Junior potash and nitrogen producer Karnalyte Resources Inc., Saskatoon, said on June 23 that results from its recently completed strategic review, completed by MNP LLP, show that going forward it needs to cut costs and find partners for its proposed Nitrogen Project and Wynyard Potash Project.
The review recommended the company transition Karnalyte to a low-cost operation by developing and implementing a minimum cash flow budget to preserve available cash for investment in seeking out strategic industry partners. It said the company needs to investigate alternative sources of funding to extend its operational runway, monetize existing assets to preserve a financial and liquidity foundation, and maintain the minimum requirements to sustain an exchange listing.
In response, management said it intends to investigate alternative sources of funding, divest certain assets not essential to the potash project, reduce general and administrative expenses, and potentially move Karnalyte to the TSX Venture Exchange to reduce the higher regulatory and cost burdens on the TSX.
The review said the Nitrogen Project is high risk without both an offtake agreement and a joint or independent capital investment given the current market and competitive conditions. Current major Karnalyte shareholder India’s Gujarat State Fertilizer and Chemicals Ltd. (GSFC) has indicated it is not in a position to act as lead partner on the project, but that it stands willing to act as a technical advisor, drawing on its experience as the operator of nitrogen production facilities. Plans are for the small-scale project to produce 700 mt/d of ammonia and 1,200 mt/d of urea.
In addition, per the recommendations of the report, the company will continue to seek out and attract a major industry partner with a sound financial position and long-term strategic vision to assist with the Wynward Potash Project.
Despite improvement in supply and demand and prices in the potash industry, the review also cited unfavorable market conditions as current potash prices, low interest from financial institutions, and the limited capacity from the company’s own shareholder group. Current shareholder GFSC has an agreement to take 56 percent of the project’s offtake over 20 years of phase 1 production (625,000 mt/y).
Despite the increase in potash prices in 2021 and expectations that demand will continue to grow through 2030, the review also said the market is expected to be in a prolonged state of oversupply from new mines in Belarus, Russia, and Canada (BHP Jansen).