Karnalyte Resources Inc. Announces 2020 Second Quarter Results
KARNALYTE.COM
TSX: KRN
KARNALYTE RESOURCES INC. ANNOUNCES 2020 SECOND
QUARTER RESULTS
Not for distribution to U.S. news wire services or dissemination in the United States.
SASKATOON, SK (CNW- August 6, 2020) – Karnalyte Resources Inc. ("Karnalyte" or the "Company")
(TSX: KRN) today announced its financial results and corporate highlights for the second quarter ended
June 30, 2020.
During the second quarter of 2020, the Company focused on the completion of the pre-feasibility study for
the Proteos Nitrogen Project, on the engagement of a strategic consultant and on preparation for well
workover development at its Wynyard Potash Project.
As previously announced, the Karnalyte Board of Directors (the “Board”) has 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 its shareholders. After
thoroughly considering a number of proposals from national and global firms, the Company announced on
July 27th that it has engaged MNP LLP (“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. In addition to assisting with the evaluation of a range of
strategic alternatives, MNP will provide an independent review of the pre-feasibility study Karnalyte recently
completed on its Proteos Nitrogen Project.
POTASH – WYNYARD POTASH PROJECT
The short-term outlook for potash fertilizer continues to be bearish. More capacity coming onstream
worldwide, weather issues in North America and the impact of the African swine flu in Asia have caused the
potash market to remain at the bottom of the cycle. This is making the development of the Wynyard Potash
Project very challenging. It is part of the reason that the Company is taking a look at its strategic options
and considering what other opportunities might be available to it and any potential alternative arrangements
that might make the financing of this project feasible.
NITROGEN – PROTEOS NITROGEN PROJECT
On July 21, 2020, the Company announced that it completed the prefeasibility study of its Proteos Nitrogen
Project. While the results of the study were encouraging, the Company will continue to consider the project
with discipline and caution. Some of the study’s key conclusions include:
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 average pricing over the
past four years for bulk urea and ammonia;
Potential market growth 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.
The Company has included the consideration of the Proteos Nitrogen Project in the scope of work required
from MNP, Karnalyte’s strategic consultant, who in the course of its full review of Karnalyte’s strategic
options, will independently review the prefeasibility study.
Encouraging for the development of the Proteos Nitrogen project was the Saskatchewan Government’s
launch on July 27th, 2020 of the Saskatchewan Chemical Fertilizer Incentive Program (“ SCFI”). The SCFI
program’s goal is to help attract new capital investments in large-scale chemical fertilizer production
facilities in Saskatchewan, while creating new construction and operational jobs in the province. The SCFI is
a non-refundable, non-transferable 15% tax credit on capital expenditures valued at $10 million or more for
newly constructed or expanded eligible chemical fertilizer production facilities in Saskatchewan. The
Company is in the process of considering the impact of the SCFI program on the economics of the Proteos
Nitrogen Project.
While Karnalyte is encouraged by the results of the prefeasibility study and the SCFI, the Company will
continue to take a disciplined approach in its review and consideration of the Proteos Nitrogen project. The
Proteos Nitrogen Project is sensitive to capital cost. The recent depression of nitrogen fertilizer prices due
to an over supply in the market after wet weather conditions in North America in 2019 resulted in inventory
stockpiles. Some analysts are predicting that these price declines will continue throughout the remainder of
2020. While the long-term fundamentals for nitrogen fertilizer may be strong, particularly in the
Saskatchewan area where the agriculture industry thrives and there is predicted growth in the production of
crops that are dependent on nitrogen fertilizer, Karnalyte will take a careful approach to evaluating this
project before committing significant resources to its development.
APPOINTMENT OF INTERIM CHIEF FINANCIAL OFFICER
Karnalyte is pleased that effective July 27, 2020 Christie Gradin, CPA, CA has been appointed as Interim
CFO. Ms. Gradin brings extensive expertise, business acumen and senior financial management experience
and will provide important support as the Company navigates its strategic review process. Danielle Favreau,
who until then was Karnalyte’s CFO & Interim CEO, will continue in the role of Interim CEO while Christie
Gradin will assume the CFO responsibilities. The Board determined that maintaining an Interim CEO position
and an Interim CFO position was appropriate at this time until the strategic review process is completed and
permanent appointments can be made based on the future needs of the Company.
SPECIAL SHAREHOLDER MEETING DATE SET
The Company received a requisition for a special meeting of shareholders from three shareholders together
owning not less than 5% of the Company’s issued and outstanding common shares. Such shareholders are
asking Karnalyte shareholders to increase the Board size to six and appoint four of their nominees and two
nominees from Gujarat State Fertilizers and Chemicals Limited (“GSFC”), Karnalyte’s largest investor and
strategic partner that holds approximately 38% of the Company’s shares.
The Board has set the date for a special meeting of shareholders for December 15, 2020. At this time, the
Company estimates that the special meeting will result in a minimum additional unexpected cost to the
Company of $50,000. Shareholders should also expect an increase in legal and other costs as the Company
addresses the various allegations made by those three shareholders. The Board has fixed November 10, 2020
as the record date to determine which shareholders will be entitled to vote at the meeting.
OUTLOOK FOR 2020
During the third quarter of 2020, the Company will continue its work with MNP to evaluate a broad range of
potential strategic alternatives including the evaluation of existing and future projects and the analysis of
potential financing alternatives.
2020 SECOND QUARTER RESULTS
At June 30, 2020, the Company had cash of $6.4 million and positive net working capital of $6.1 million
and no debt. The Company has adequate cash to fund any existing commitments in 2020 as well as to
meet short term operating and capital requirements. Karnalyte’s Second Quarter 2020 Financial
Statements and Managements’ Discussion and Analysis are available at www.sedar.com and on
Karnalyte’s website at www.karnalyte.com.
The following information has been summarised from the Company's Condensed Interim Unaudited
Financial Statements.
June 30, 2020 June 30, 2019
Total revenue - -
Net and comprehensive loss (742) (967)
Basic and diluted per share (0.02) (0.03)
Total current assets 6,944 9,318
Total assets 12,722 15,162
Total liabilities 2,615 2,646
Total shareholders’ equity 10,107 12,516
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.
For further information, please contact:
Danielle Favreau
CFO & Interim CEO
Karnalyte Resources Inc.
1(306) 986-1486
www.karnalyte.com
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.