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SASKATOON, SK, March 19, 2021 /CNW/ - Karnalyte Resources Inc.
("Karnalyte" or the "Company") (TSX: KRN) today
announced its financial results and corporate highlights for the
financial year ended December 31,
2020.
2020 – THE YEAR IN REVIEW
In 2020, Karnalyte completed the preparation of a
pre-feasibility study of its proposed nitrogen project (the
"Proteos Nitrogen Project"), continued to prepare the
Wynyard Potash Project for development, engaged in a strategic
review process with an external strategic advisor, and adapted and
responded to new business conditions as a result of the Covid-19
pandemic. The Company also held a special meeting of shareholders
requisitioned by a small group of dissident shareholders whose
proposals were rejected by the Company's shareholders.
STRATEGIC REVIEW
In 2020, the Company initiated a strategic review process to
evaluate a broad range of potential strategic alternatives
available to it including the evaluation of its existing and future
projects and the analysis of potential financing alternatives, with
a focus on determining what is in the best interests of Karnalyte
and maximizing value for all of its shareholders. To assist in this
process, the Company engaged MNP, a leading Canadian accounting,
tax and business consulting firm, as its strategic advisor. MNP has
extensive experience in the potash and nitrogen industries,
including in-depth knowledge of the Saskatchewan area. Included in their scope of
work in addition to assisting with the evaluation of a range of
strategic alternatives, is an independent review of the
pre-feasibility study Karnalyte completed on its Proteos Nitrogen
Project. The strategic review has progressed, and continues to
progress, despite the impact of the Covid-19 pandemic and the
actions of dissident shareholders who requisitioned a special
meeting and filed an originating application in court against the
Company. The strategic review is heading into a market sounding
phase as the Company continues to examine its options, including
potential strategic partnerships.
POTASH – THE WYNYARD POTASH
PROJECT
Market Update – The fourth quarter of 2020 saw potash
prices rally due to increases in cropland planted area in
the United States. While potash
prices in the US remain strong, prices globally have not rallied to
the same extent as prices in North
America. Both India and
China settled annual contracts in
2021 at $247 per metric tonne, cost
and freight, which is only slightly higher than 2020 contracts.
Potash consumption in 2021 is forecast at between 68.6 to 70.5
million metric tonnes, up approximately 2 million metric tonnes
from 2020 levels. At this level, the increase in annual demand
would be above the expected increase in supply which theoretically
should support higher prices in 2021. This demand is expected to
grow to between 81.5 and 85 million metric tonnes by 2030. The
Company will continue to closely monitor the situation.
During the fourth quarter of 2020, the Company completed a well
workover development project at the Wynyard Potash Project site
comprising two parts. One part was perforation work on the disposal
well tubing throughout the approved injection zones of the Deadwood
and Winnipeg Formations to increase the flow rate of waste brine
that the well will accept. This technique is a standard tool
developed for the oil and gas industry in North America and ultimately may allow for
increased flow through the disposal well thus providing savings to
the operating costs of Phase 1 of the Wynyard project. The second part of this
project was to perform a temperature log test to demonstrate
whether or not there is fluid leakage from the well to the
overlying strata. Regular successful tests are necessary to allow
the continued operation of the potash plant which cannot operate
without functioning disposal wells. The project was a success in
that a significant amount of disposal zone volume was added by the
perforation work. As well, the test, pumping cold water into the
well, recorded a temperature change that met the provincial
government regulations.
Also during the fourth quarter of 2020, the Company took
advantage of low oil field prices and purchased tubing and casing
to be used in future brinefield development in the Wynyard Potash
Project.
NITROGEN – THE PROTEOS NITROGEN PROJECT
The Proteos Nitrogen Project remains under consideration as part
of Karnalyte's future and may diversify our business by adding a
second fertilizer product line. The Proteos Nitrogen Project is a
proposed regional-scale nitrogen fertilizer plant to be located in
central Saskatchewan, with a
nameplate capacity of 700 metric tonnes per day ("mtpd")
ammonia and 1,200 mtpd urea. Our primary target market is local,
independent wholesalers within a ~400-kilometre radius of
Saskatoon, with a secondary target
market of Midwest USA wholesalers
near the Canadian border.
In 2020, progress on investigating the viability of the Proteos
Nitrogen Project included the completion of a pre-feasibility study
which included investigating the economic and technical viability
of the project. With input from local advisors in Canada, including Wood Canada, the
prefeasibility study was initially prepared by Karnalyte's
strategic partner and largest investor, Gujarat State Fertilizers
and Chemicals Limited ("GSFC"), and ultimately updated and
completed by Karnalyte. GSFC is India's premier fertilizer and chemical
fertilizer manufacturing company and has over five decades of
relevant experience in the production, sale and distribution of
nitrogen fertilizer.
The prefeasibility study provided a review of key elements of
the project, including site location, production process and
technology options, process selection for both the ammonia and urea
plants, and an analysis of raw material, utility and product
specifications. The study also considered the environmental
implications and risks inherent in the project, provided financial
analysis and laid out a project implementation plan and schedule.
