Annual Report – June 2017

Dear Shareholders,

On behalf of the Board of Directors it is our pleasure to present the 2017 Annual Financial statements for Aguia Resources Limited (“Aguia” or “Company”).

After two tumultuous years of recession and political upheaval, Brazil’s economic growth is finally moving back into positive territory in 2017 with upward momentum expected to continue in 2018. BOVESPA, the country’s key stock market is up 23% year to date, interest rates have been falling and commodity exports like iron ore and soya beans are benefiting from strengthening commodity prices.

The agriculture sector has been the saviour of the Brazilian economy this year, growing more than 10% and contributing an additional US$10 billion to the country’s GDP. Agriculture is now the country’s most productive economic sector and according to a recent report by the USDA and the Brazilian Ministry of Agriculture, Brazil is the world leader in agriculture productivity, followed by China, Chile, Japan, Argentina, Indonesia, United States and Mexico. Interestingly, this growth has been achieved primarily by increases in production yields on existing land rather than bringing more land into production. While farm acreage increased by 4% in 2016/2017, overall productivity increased by 22.8% – the equivalent to producing another 723 kilos of grain per hectare.

A number of factors have helped drive growth in the agriculture sector and provided the underlying foundation to continue this long-term trend:

  1. 1. Agriculture commodities are priced in US dollars which has helped Brazilian farmers weather the recent economic downturn as they are able to lock in their sales in US dollars, resulting in a trade surplus for the sector of US$75 billion;
  2. 2. The Brazilian agricultural sector continues to focus on implementing modern technology and increasing rates of fertilizer application to drive increases in productivity. Record harvests this year mean that record levels of nutrients have been removed from the soil and need to be replaced. Last year phosphate shipments to Brazil increased by 9% and the same growth is expected this year;
  3. 3. An investment of US$4.6 billion into transportation and logistics infrastructure, such as ports and railways, to decrease the bottlenecks that have impeded delivery of goods from the Brazilian heartland to global markets.

These agronomic and economic domestic demand drivers coupled with global trends of population growth, changing consumption patterns and scarcity of arable land to grow crops continue to underline Aguia’s investment thesis and the importance of becoming a major domestic producer of phosphate in an agriculture superpower. Brazil continues to rely on imports for at least 50% of its phosphate supply and the farm rich south of Brazil where Aguia is located is 100% reliant on phosphate imports. Aguia’s opportunity lies in producing a quality phosrock with a logistics competitive advantage to displace imports to southern Brazil.

This year at Aguia we have been focused on expanding our technical understanding of the deposit and refining our development plans for Três Estradas. We undertook a major infill drilling campaign from December 2016 to April 2017, and not only were we able to achieve a high level of conversion of our resource from Inferred to Measured and Indicated categories, we also identified a new limb within the deposit which has the potential to not only improve the overall strip ratio of the proposed operation but also ultimately reduce mining costs. The successful outcome of this drilling campaign was a substantial increase to the mineral resource which was announced in September. The new total Measured and Indicated resource at Três Estradas is 83 million tonnes grading 4.1% P2O5, using a cut-off grade of 3% P2O5 and an additional 21.8 million tonnes grading 3.7% in the Inferred category.

Our technical team, led by Dr. Fernando Tallarico, has been engaged in developing the Bankable Feasibility Study which will incorporate the new mineral resource. A key component of this work has been a series of trade-off studies to optimize the development plans for Três Estradas. The improvements they have identified include a reduction in the target run of mine to cap phosrock production at 300ktpy, a phased construction which will focus on mining the high-grade oxide ore at surface during the initial years of operation, a reduction of OPEX through a change of fuel source, and a revision of the site footprint which will substantially reduce the water reservoir, tailings dam and waste piles.

As a future corporate citizen and employer in Lavras do Sul, we have launched a community outreach campaign and opened a local office to keep our neighbours up to date on our plans and provide forums for learning and exchange of ideas. We have been warmly welcomed by the municipal and state governments and were very proud to be named a priority project by the state of Rio Grande do Sul earlier this year.

This year we also took a major step forward in our growth as a public company by becoming dual listed on the TSX Venture Exchange (“TSXV”) in Toronto. The TSX/TSXV is a robust market with liquidity and access to capital, particularly for the mining sector with participation from over 200 Canadian institutional mining investors and over 500 International institutional mining investors. The TSX/TSXV is the #1 public market for mining companies globally with 1,318 public listings and coverage by almost 300 mining analysts. In 2016, the TSX/TSV accounted for 57% of all equity capital raised in the mining sector, making it the top source of investment for mining companies globally. Aguia’s shares began trading on the TSXV on July 6th, 2017 under the ticker symbol “AGRL”.
Concurrent with our TSXV listing we completed a $10.5 million private placement in Canada and Australia and welcomed a number of new institutional funds to our shareholder base. With a strong treasury to support us through the rest of this year and into 2018, we will continue to focus on finalizing the Bankable Feasibility Study which will be a major derisking milestone in the development of Três Estradas.

I would like to thank our management and staff for their hard work and dedication over the past year which has substantially added to the value of the Company, to our shareholders for their continued enthusiasm and support and to the people and government of Rio Grande do Sul for welcoming us to their community.

Best regards,

Paul Pint