provide an update on U.S. listing. This is still expected to happen? Yes, we expect it to happen and hopefully around the time when I turn 42 years old. Any new partnerships on the horizon? Potentially. Other question. Given that Verde's turning farm soil with a natural product, do you see any potential synergies for Verde and farmers to generate carbon credits in the future? Yes, we do. We're kind of starting to work towards that.
Next question. Regarding the gross profit, it seems the figures deviate from the feasibility study. Do you think gross profit will trend back to feasibility study plan? As I said, the feasibility study is based on a much lower diesel prices, different to the big spike we've seen now. That also answers the second part of the question about the transportation costs.
Next question. Please, relationship with Lula and the impact that may have on Verde's growth. Brazil is an established democracy with a professional civil servant sphere of government, which is what we've been working with throughout nearly two decades now, throughout five different presidents. I think the only two certainties when it comes to politics is one certainty is that those civil servants will probably, most of them, still be there whenever we have a new president. Likewise, we hope we're still gonna be there.
Next question. You have benefit from price. What is your outlook for pricing? I like to plan for the worst and hope for the best. We always look at pricing coming back to historical lows from a planning point of view. If it's anything above that, we're happy with it. If you look at our pre-feasibility study, we've used CAD 360, which is about 10% less than the long-term potash price, which is being used by a lot of the analysts. Another question. When are we gonna migrate from pink sheets? Lots of questions about the U.S. Hopefully we can have news on that shortly. If you can transfer the inflation. Oh, that's a good question. Do you transfer the inflation of costs to farmers? Yes, we've done it so far, given the appreciation of fertilizer prices.
Can you discuss how sensitive Verde is to inflation?
Yeah, Cristiano, we lost you in the last minute. We lost you when you said that. Do you discuss how sensitive Verde is to inflation?
Okay. Thank you, Felipe. Is it better now? Can you hear me now?
Yeah. It's good.
Talking about inflation, usually when you have inflation, it also impact food prices. Fertilizers are directly priced according to where food prices are. Historically, every time food prices went up, we saw fertilizers price going up. To that extent, we believe we are hedged. Next question. Your cash cost per ton went up considerably in the equivalent of CAD 200 per ton KCl. Do you expect that Plant 2 will reduce production costs? Yes, for all those reasons I've mentioned. Next question. Can you discuss how are you thinking about your future production development between now 3 million tons and 10 + 3? Will development be staggered? Example, 2023 + 5 million, or is the development +10 million in 2025? We don't know yet. We're still trying to figure out what the size of the next plant is going to be.
We did not hear you answering the granulation. The Zoom was stuck. Thanks for the feedback. The answer about granulation was to say that we will granulate the product when we feel like we can no longer sell a powdered version of the product as fast as we've been able to. Until we get to this point, we see little incentive for making that capital expenditure investment on a granulation plant. As we grow, certainly that point will come. The question is, another question, does NPK have any multi-location sales volume through their network? Second question, what percentage of the last quarter sales were from repeat customers versus new ones?
The answer to the first question, we don't have a breakdown of what we expect in terms of sales and what would come from a network. We didn't sit down to try to discuss that. We're really looking to grow the pie, be it via direct sales or via distributors. As you can see from the presentation, we've been much more successful selling the product ourselves rather than through third parties. For next year, it's gonna be different. It's gonna be the first year we have a significant distributor also selling the product. Second question here, the percentage of sales which were repeat customers versus new ones, I don't know the number, but there is a lot of repeat customers.
Can you share what is the current situation with Russian potash and the possible impact of Russian taxing local potash on Brazil's supply? The current situation is that there's lots of Russian potash making its way to Brazil. There's absolutely no restriction whatsoever on imported Russian potash. The unavoidable impact of Russia taxing potash is for the cost of Russian potash supply is going up, and that will certainly be transferred to Brazilian farmers. How has the reception of Bio Revolution been so far? Excellent. A lot of interest. As people get to learn more about Bacillus aryabhattai, about the benefits, it's going really well. Has it contributed to overall sales materially? No. The answer is no.
We're not at that stage yet, especially because a lot of the sales that were supposed to be delivered and were delivered in Q3 and some of it Q4 this year, they had already been made even before Bio Revolution got to a broader distribution or more people became aware of it. The next question, since diesel is one of your biggest costs, do you have any strategy in place to change to cheaper transportation? Well, the alternative would be rail. It's something we have something going on there, but not for the very short term. Our pre-feasibility study is a very long-term scenario at 50 million tons. It's based a lot of it on rail transportation. Next question.