While the prefeasibility study is not sufficient to conclusively
arrive at a project execution decision, it allows the Company to
determine whether the Proteos Nitrogen Project should remain in
consideration as part of the Company's future business
strategy.
The prefeasibility study's key conclusions included:
- the preliminary economic viability of the Proteos Nitrogen
Project, with an internal rate of return and equity rate of return
that approaches Company benchmarks, based on the average pricing
over the past four years for bulk urea and ammonia;
- potential market growth of urea in Saskatchewan to approximately 2.64 million
tonnes, up from current demand estimates of approximately 1.2
million tonnes, based on Government of Saskatchewan information; and
- the project's implementation is expected to require three years
following the preparation of a detailed project report and assuming
a positive investment decision and commencement of construction by
Karnalyte.
Karnalyte is encouraged by the results of the prefeasibility
study and similar to potash, nitrogen fertilizer prices have also
been on a rally in recent months due to a supply/demand gap in the
US due to an increase in cropland planted areas and an increase in
demand from China. Karnalyte will
continue to seek strategic partners for the Proteos Nitrogen
Project and to consider it with discipline and caution due to the
significant capital expenditures required to move the project
forward. As noted above, included in the scope of work for the
strategic review, is an independent review of the pre-feasibility
study, the results of which will be announced when the market
sounding phase of the review is complete.
COVID-19
2020 was a time of local and global uncertainty as protective
public health measures put in place across the world in response to
the Covid-19 pandemic resulted in lockdowns and stay home orders in
many countries including Canada.
Fortunately, fertilizer was deemed an essential industry across
most of the world and production, distribution and consumption were
not heavily impacted and overall agricultural prices to date have
not been negatively impacted. We have seen an impact in the capital
markets which have shown significant volatility during the past
year. The Company has also experienced certain delays as a result
of the impact of Covid-19 on some of our suppliers. We continue to
monitor, assess, and respond to the effects of the Covid-19
pandemic on our employees, suppliers, and other stakeholders. We
are reviewing, examining, and implementing the recommendations of
our local public health authority including the implementation of
safety protocols to help protect our employees and suppliers.
PROXY CONTEST
In July of 2020, less than two weeks after the annual meeting of
the Company's shareholders, the Company received a requisition for
a special meeting of shareholders from three dissident shareholders
and former directors of the Company: Peter
Matson, Greg Szabo and
Mark Zachanowich. The Board called a
special meeting of shareholders for December
15, 2020. Following the requisition, the dissident
shareholders issued a series of press releases. Due to certain
serious allegations the dissident shareholders made, the Board
instructed a leading law firm to thoroughly investigate the
allegations. After carefully reviewing the investigation report,
the Board concluded that the Company need not pursue any further
actions or incur any further costs, in relation to the dissidents'
allegations. On December
15th, 2020, the Company's shareholders at their
special meeting overwhelmingly rejected the dissidents' proposals
to remove the directors of the Company. The requisition of the
special meeting came at a significant cost to the Company including
costs incurred to conduct an investigation into the allegations of
the dissidents and the legal, printing, proxy services,
communications and other costs related to holding the meeting.
EXECUTIVE CHANGE
On July 27, 2020, the Company
announced the appointment of Ms. Christie Gradin as interim Chief
Financial Officer and that Ms. Danielle
Favreau would continue in her role as interim Chief
Executive Officer.
OUTLOOK FOR 2021
In 2021, the Company plans to complete the strategic review that
was initiated in 2020 and solidify a strategic direction for the
Company. The Company expects to announce the results of this review
once the market sounding phase of the project is complete. It will
also be necessary in 2021 for the Company to spend time and
financial resources in dealing with various court actions commenced
against it.
2020 YEAR END RESULTS AND SELECTED ANNUAL INFORMATION
The costs incurred by the Company in 2020 related to the
completion of a pre-feasibility study for the Proteos Nitrogen
Project, the initiation of a strategic review, continued
preparation activities related to the development of the Wynyard
Potash Project and on responding to the requisition and related
activities of the special meeting held on December 15th, 2020. As a result, on
December 31, 2020, the Company had
cash of $4.8 million, a positive
working capital of $3.8 million, and
no debt. The Company had adequate cash to fund all existing
commitments in 2020. Furthermore, the Company has sufficient cash
to meet short-term operating and capital requirements.
The following information has been summarised from the Company's
audited financial statements. Karnalyte's 2020-year end financial
statements, management's discussion and analysis, and annual
information form are available at www.sedar.com or on the Company's
website at www.karnalyte.com.
Selected annual
results
(CAD $ thousands)
|
|
Year ended
December 31
|
|
2020
|
2019
|
2018
|
Total
revenue
|
-
|
-
|
-
|
Interest and other
income
|
65
|
183
|
122
|
Net and comprehensive
loss
|
(3,429)
|
(3,091)
|
(6,018)
|
Basic and diluted per
share
|
(0.08)
|
(0.07)
|
(0.21)
|
Total current
assets
|
5,291
|
8,064
|
11,136
|
Total
assets
|
11,241
|
13,875
|
16,921
|
Total current
liabilities
|
1,499
|
903
|
901
|
Total
liabilities
|
3,311
|
2,549
|
2,608
|
Total shareholders'
equity
|
7,930
|
11,326
|
14,313
|
ABOUT KARNALYTE RESOURCES INC.
