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 P₂O₅; 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, follow us on Twitter @kerasplc or contact the following:

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.