Karnalyte Resources (KRN.TO / KRLTF) was founded in 2007 and listed on the Toronto Stock Exchange in December 2010. The $65-million IPO raised $14 million more than expected.
KRLTF : Price = .15, market cap = 9.86M, enterprise value = 7.47M as of 03/11/24
Based on the 2016 National Instrument 43-101 Technical Report filed at sedar.com their Wynyard Project is projected to mine 2.125 million tons of potash annually. Additionally, a nitrogen project exists. Approximately 700 metric tons of ammonia and 1,200 metric tons of urea per day can be produced. Nitrogen's target customer is independent fertilizer wholesalers in Central Saskatchewan. The 43-101 report covers geology, mining, recovery methods, required infrastructure, mineral resources, and mineral reserves estimations.
Further, Fortune India 500 Gujarat State Fertilizers & Chemicals (GSFC) is Karnalyte's largest shareholder. As of 2024, GFSC still supports Wynyard Potash and Proteus Nitrogen projects. Gujarat State Fertilizers & Chemicals has contractually guaranteed a long term availability to purchase Karnalyte's potash. Detailed engineering has been completed, and all environmental permits remain valid. Funding and market conditions determine Karnalyte's progress.
Karnalyte Resources' investment potential is impressive.
Karnalyte's largest shareholder is Indian agribusiness giant Gujarat State Fertilizers & Chemicals (GSFC). A placement happened in January 2013 for 8.15 Canadian Dollars per share. Karnalyte's current enterprise value is 5.74M, and its market cap is 7.51 M. This compares favorably to the 19.80% ownership or a 40 million GFSC 2013 investment.
Additional evidence of GSFC's commitment was participation in the rights offering on August 3, 2022. In this offering, GSFC acquired an additional 9,100,000 shares at $0.35 each. GSFC owned 38.73% before the offering, but ownership is now 47.73% with this purchase. This strategic move boosted Karnalyte's capital by $3.862 million. The additional investment allowed GFSC to increase its board representation.
Potential valuation:
In June 2016, Karnalyte received the National Instrument 43-101 Technical Report for its Wynyard Potash Project. The report verified a staggering amount of mineral assets.
Potash Project (Bankable Feasibility Study in Canadian dollars)
“NPV (8% ) $3.39 Billion for all 3 phases (after tax), IRR 19.1% for 3 Phases, 2.125 million tpy project (after tax), CAPEX for Phase 1 $789 Million ($2.396 Billion for all 3 phases) Cost per installed tonne of Capacity $1,262 for Phase 1 ($1127 for all 3 phases)Proven & Probable Reserves of 147 million tonnes KCl, Estimated Mine Life over 70 years for 3 Phases, 2.125 million tpy project”
Magnesium Project (Preliminary Feasibility Study)
"Considers annual production of 100,000 tonnes of MgCl2 brine and 104,000 tonnes of 99+% Hydromagnesite (BMC). Construction assumed after phase 1 of potash)"
"NPV (10%) $512 Million (after tax), IRR 26.1% (after tax),CAPEX (additional to Phase 1) $171 million,OPEX for MgCl2 Brine $7.01 per tonne,OPEX for Hydromagnesite $302.01 per tonne,Probable Reserves for MgCl2 694.6 million tonnes of carnallitite @ 22.1% MgCl2, equivalent to 153.3 million tonnes “mineable” and 7.9 million tonnes of product"
Click here to review the
National Instrument 43-101 Technical Report. The 43-101 report details property data verification, metallurgical testing, mineral resource/reserve estimates, recovery methods, market studies/contracts, capital/operating costs, and economic analysis.
Karnalyte's mineral assets have staggering potential. There is a possibility of billions in potash and magnesium before operation costs. "There's enough potash there to sustain the world for I don't know how many years," said Dave Van Dam, a prominent Kenora businessman and Karnalyte shareholder. "It's monstrous."