How has the situation with regard to the potash glut in Brazil ports been changed recently? Have you seen that being worked through in recent months? I'm gonna be next week visiting some of those fertilizer blenders, so I'm gonna have more like on-the-ground detail and be at a port looking at what the situation is with my own eyes. What I've heard through the industry is that there's still a lot in ports. How are customer relations when you had to cancel Q3 deliveries? Oh, that's a good question. How are customer relations when you had to cancel Q3 deliveries? Did you receive cancellations? What proportion are accepting their deliveries now? That's a very good question. It was a bloody nightmare. It was very embarrassing to have to go and cancel the level of tonnage as unfortunately we did.
We will have that figure disclosed in detail when we have Q4 results out, but it's greater than 100,000 tons, unfortunately, of product that we had to cancel deliveries because we couldn't fulfill deliveries when they were supposed to. The farmer doesn't have a choice. If it goes beyond the planting, they can't take the product anymore. We're still working very hard to achieve our guidance. Don't read what I'm not saying. I'm not saying we're not gonna hit our guidance. We're working very hard. I still believe we can be achieving it. Obviously, we're having to make up for over 100,000 tons of cancellation already.
Can we have some details on the Lavoro deal? When does it come into effect? I've not seen the product on their website thus far. It's something being planned for next year. Lavoro is a bit of a conglomerate. They operate with dozens of different independent retailers they bought over the years. Each one is still managed to a certain extent independently, which is requiring a lot of effort from us going from shop to shop, going from business structure to business structure. That process is underway. I just, you know, look at this situation. It's a very good question. I look at the situation, and I just feel very proud about our own sales team and about the phenomenal job our own sales team has done growing from less than 5,000 tons to hopefully beyond 700,000 tons this year.
Very importantly, this is something else people don't appreciate, we don't have a single person on the field, and 100% of our internal sales are done inside sales, digital marketing and that what has allowed us to grow so quick in such a short period of time with very small investment. Usually companies to achieve similar type of growth, they will end up having to have hundreds of sales people in the field. You can see that from the financial results published by those distributors, which are now public companies. You can go online and see how that sort of requirement really hurts their economics.
Very proud of our team and how they've been able to succeed in a very innovative way when it comes to selling products to farmers, and especially selling products which are novelty, innovative products, rather than just selling a commodity farmer would already be very familiar with. What's your view for 2030? How many million tons per year you want to process at that time? I have big expectations. I put it this way. Who audits the company accounts? It's a British firm called PKF that has been auditing us since 2007. Have you looked further into carbon credits for your product? The incoming government seems keen to support that.
Just before on the previous question here about audit, as an exploration company, as a pre-development company, we stayed away from the very big costs of Big Four accountants, a Big Four auditor. However, going forward now as the medium to large size company we are becoming, we are starting a competitive process to choose between one of the Big Four to be auditing us in 2023. We will be receiving proposals, and once we select one of those big companies, we will be presenting that in the next shareholders meeting that will vote to approve a change of auditors to one of the Big Four. You can look out for that in the coming months.
Next question. Have you looked further into carbon capture credits for your product? The incoming government seems keen to support that. Has there been any contact with the incoming government, given the acknowledgment that Brazil should reduce reliance on imported potash? Yes. We're very keen to keep developing. There's an initiative going on. Hope to report that in the team that's working .
Sorry. We lost your last 30 seconds, you and how many tons of chlorine have been avoided, right?
Say that again, Felipe.
You are in the question. We lost our last 30 seconds, and you said we heard until, how many tons of chlorine have been avoided by farmers using Verde AgriTech products? This question there from Hodge.
I haven't even answered this question yet. That was in the previous question about carbon credits.
We lost the last 30 seconds.
All right. No worries. Thanks for letting me know. The carbon credit is something we're looking into. It's something we expect to be able to update the market in the coming months. In terms of the new government, which is the second part of the question here, the government is dealing with some big issues at the moment, the new government with the transition and some big budget issues. The team that's gonna be looking at agriculture was just announced yesterday, and we hope to engage with them at the right time. How many tons of chloride have been avoided by farms using Verde AgriTech products? Excellent question. It is on our presentation, the answer. Are you still working on a U.S. listing? Yes.
When do you anticipate to receive outstanding permits? I don't know. What is your birthday? Sixteenth of January. Thank you. Have you considered licensing technology to other markets where Verde's product is not expected to be sold? We've considered, but we're just too busy with what we're doing now and really focusing on the Brazilian market. What will the granulation plant cost? It depends on the capacity, it depends on technology. That's something we have invested and carry on investing over the years in terms of coming up with what would be the cheapest way to do that. When you look at granulation, the two big costs, the first point is removing water because you need to add some sort of moisture to granulate the plant. Drying off that moisture is a big cost.
