REG - Keras Resources PLC - Granulator Plant JV and Acquisition of Property

Keras ResourcesAnnouncement

22/01/2024 07:00

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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(®) 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(®) 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(®) 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(®) 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(®) 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
(http://www.kerasplc.com/) , follow us on Twitter @kerasplc or contact the
following:

 

 Graham Stacey                         Keras Resources plc             info@kerasplc.com

 Nominated Adviser & Joint Broker      SP Angel Corporate Finance LLP  +44 (0) 20 3470 0470

 Ewan Leggat / Charlie Bouverat

 Joint Broker                          Shard Capital Partners LLP      +44 (0) 207 186 9900

 Damon Heath / Erik Woolgar

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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