Karnalyte Resources Inc. Announces 2020 Year End Results and Provides Corporate Update
21238591V2
KARNALYTE.COM
TSX: KRN
KARNALYTE RESOURCES INC. ANNOUNCES 2020 YEAR END
RESULTS AND PROVIDES CORPORATE UPDATE
Not for distribution to U.S. news wire services or dissemination in the United States.
SASKATOON, SK (CNW- March 19, 2021) – 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 15 th, 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.
For further information, please contact:
Danielle Favreau
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.