The other challenge or the other cost you have is by adding additives, which increase the strength, the hardness of your granule. I've been working for years now with the view or with the purpose or with the challenge to be able to granulate the product without the need to dry off the material and without the need to add binders to it. Because we have time, we didn't need to build a granulation plant. Right now, we have time, and we keep working on it, and the results are very encouraging.
Next question. I take your point about granulation, but what about the farmers who won't buy powder but would buy granular? Yes. We haven't been able to supply to those farmers yet, but that also hasn't stopped us growing as fast as we've been growing. Can you share the impact of global natural gas prices on competitor potash production as an indirect impact on the attractive Verde? There is very little need for any sort of heating using natural gas, so I think this impact of natural gas price going up on potash has been very low. It's more with nitrogen fertilizers and which also impacts the phosphate supply chain.
There's some questions here which I probably should skip. What does your sales website say sold out when you have capacity available? I don't know which website that is, but it shouldn't, certainly not sold out. Can you please give some details on the Morgan Stanley conference? Morgan Stanley conference in Boston last year wasn't as busy as I guess we all wished it was. Nevertheless, there was some very interesting institutional investors I could meet. One I've known for a long number of years, which is based in Boston, which I had an interesting good update call and some other new ones I met.
Is the permitting delays due to finalizing the plans for the next plant or due to government delays? I would say it's neither of them. I wouldn't even call it a permitting delay. I would only call it a permitting delay if that was restricting our production capacity, which isn't the case. At the time, right now, we're fully permitted to produce around 3 million tons, and I'm confident that, whenever we exceed the market demand for 3 million tons, we're equally gonna be able to have the required permits to go above 3 million tons.
The last question, how much stock can you pile up as inventory in the warehouse of your conglomerate distributor or your own warehouses in Q4 and Q1 for sales in Q3? Distributors will not be taking our inventory. Doesn't make any sense. It's a bulk material. You need to move it directly to farmers. Our warehouses can store about 15,000 tons of product.
When it comes to capital allocation and production, it's much cheaper for you to have excess production capacity than it is for you to produce and stock product. It's cheaper to have more to buy the equipment for production than it is to maneuver and buy storage facilities. Thank you. Oh, I see. My question regarding sold-out sign is about the website loja.verde.ag. This website isn't operational. We have a new website which is in construction and should be available very, very soon.
Ladies and gentlemen, thank you very much for your interest. That completes all the questions we've received, both via email and via the chat option. It's the last time we're gonna be talking in 2022. I would like to say it has been a very year. I am very proud, as I said, with all the work carried out by our team in Brazil. I think we've achieved a lot. When we were faced with a challenge, I think we were quick to address it and grow from it.
I see ourselves in a very strong position for the following year. It will be the first time in our history where we will have significant production capacity far beyond what we historically had. It will be very interesting. It will also be the first year where we will have a team which will be more trained, so d ifferent to 2002 and 2021, when we were hiring dozens and dozens of people as demand was growing and training people.
For 2023, the team is there, the team is formed. If we need to hire more people, we'll be in very specific positions and replacement, so there should be very limited hiring in 2023. The team we already have in place is more than capable, in our view, of supplying the 3 billion tons production capacity we currently have. We're very encouraged by the results our farmers are getting, and you will see a lot of those in the testimonials we have shared in the last little while. If you go on the website on the YouTube channel in Portuguese, there are close to 100 testimonials. We will be translating most of those testimonials, perhaps all of those testimonials to English and making them equally available.
For 2023, it is gonna be the first year we will have a large distributor working alongside ourselves. It will be interesting to see how much that will potentially translate into more sales. Overall, I'm very excited. Farmers in Brazil remain bullish about expanding their business. They remain bullish about commodities, about feeding the world. No doubt the world's recognition about the importance of increasing sustainability in agriculture is something that has been helping us and the things that I believe will carry on, allowing more people to understand the importance of what we're doing and the importance what you are doing as investors to be supporting us. I think that's it, you know.
I look forward to be talking to you very soon in the new year with a lot of good news. In the meantime, we'll be busy. You know, it will be very busy for us. We should be keeping up our pace in terms of taking the market as we've been with some freight every week or every other week. There's a lot. We're working very hard to write press releases and get them approved by the board and reviewed, and we should be updating them, putting them out as soon as possible. There's some interesting stuff coming up. Yeah, I guess I could talk because I like talking to you guys.
If you're watching it live, I hope you've clicked this like button. If not, please do it now. With no more words, thank you very much. See you guys all very soon. Bye-bye.