Harvest Mi (di) Regulatory News (HMI)

Harvest Minerals Limited / Index: LSE / Epic: HMI / Sector: Mining

6 December 2019

Harvest Minerals Limited ('Harvest' or the 'Company')

Q&A Document

Harvest Minerals Limited, the AIM listed remineraliser producer, is pleased to provide a Q&A document to summarise the Shareholder Call held earlier today in which Chairman Brian McMaster answered questions submitted by shareholders.

SALES

Can you give us some rough guidelines as to what you expect to sell next year?

We've had indications from existing customers that they intend to re-order either the same or more product than last year. We've also built a list of potential customers who have said that they plan to order next year. This, in tandem with our plans to continue our market awareness and marketing campaigns, provide us with the confidence to suggest that we will sell more than we did this year.

For the sake of argument, suppose you are targeting 100kt of sales for CY2020. Assuming 40 tonne trucks, that is 2,500 trucks. From previously published presentations, it appears that most sales are concentrated into roughly eight months of the year. In round terms, that means 10 trucks per day during the busy sales periods. Aside from the time it takes to load a truck, there is also the round-trip time of delivery to consider, during which time a truck can only be used once. For CY2020, is the plant capable of processing 10 trucks per day, and will you have enough trucks?

It takes ~30 minutes to load one 40t truck, so in a 10 hour shift we can load 20 trucks from one loading bay. As we plan to expand the product storage area during the year, we will add additional loading bay/s. As we sell at mine gate, the customers are responsible for providing the trucks used in deliveries.

What is the greatest number of trucks you have so far moved in one day?

During 2019, we have routinely maintained a run rate of more than 20 trucks per day from one loading bay.

The eventual target is over 300kt pa, or more than 400kt pa after enlargement. That equates to 30 or 40 trucks per day, assuming 40 tonne trucks. 40 trucks per day is one every 15 minutes, assuming a 10 hour day. Do the outline plans for enlargement of the plant take this into account?

As noted above, we can increase loading capacity by +20 trucks a day by simply adding additional loading bays. For example, if we were to expand to an additional four loading bays, we could load 80 trucks a day.

What percentage of 2019 sales was to your largest customer, and, in H light of previous mistakes (Geociclo), what is the risk that the customer in question will not order at least the same amount of product in 2020?

As noted in our 2019 Annual Report, our largest customer accounted for +74% of sales. We expect this number to decrease rapidly going forward as we develop a wider range of customers.

Harvest posted a video showcasing a trial with Veloso; how big is Veloso and what possibility is there of a large order flow from it if the trial goes well and when might this commence?

The video we posted was produced in conjunction with Veloso, which like us, is excited to promote the initiatives of developing organic compostable fertilisers.

Of the sales made last year, how many farmers have returned for more product and have any of them increased their orders?

The first year of sales will conclude at the end of December. Following that, we will start to collect repeat orders. Based on feedback to date, we expect return customers to be close to 100%.

Has the plan to combine KPFértil with additional nutrients in a fertiliser advanced?

We are continuingly looking for ways to further improve our product. We have seen good growth in demand for use in composting, where KPfértil is mixed with organic material to produce a product that will meet all a crops' nutrient requirements, including nitrogen, potassium and phosphate. The video released earlier this week shows how one customer is blending KPFértil with cattle manure and coffee husks, letting it mature to promote bacterial development and then applying it to coffee plants. Our customer is reporting better soil quality, crop quality, better water retention, less disease and an overall cost saving of 20-30%. We are working with other customers who are doing similar things and we see this market continuing to develop.

What's the split by crop... soy / coffee etc? Is there one area such as coffee that's stronger in terms of sales and why?

Presently our biggest market is coffee at 68% (direct 43% and composting 25%), followed by soybean at 24%. The reason coffee is so strong at the moment is because we have been working with coffee producers since we started the project so have more test results and established more relationships. We expect that this will evolve over time as we get more results from other crops.

What has been the key stumbling block to increasing sales of KPFértil?

We do not consider there has been a "stumbling block" in the sales rate of KPFértil. In the space of only several years, Harvest has progressed from a grass roots discovery to breakeven, with a near term expectation of profitability. In the Board's eyes, this is a remarkable achievement and one that has not been emulated by any other small cap AIM quoted company that Harvest is aware of.

During 2018, Harvest announced two sales contracts, which have not performed as hoped; that has created an expectation gap, which has disappointed the market. Whilst this is not satisfactory, it is also old news in the context of the Company's evolution and continuing to refer to that old news is not benefitting anyone. Looking at the present and immediate future, the Company has reached a sizeable sales run rate that it expects to improve on next year as it reaches profitability. Ordinarily, a profitable, dividend-paying company, which Harvest is targeting, will be re-rated by the market as it meets the investment criteria of a broader investor base.

Do you think you've got the right sales & marketing team in place?

We believe our sales and marketing teams have done a great job to date. As market awareness of our product develops, we expect to expand these teams and efforts.

PERMITS & CERTIFICATIONS

Do you know what the delay to the Mining Permit has been?

Our application for a Mining Permit is in progress. The Environmental Permit was the last component required for the Mining Permit. Everything else has been signed off and we are at the last stage of the process awaiting the final signature from the National Mining Agency ('ANM').

Has your IBD certification lapsed?

No. It is current until November 2020 and is renewed annually.

FINANCIAL

You've still got cash in the bank. What are you planning on using this for?

