Keras Res Regulatory News (KRS)

Keras Resources plc ('Keras' or the 'Company')

 Interim Results

Keras Resources plc (AIM: KRS) announces its half year results for the six months ending 30 June 2022.

Overview

· Substantial progress has been made towards building our business into a cash-generative producer of high-grade premium organic fertiliser in the North American market

· Increased ownership of the Diamond Creek phosphate mine, Utah, US to 100% - now in full control of mine to market activities

· All permits and authorisation approvals renewed in line with the project's licence obligations at Diamond Creek - in the process of expanding permitted mining footprint

· Record sales in August 2022 of 700t (40% in excess of budget) and repeat forward orders resulted in extended mining campaign to produce additional tonnage

· Sales guidance of between 7,500 tons and 8,000 tons of phosphate product forecast from September 2022 to June 2023 at an all-in sustaining cost (AISC) margin of between $80 and $100 per ton

· Targeting 25,000 tons per annum of phosphate product as our medium-term annual sales objective into a market which is expected to grow at 8% per annum in tonnage terms as well as 14% in value terms

· As a result of the extended mining season, drilling programme to further define the ore reserve at Diamond Creek will now commence in spring 2023

· Successful placing of £1.95m (before expenses) raised at a premium supported by cornerstone investor First Uranium Resources Ltd

· Board changes implemented

o  Graham Stacey appointed as CEO in June, with Russell Lamming moving to Non-Executive Chairman and Brian Moritz moving to Non-Executive Director

o  Claire Parry joining as Independent Non-Executive Director with Dave Reeves stepping down

· Continued focus for 2022 and beyond is increasing the Company's market share in the North American organic fertiliser market and building Diamond Creek into the premier organic phosphate producer in the US

Graham Stacey, Keras Resources Chief Executive Officer, commented, "Our vision remains to build Diamond Creek into the premier organic phosphate producer in the US and we have made real progress over the past few months having acquired 100% in the business and focussing our efforts on resetting the business, starting to ramp up sales and timing production from our mine and milling facilities to meet our sales targets. We produce a high-grade, premium phosphate product that supports soil health, regenerative agriculture and provides investors with direct exposure to the buoyant global fertiliser industry. We believe we are ideally positioned to capitalise on the robust fundamentals of the sector and look forward to further building on the foundations we have laid to date, producing both a valuable and essential commodity whilst generating returns for our stakeholders."  

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.

Chairman's Statement

This is my first statement since becoming Non-Executive Chairman on 1 September 2022 and it is a pleasure to provide an update on the Company's activities over the past six months during what has been a transformational period for the Company. The acquisition of the outstanding 49% of Falcon Isle Resources ("Falcon Isle"), which owns the Diamond Creek high-grade premium organic phosphate mine ("Diamond Creek") has now placed Keras in full control of the operation which markets organic fertilisers with the highest available phosphate (P2O5) in the US. The mine itself is situated high in the Wasatch mountains, 20 miles from the milling plant in Spanish Fork which provides convenient access to locally available contracting services, consumables, technical and financial service providers and easy access to distribution links.

Since taking control of the operation substantial progress has been made towards building our business into a cash-generative producer of high-grade premium organic fertiliser for the US market and establishing a strategic position in this fast-growing sector.  The Spanish Fork processing plant is now back in production, two mining campaigns have been undertaken at the Diamond Creek mine and repeat customers are now beginning to make longer-term offtake commitments. We are now focussing on Falcon Isle's marketing efforts, which were previously the responsibility of our partner, and ensuring we continue to build our position in the US organic phosphate to fertiliser industry.

The Utah Department of Oil, Gas & Mining (UDOGM) and US Forest Service (USFS) carried out a routine inspection and site visit during April 2022 and all permits and authorisation approvals were renewed in line with the project's licence obligations. We are currently in the process of expanding our permitted mining footprint in line with new regulations. Two phases of summer mining have been completed as planned, a second phase as a required result of increased sales demand to ensure ample product availability for the 2022-2023 spring sales season. We are targeting 25,000 tons per annum as our medium-term annual sales objective into a market which is expected to grow at 8% per annum in tonnage terms as well as 14% in value terms. As an owner operator of our processing plant we are able to tailor our product mix to customer requirements which, in addition to product quality, gives us an important competitive advantage in the region. As a result of the extended mining season, our drilling programme which we will undertake to further define the ore reserve at Diamond Creek will now commence in spring next year. The Board continues to review and evaluate all areas of the business to look to further optimise efficiencies and create economies of scale.

