TIDMKRS
RNS Number : 3725A
Keras Resources PLC
22 January 2024
Keras Resources plc / Index: AIM / Epic: KRS / Sector:
Mining
22 January 2024
Keras Resources plc ('Keras' or the 'Company')
Expansion of US Operations through Granulator Plant JV and
Acquisition of New Plant Property
Keras Resources plc (AIM: KRS) is pleased to announce the
signature of a five year 50:50 Joint Venture Agreement ("JV")
between its wholly owned subsidiary, Falcon Isle Resources Corp
("FIR") and Phosul LLC ("Phosul"), a specialised organic soil
enhancement fertilizer company with granulator operations in Idaho,
United States ("US"). The JV includes the construction and
commissioning, funded by Phosul, of FIR's 5tph granulator plant.
The plant will produce a PhoSul (R) granulate comprising 80% of
FIR's high grade organic rock phosphate from its Diamond Creek
mine. In addition, to facilitate the significant expansion in
processing capacity, FIR has agreed to acquire an 8.4 acre property
with 77,000 square feet of recently constructed undercover
warehouse infrastructure for USD700,000. The property is located in
the farming town of Sutherland, 8 miles north of the town of Delta,
Utah ("Delta Facility") and approximately 80 miles south-west of
our Spanish Fork operations. FIR will continue to produce its
current dry phosphate products as well as the new PhoSul (R) JV
granulates at the Delta Facility.
JOINT VENTURE OVERVIEW
FIR and Phosul LLC have enter into a 50:50 JV as follows;
-- An initial term of 5 years, renewable at the end of the term;
-- Phosul will provide a zero interest bearing loan of
USD270,000 to FIR for the construction and commissioning of the
granulator plant:
o FIR remains the owner of the granulator plant;
o The loan will only be repaid at the end of the initial 5 year
JV term, or at the end of the JV if renewed;
-- All operating expenses for the JV will be shared 50:50;
-- FIR will sell 50 mesh rock phosphate to the JV, estimated to
be 11,000 tons per annum at steady state continuous operations, at
its cost of production. This equates to approximately a 200%
increase in FIR sales from total FY2023 sales of 4,606 tons;
and
-- Commissioning of the granulator plant is expected towards the
end of April 2024, with steady state planned for the second half of
the year.
PROPERTY ACQUISITION OVERVIEW
The Company believes the current operations centre in Spanish
Fork will, over the next few years, come under increasing pressure
from residential development - in terms of potential rezoning and
pressure from newly developed adjacent residential neighbourhoods
and has been assessing the option to move operating facilities for
some time. The consummation of the JV was the catalyst for the move
and provided the financial security required for both the
acquisition and the funding thereof.
-- The 8.4-acre Delta Facility is being acquired for a total
consideration of USD700,000 from Western Ag Credit, a Utah-based
agriculture financial institution;
-- The property comprises 3 warehouse facilities constructed
within the last 10 years. The total area under roof is 77,000
square feet which is significantly larger than the combined Spanish
Fork warehouses (33,000 square feet) with the ability to more than
double warehouse area if required;
-- Keeping product dry has been a key operational challenge to
date, and the significant increase in undercover storage and
operating area significantly limits that operational risk going
forward;
-- The property has existing water supply, access to a
weighbridge with scale house and initial single-phase power, with
3-phase supply accessible 0.75miles from the property. The Company
has initiated discussions with Rocky Mountain Power for the supply
of overhead 3-phase power on the basis of our predicted ongoing
power demand;
-- The rural location, with Agricultural Industrial zoning and a
Conditional Use Permit already approved, allows for 24 hour
operation which significantly increases the effective operating
capacities of all the Company's plant operations;
-- Burningham Enterprises Group, FIR's mining and logistics
contractors, have mining and processing operations in the Delta
area which facilitates significantly reduced back-haul trucking
rates from the Diamond Creek mine to the new Delta headquarters.
This largely mitigates the increased trucking distance from Diamond
Creek to Delta compared to Spanish Fork, however Delta is
considerably closer to our end markets in the Western US;
-- The transition from Spanish Fork to Delta will begin
immediately, and is expected to be completed around the end of
April 2024.
The acquisition is being funded by loans from The Diane H.
Grosso Credit Shelter Trust comprising:-
-- a 4 year convertible loan note of GBP 300,000, at a 7% per
annum interest rate and conversion price of GBP 0.04 issued by
Keras ("Convertible Loan"). If the 30 day volume weighted Keras
share price is GBP 0.12 (British pounds sterling) or greater Keras
has the option to force the conversion of the Convertible Loan. The
Convertible Loan is being made to Keras and may be converted at any
time by notice given by the holder, interest will be rolled up and
included with the amount being converted, or paid at the end of the
4 year loan period if not converted; and
-- a 4 year Promissory Note of USD 350,000 at a 7% per annum
interest rate repayable after 4 years, secured by the Property. The
Promissory Note is being made to FIR which has the right to repay
the loan, without penalty, after 2 years (the "Loan"). Interest on
the loan is payable annually on the anniversary of the effective
date of the note being the 19(th) of January 2024.