We are very fortunate to have cash in the bank. These funds provide the necessary working capital support required to build out the business to profitability and beyond that allow us the luxury to consider growth opportunities. As mentioned in our recent trading statement, we expect to record a maiden profit before tax for CY2020.

How much value is there in tax losses (A$14m) and how/when might they be utilised, if at all?

Ordinarily (and subject to professional tax advice), the tax losses will be recouped by future profits. On the face of it, that makes them valuable as we move into a profitable phase.

What cost initiatives are being taken and how much might they yield in terms of cost savings?

As mentioned in our recent RNS, cost initiatives are ongoing and will be reported on in late Q1, CY2020.

The Company recorded revenue of A$1.6m, but receivables are A$1.3m - what is the aging analysis of receivables and when do you expect payment thereof?

As mentioned in our recent RNS, we expect the working capital cycle to conclude in Q2, CY2020.

Of the A$3m of opex (ex Geocicio impairment), it seems that consultants' fees, directors' fees and wages and SBC account for A$2.5m. How much of this is recurrent and how much is one-off? What is the anticipated run rate going forward?

As mentioned in our recent RNS, breakeven is approximately US$2.4m, which represents the annual, all-in total cost of production, overhead etc. As also mentioned, we will be announcing a costs savings initiative, which will see this number reduce.

What currency is the A$9.5m cash held in?

The operational currencies of the Company are USD, GBP and Brazilian Reis. Funds are held in these currencies as required. Please refer to the Company's annual results for more details.

Can you explain and elaborate on the 'Deferred exploration and evaluation expenditure'?

This amount is the capitalised cost of the investment in exploration projects.

The anticipated fall in COGS on a unit basis from US$12/t to US$8/t…. this implies some level of fixed cost in the operations. What is that fixed cost? What percentage of COGS is fixed and how much variable currently?

Operational costs decrease from efficiencies gained by processing larger volumes.

PP&E depreciation rate is 33%. Opening PP&E was A$485k, so wouldn't depreciation be at least A$160k (0.33 x $485k)?

The depreciation charge is itemised in the annual accounts

Even excluding the A$747k of PP&E additions. Yet it was lower than this at A$125k. How so?

Opening PP&E will be A$1.1m at end June. That implies a higher depreciation charge for the next period. Has that been factored into the breakeven/profit estimate?

Depreciation is a non-cash item and is not considered as part of our consideration of cash flow profitability or break even at this point. We make sufficient allowance for wear and tear and repairs and maintenance and those costs are considered.

As a comment, the related Party Transactions look bad and, I think, should be eliminated in future.

The related party transactions are all on terms equal to, or better than, those available in the broader market. The reality is that with a small cap company like this, cost efficiencies must be achieved where possible and entering into transactions with certain related parties, on appropriate terms, helps realise this.

How and when are the farmers paying for the product?

The farmers pay in cash. The timing of payments depends on the individual trade terms we have negotiated with them.

GENERAL

Will political events outside of Brazil have any effect on the Company?

We believe that the demand for food generated by our customers will only increase. Our customers have indicated that the desire for a local organic fertiliser product is strong and as such we see these factors being somewhat immune to broader macro influences.

Can you hold the AGM in the UK?

Harvest is an Australian company governed by the Australian Corporations Act, which means that it is appropriate that the formalities of its AGM be conducted in Australia. Despite this, Harvest is opening other forums (such as this Q&A and a forthcoming investor event) to allow shareholders the opportunity to ask questions and interact with management. The Company is also available at info@harvestminerals.net if any questions arise.

Is the Company vulnerable to a takeover and if so, how can you prevent this?

Any Company at any time can be the subject to a takeover. Whether we would welcome that or seek to prevent it is a matter of several conditions, including price and shareholders own views. That bridge will be crossed at that time.

Since the Chairman took a large number of shares at 18p in the placing, presumably expecting to eventually make a profit, why are other executives not buying shares at the current price, when they claim it is undervalued?

We continue to maintain that the Company is severely undervalued. As the Chairman said recently, he believes strongly in the future of Harvest. Until recently, the management team has been in a "black out" period pending the release of the annual accounts. The Company is aware that some junior level executives have purchased stock in recent days following the end of this black out period.

In a recent interview, Brian McMaster indicated that we could expect more frequent shareholder communications during 2020 detailing business developments than has hitherto been the case. Please can you confirm this?

We plan to increase our investor communications through regular Q&A shareholder calls, presentations, YouTube videos and social media updates.

*ENDS*

For further information, please visit www.harvestminerals.net or contact:

Notes

Harvest Minerals Limited (HMI.L) is an AIM-quoted low-cost and high margin Brazilian remineraliser producer, located in the heart of the largest and fastest growing fertilizer market in Brazil.

Our product, KPFértil, is a registered and approved organic multi-nutrient direct application fertiliser. It contains many of the essential nutrients and minerals required by plants and, unlike most fertilisers, it does not require any complex processing or chemically alteration, instead it can be applied directly to crops.

KPFértil is produced at the wholly owned Arapua project, that consists of a fully permitted mine, production and storage facilities able to produce and deliver KPFértil to customers. Known mineralisation at the Project is expected to support 100+ years' production at 450Ktpa.

Our focus now remains on growing our business and we have the dedicated in-country sales and marketing team with the skills, experience and contacts to sell KPFértil into the potential multi-Mtpa market on the doorstep of the Project.