We have previously reported on the delivery and commencement of construction of a granulator plant during the second half of 2021, this construction was paused as announced in November 2021 while the acquisition of the outstanding 49% in the business was negotiated and completed during March 2022, this pause gave us the opportunity to evaluate value-enhancing opportunities such as the incorporation of supplementary feed circuits to produce custom blended organic products including Nitrogen and Potassium feedstock to potentially supplement the phosphate-only granulates we'd previously planned. Decisions on the final configuration of the plant will be made during the coming months and construction will re-commence thereafter.

Marketing and Market Fundamentals

Sales has been a key focus for us as we are looking to continue to build market share for our products under the PhosAgri brand. Core to our marketing is highlighting the value that our premium >12% available P2O5 products can offer from a value-in-use basis along with the benefits of its high calcium content. Importantly we are also getting a deeper understanding of our client requirements and adapting our product mix to suit the cyclical seasonal agriculture business which will be key to increasing our market share in the dynamic North American organic fertiliser market. We have the flexibility within our operational set up to be able to adapt accordingly which will be an important aspect of ongoing discussions across our existing and prospective new customer bases.

We are delighted with a 40% increase in sales for August 2022 to 700t against our 500t forecast, as well as repeat forward orders off the back of which we have set out sales guidance of between 7,500 tons and 8,000 tons of phosphate product forecast from 1 September 2022 to June 2023 at an all-in sustaining cost (AISC) margin of between $80 and $100 per ton. Importantly, whilst we offer an organic product, we are not limited to the organic market as PhosAgri can be used as a blend, so widening our audience in this regard will enables us to investigate retail potential and further downstream avenues. 

All of this ties into the market backdrop and we are excited by the significant opportunity offered to us by the North American fertiliser industry which research forecasts to grow at 8% per annum on a consolidated annual growth rate (CAGR) in volume terms, and more importantly 14% on a value basis which suggest a material disjoint between demand and supply growth. Synthetic fertiliser pricing has seen a 60% increase year on year which, albeit due to geopolitical pressure on the supply of fertiliser inputs, is forecast to continue which will both support pricing for organic fertilisers but also growers' substitution of synthetic fertilisers with organic substitutes. Demand is also underpinned by key long-term drivers, including security of supply, environmental factors, the ongoing education and awareness around soil health, as well as the increasing demand for organic food - all of which our PhosAgri products support, and particularly with our location close to the Central California Valley.

Carbon Market

As previously outlined, we are also looking to leverage our low carbon footprint relative to synthetic fertiliser producers and the net carbon sequestration that provides. This presents a revenue augmentation opportunity through the generation and trading of carbon credits. We are exploring this through partnering with growers and verification agencies to create and trade carbon credits and develop offset programmes. This would not deviate from our current business model but complement and augment our revenue model. Whilst early stage we are actively pursuing this avenue and will provide further updates as this project matures.

Togo

As reported previously, on the 18th October 2019 the Council of Ministers of the Republic of Togo published a decree granting the right for large-scale exploitation of the manganese deposit at Nayéga to the Company's subsidiary, Société Générale des Mines ("SGM"). Since that date the Company has concentrated its efforts on obtaining the required Exploitation Permit. The terms of the permit and associated protocols have been agreed, and SGM has been converted from a private to a public company, as required by law and in compliance with the draft Mining Convention. However, the exploitation permit approval has not been forthcoming. We continue to negotiate in good faith with the authorities in Togo to achieve a satisfactory outcome and will update the market in due course on developments.

Financial review

During the period we successfully completed a £1.95m (before expenses) capital raise. This was supported by the Directors and also saw First Uranium Resources Ltd come in as a cornerstone investor now owning 10% of Keras. Subsequently associates of First Uranium have acquired an additional 7% of Keras in the market. They share our view that the North American phosphate market will be a key growth market and we are very pleased to have them on board as a supportive shareholder. Since taking control of the operation in March 2022 Keras management has now progressed Falcon Isle into a cashflow positive entity. Although our reserves are low we do not believe that we will need to come back to the market for funding for our current development plan.