Related Party Transaction
As The Diane H. Grosso Credit Shelter Trust is an associate of
Christopher Grosso, a substantial shareholder in the Company as
defined under the AIM Rules for Companies (the "AIM Rules"), it is
considered to be a Related Party of the Company as defined under
the AIM Rules, and the provision of the Convertible Loan and Loan
set out above are therefore deemed to be Related Party Transactions
pursuant to AIM Rule 13 of the AIM Rules for Companies.
The Directors of the Company independent from the Convertible
Loan and Loan, being the full Board, consider, having consulted
with the Company's Nominated Adviser, SP Angel Corporate Finance
LLP, that the proposed terms of the Convertible Loan and Loan are
fair and reasonable insofar as the Company's Shareholders are
concerned.
STRATEGIC OVERVIEW
-- Market research and client feedback compelled FIR to extend
its product range of dry rock phosphate products to include a
granulated product, comprising predominantly organic rock phosphate
from the Diamond Creek mine, that resembles a synthetic
fertilizer;
-- Testwork undertaken by Phosul on the PhoSul(R) granulate
comprising 80% of FIR's PhosAgri product has been successful and a
synergistic JV structure was concluded to combine high grade
Diamond Creek Mine rock phosphate with the proven PhoSul(R) product
and the Phosul team's marketing experience;
-- The acquisition of the Delta Facility, which the Company
estimates would have taken approximately 2 years to construct and
develop at a cost of an estimated USD5million, has significantly
increased the operating capacity of FIR and mitigated the risk of
further urban creep at the Spanish Fork rental premises;
-- The result is a fully fledged owner-operated mine to market
fertiliser company with a wide range of high grade, organic rock
phosphate products.
Since acquiring 100% of FIR in April 2022, Keras has been
pursuing the most value accretive means of constructing the pan
granulator plant which the Company took delivery of during the
fourth quarter of 2021. A barrier to entry to the traditional
synthetic fertilizer industry has, among others, hinged on organic
fertilizer producers' ability to present a product to market that
in every way possible resembles a synthetic fertilizer in terms of
transportability, field application and ultimately plant uptake
effectiveness. Granulating a pure 0-12-0 (0% Nitrogen; 12%
available P(2) O(5) ; 0% Potassium) phosphate product presented an
entry point for FIR, however the ability to produce a granulate
with a formula proven through extensive field trials with a partner
like Phosul is a significant step in the right direction for the
Company.
The Operating Agreement signed between FIR and Phosul provides
FIR with the right to continue to sell products to existing clients
provided that sufficient 50 mesh product is consistently available
for the JV granulator plant for the duration of the initial JV
term. FIR will therefore continue to produce the full range of dry
rock phosphate products as it has done since first sales in 2020 as
well as the additional feed for the granulator plant.
The Delta Facility has sufficient undercover area to include the
processing facilities and storage area for both the feed materials
and the final products. The location of the Delta Facility
increases the plant availability significantly enabling continuous
operations and the increased undercover area for feed ore and
saleable product means we have the ability to operate 12 months of
the year with dry feed.
Graham Stacey, CEO of Keras, commented , " After a challenging
2023, I cannot overemphasise the importance of these developments
in our business. Not only have we plugged the gap in our product
range and increased our forecast rock phosphate sales 200%, but it
is an absolute pleasure to have partnered with the strong team at
Phosul to whom we've supplied increasing volumes of our PhosAgri
rock phosphate product to test the suitability of our rock, as well
as to develop a relationship with like-minded operators with
insight into the organic fertiliser market.
We've taken a view that our current operations centre in Spanish
Fork is likely to come under increasing pressure from residential
development which is likely to lead to rezoning of our existing
site at some point in the future. Owning our own production
property and equipment further eliminates the excessive lease costs
associated with Spanish Fork, and enables continuous operations
with economies of scale that brings. In addition to longevity, the
property provides us with footprint for future expansion of
granulation capacity as well as our current production mix. We
continue to learn the intricacies of building market share in a
niche market and how our product best fits within the organic space
in the US. Our biggest challenge to date has been market
penetration - with Phosul we get the benefit of granulator
experience and existing market for the PhoSul (R) product."
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
Article 7 of the Market Abuse Regulation (EU) No. 596/2014 (as
amended) as it forms part of the domestic law of the United Kingdom
by virtue of the European Union (Withdrawal) Act 2018 (as amended).
Upon the publication of this announcement via the Regulatory
Information Service , this inside information is now considered to
be in the public domain.
**ENDS**
For further information please visit www.kerasplc.com , follow
us on Twitter @kerasplc or contact the following:
Graham Stacey Keras Resources plc info@kerasplc.com
Nominated Adviser & Joint SP Angel Corporate Finance
Broker LLP
Ewan Leggat / Charlie Bouverat +44 (0) 20 3470 0470
Joint Broker Shard Capital Partners
Damon Heath / Erik Woolgar LLP +44 (0) 207 186 9900
Notes:
Keras Resources (AIM: KRS) wholly owns the Diamond Creek organic
phosphate mine in Utah, US. Diamond Creek is one of the
highest-grade organic phosphate deposits in the US and is a fully
integrated mine to market operation with in-house mining and
processing facilities. The operation produces a variety of organic
phosphate products that can be tailored to customer organic
fertiliser requirements.
The Company is focused on continuing to increase market share in
the fast-growing US organic fertiliser market and build Diamond
Creek into the premier organic phosphate producer in the US.
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END
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January 22, 2024 02:00 ET (07:00 GMT)
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