Karnalyte Resources Inc. is a development stage company focused
on two fertilizer products, potash and nitrogen, to be produced and
manufactured in Saskatchewan.
Karnalyte owns the construction ready Wynyard Potash Project, with
planned phase 1 production of 625,000 tonnes per year
("TPY") of high grade granular potash, and two subsequent
phases of 750,000 TPY each, taking total production up to 2.125
million TPY. Karnalyte is also exploring the development of the
Proteos Nitrogen Project, which is a proposed small-scale nitrogen
fertilizer plant with a nameplate production capacity of
approximately 700 metric tonnes per day ("MTPD") of ammonia
and approximately 1,200 MTPD of urea, and a target customer market
of independent fertilizer wholesalers in Central Saskatchewan.
ABOUT THE WYNYARD POTASH
PROJECT
The Wynyard Potash Project is a construction ready solution
mining potash project located in Wynyard,
Saskatchewan, with planned phase 1 production of 625,000 TPY
of high grade granular potash, and two subsequent phases of 750,000
TPY each, taking total production up to 2.125 million TPY. All
environmental permits remain valid, preliminary detailed
engineering is complete, and the existing offtake agreement with
Gujarat State Fertilizers & Chemicals Limited remains in
effect. Further development is dependent on improved potash prices
and obtaining financing.
ABOUT THE PROTEOS NITROGEN PROJECT
The Proteos Nitrogen Project is an advanced stage development
project consisting of a proposed small-scale nitrogen fertilizer
plant to be located in Central
Saskatchewan, having a nameplate production capacity of
approximately 700 MTPD of ammonia and approximately 1,200 MTPD of
urea, and designed to produce two products – anhydrous ammonia
(82-0-0) and granular urea (46-0-0). Karnalyte's primary target
market is independent local Saskatchewan fertilizer wholesalers within a
400-kilometer radius of Saskatoon,
Saskatchewan. A secondary target market is the US Midwest
fertilizer wholesalers near to the Canadian – United States border. The proposed plant would
be the first greenfield nitrogen fertilizer plant built in
Canada in the last 26 years.
ABOUT GUJARAT STATE FERTILIZERS & CHEMICALS
LIMITED
Gujarat State Fertilizers & Chemicals Limited
("GSFC") is a leading Indian Fortune 500 chemicals and
fertilizer company that has been in business for more than 50
years. GSFC currently operates one ammonia plant that was
commissioned in the year 2000, and two urea plants that were
established in 1969, at its fertilizer production complex in
Vadodara, Gujarat State, India.
As the Company's strategic partner and single largest
shareholder, GSFC remains committed to the Company and the Wynyard
Potash Project and is fully supportive of the Company pursuing the
development of the Proteos Nitrogen Project. GSFC has also
confirmed to the Company that it will continue to support the
structuring of the most cost-effective financing package for the
development of the Wynyard Potash Project, as GSFC has consistently
offered to the Company since becoming a shareholder in 2013.
FORWARD-LOOKING STATEMENTS
Certain information included in this press release is
forward-looking, within the meaning of applicable Canadian
securities laws. Forward-looking information is often, but not
always, identified by the use of words such as "anticipate",
"believe", "could", "estimate", "expect", "plan", "intend",
"forecast", "future", "guidance", "may", "predict", "project",
"should", "strategy", "target", "will" or similar words or phrases
suggesting future outcomes or language suggesting an outlook.
The forward-looking statements contained in this press release
are based on certain key expectations and assumptions made by
Karnalyte, including, without limitation, assumptions as to:
projected economics for the Company's planned potash production
facility, the confirmation in an independent feasibility study of
Karnalyte's assumptions regarding the technical and economic
viability of the Proteos Nitrogen project, the ability of Karnalyte
to obtain financing on terms favourable to the Company, and the
ability of Karnalyte to receive, in a timely manner, the necessary
approvals from the Company's board of directors, shareholders,
regulatory authorities, and other third parties.
Karnalyte believes the expectations and assumptions upon which
the forward-looking information is based are reasonable. However,
no assurance can be given that these assumptions and expectations
will prove to be correct. Accordingly, readers should not place
undue reliance on the forward-looking statements and information
contained in this press release. Without limiting the generality of
the foregoing, readers are cautioned that the Company has not
received a feasibility study prepared by a third party with respect
to the Proteos Nitrogen project.
Actual results may vary from the forward-looking information
presented in this press release, and such variations could be
material. Risk factors and uncertainties could cause actual results
to vary from the forward-looking information in this press release.
Additional information on forward-looking statements and other
factors that could affect Karnalyte's operations and financial
results are included in documents on file with Canadian securities
regulatory authorities and may be accessed through the Company's
profile on the SEDAR website (www.sedar.com).
These forward-looking statements are made as of the date hereof
and are expressly qualified in their entirety by this cautionary
statement. Subject to applicable securities laws, the Company
assumes no obligation to update or revise them to reflect new
events or
circumstances.
SOURCE Karnalyte Resources Inc.