The results for the 6 months ended 30 June 2022 show a loss of £467,000. The incurred loss is partly driven by substantial legal costs incurred in connection with the dispute with our former partner in Falcon Isle, the dispute also resulted in the temporary shutdown of our processing plant in Utah, with a corresponding reduction in sales.

Board Changes

We have made significant Board changes effective 1 September 2022. With Graham Stacey taking on the CEO role and in the process of relocating to the US we will have key management based on site and he will continue to build the team around him. I would like to reiterate my thanks to Dave Reeves for all his significant contributions to Keras during his tenure on the Board and as a significant shareholder, and Brian Moritz for his excellent stewardship of Keras as Chairman since listing in 2011. It was also a pleasure to welcome Claire Parry as Independent Non-Executive Director at the beginning of September 2022. She has previously advised Keras on accounting matters and she brings further financial and independent counsel to the Board. I look forward to working alongside Claire, Graham and Brian who remains as Company Secretary and a valued Non-Executive Director.

Outlook

As we outlined in our previous results, the Exploitation Permit for the Nayéga mine remains pending but we continue to engage with the Togolese authorities to seek a satisfactory outcome. We will announce further updates in due course. Our main thrust in the near term remains to progress our phosphate to fertiliser business, underlined by our recent rebrand of the Company and our updated website. We are mining an essential resource that can create value, be part of the greener economy and contribute to a more sustainable future. As a mining company we remain ever conscious of our obligations and commitments in line with best environmental, social and governance ("ESG") practice and will continue to take the initiative within this area.

I would like to thank our shareholders for their ongoing support. We are excited about what the future holds for Keras, both at Diamond Creek as an organic phosphate producer and as we broaden our remit into the carbon market. We will also pursue new opportunities should they fit within our strategy and be value generating for the business. We have set out our plans and goals as outlined, ramping up operations whilst rationalising costs, widening our customer base and accessing new markets, all with responsible mining at the centre of what we do. We are looking to develop and sustain a positive legacy whilst creating value for all stakeholders and I look forward to our progress in delivering this as we continue to build Keras and Diamond Creek into the premier organic phosphate producer in the US.

Russell Lamming

Chairman

27 September 2022

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDING 31 MARCH 2021

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2021

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED 31 DECEMBER 2021

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2022

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2022

1. Reporting entity

Keras Resources plc (the "Company") is a company domiciled in England and Wales. The unaudited condensed consolidated interim financial statements of the Company as at and for the six months ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the "Group") and the Group's interests in associates and jointly controlled entities. The Group currently operates as an explorer and developer.

2. Basis of preparation

(a) Statement of compliance

This condensed consolidated interim financial report has been prepared in accordance with IAS 34 Interim Financial Reporting. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial performance and position of the Group since the last consolidated financial statements as at and for the period ended 31 December 2021. This condensed consolidated interim financial report does not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards.

This condensed consolidated interim financial report was approved by the Board of Directors on 27 September 2022.

(b) Judgements and estimates

Preparing the interim financial report requires Management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing this condensed consolidated interim financial report, significant judgements made by Management in applying the Group's accounting policies and key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as at and for the period ended 31 December 2021.

3. Significant accounting policies

The accounting policies applied by the Group in this condensed consolidated interim financial report are the same as those applied by the Group in its audited consolidated financial statements as at and for the period ended 31 December 2021.

4. Financial instruments

Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the audited consolidated financial statements as at and for the period ended 31 December 2021.

5. Segment information

The Group considers that it operates in two distinct business areas, manganese mining in West Africa and phosphate mining in Utah, USA. These business areas form the basis of the Group's operating segments. For each segment, the Group's CEO (the chief operating decision maker) reviews internal management reports on at least a quarterly basis.

Other operations relate to the group's administrative functions conducted at its head office and by its intermediate holding company together with consolidation adjustments.

Information regarding the results of each reportable segment is included below. Performance is measured based on segment profit before tax, as included in the internal management reports that are reviewed by the Group's CEO. Segment results are used to measure performance as Management believes such information is the most relevant in evaluating the performance of certain segments relative to other entities that operate within the exploration industry.

Information about reportable segments

For the six months ended 30 June 2022 (unaudited)

For the three months ended 31 December 2021 (audited)

Information about geographical segments:

For the six months ended 30 June 2022 (unaudited)