A Karnalyte board meeting was scheduled for November 2003 in Saskatoon, Canada. However, GFSC's executives abruptly canceled their flights from India over the government's public disagreement with the killing of a Sikh leader on Canadian soil. KRN's board has two Indian executives from GFSC and one Indian banker.
"We were preparing to welcome our board colleagues from India for a visit to Canada this week. However, they canceled their trip due to tensions that arose and escalated last week," Karnalyte's Interim Chief Executive Officer Danielle Favreau said in an email. "We hope to reschedule their visit soon."
Karnalyte's chairman is Vishvesh Nanavaty, Gujarat State Fertilizer's (GFSC) chief financial officer. Director Dilip Pathakjee is a senior vice president at GFSC. Another board member is Indian international banker D.C. Anjaria.GFSC is financially committed and counting on future potash supplies despite recent diplomatic disagreements over Sikh Nijjar's slaying.
As of June 30, 2023, Karnalyte has zero debt and $2.7 million in cash and net working capital.
Opportunities:
In March 2016, Karnalyte Resources announced a deal with GSFC to finance the construction of its 625,000 tons per year potash mine in Wynyard, Saskatchewan. Besides that, Karnalyte plans to spin off its secondary mineral assets and unexplored lands into separate companies so shareholders can profit. The GFSC partnership aims to finance Phase 1 of the potash mine while leveraging Karnalyte's non-potash assets.
Unfortunately, the 2016 $700 million financing deal failed. The negotiations ended without agreeing on the governance issues and the terms for spinning out Karnalyte's secondary minerals, including magnesium into a separate entity. Further, KRN did not agree to give up 51% of the voting power to GFSC.
Tiny Insider buys from board member Ritu Malhotra 51,000 shares for .19 on 07/20/23.
As of June 30, 2023, the company had $2.7 million in cash and positive net working capital of $2.7 million, with no debt. No debt eliminates bankruptcy if short-term financing is needed next year.
Karnalyte is sitting on potash and magnesium resources that are worth billions before construction costs.
Risk:
GFSC can hold up the project for years. And KRN likely needs cash around +1 years.
Illiquid
Need for financing.
Karnalyte (KRN.TO KRLTF) has been distracted by lawsuits alleging governance irregularities and improper lobbying.
Conclusion:
Karnalyte's investment thesis is simple. GFSC wants Karnalyte's Potash and Nitrogen assets. So, GFSC initiated a position in 2013 when it acquired 19.80% of Karnalyte's outstanding shares at 8.15 per share or 40 million Canadian dollars. GFSC's average cost exceeds the current market price of 7.50 million USD. GFSC now controls 47.73% after an August 2022 secondary offering.
GFSC's CFO, Vishvesh D. Nanavaty, is now Karnalyte's board chairman. Dilip V. Pathakjee (an Indian executive at GFSC) and D.C. Anjaria, an Indian banking executive, are also board members. Canadian business leader Ritu Malhotra is the latest board member. The board construction supports the thesis that GFSC will finance current operations as they attempted with a failed 2016 700M finance proposal.
The 700M USD 2016 financing agreement fell through because GFSC wanted 51% of KRN and access to a spin-off of their nitrogen assets. This disagreement is likely resolved.
The technical report demonstrates billions of dollars worth of assets before construction costs. Detailed engineering has been completed, and all environmental permits remain valid. Funding and market conditions determine Karnalyte's progress. KRN is not a venture-listed company but instead listed on the Toronto exchange, Big Four auditor (KPMG), and is currently working with UK global consulting and engineering company Wood PLC to evaluate additional cost savings on an ongoing basis to ensure maximum value for investors.
GFSC didn't spend ~$45 million without seeing its investment return in potash and minerals or serving on the KRN board. The sleeping giant KRN has a possible billion dollars of assets supported by the National Instrument 43-101 Technical Report. And $100 million had already been invested in the project.
Karnalyte is SPECULATIVE!!
Although the current attributes compare favorably to KRLTF's current price = .15, market cap = 9.86M, and enterprise value = 7.47M
Catalyst: Financing
Long KRN.TO KRLTF
