KARNALYTE RESOURCES INC. KARNALYTE.COM
TSX: KRN
TABLE OF CONTENTS
MANAGEMENT'S DISCUSSION AND ANALYSIS................................................................................... 3
2022-Year in Review .............................................................................................. 3
Nitrogen-The Proteos Nitrogen Project ........................................................................ 4
RESULTS OF OPERATIONS ......................................................................................................... 6
General and Administrative Expenses ............................................................................ 6
Other Costs Impacting Comprehensive Loss ..................................................................... 7
SUMMARY OF QUARTERLY RESULTS ............................................................................................. 8
INVESTING .......................................................................................................................... 10
Intangible Assets ................................................................................................... 10
Capital Assets ...................................................................................................... 10
LIQUIDITY AND CAPITAL RESOURCES .......................................................................................... 11
CONTRACTUAL OBLIGATIONS ................................................................................................... 11
Related Party Transactions ....................................................................................... 12
Restrictions on Disposition of the Potash Project ............................................................. 12
CRITICAL ACCOUNTING ESTIMATES ............................................................................................ 13
Stage of Development ............................................................................................. 13
Intangible Assets and Property, Plant and Equipment ........................................................ 13
Decommissioning Provisions ...................................................................................... 14
Share-Based Payments ............................................................................................ 14
Contingent Liabilities ............................................................................................. 14
FINANCIAL RISK FACTORS ........................................................................................................ 14
Credit Risk .......................................................................................................... 14
Liquidity Risk and going concern ................................................................................ 15
Market Risk ......................................................................................................... 15
Currency Risk ....................................................................................................... 15
Interest Rate Risk .................................................................................................. 15
INTERNAL CONTROLS ............................................................................................................. 16
Disclosure Controls and Procedures ............................................................................. 16
Internal Controls over Financial Reporting (ICFR) ............................................................. 16
OFF BALANCE SHEET ARRANGEMENTS ........................................................................................ 17
OUTSTANDING SHARES ........................................................................................................... 17
FORWARD-LOOKING INFORMATION ............................................................................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
This Management's Discussion and Analysis ("MD&A") is intended to provide a summary of the operational and financial results of Karnalyte Resources Inc. ("Karnalyte" or the "Company") for the year ended December 31, 2022 and 2021. This MD&A should be read in conjunction with the audited financial statements of the Company and the related notes thereto for the year ended December 31, 2022. This commentary is dated March 23, 2023. The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. These documents, the annual information form dated March 23, 2023 (the "Annual Information Form"), and additional information about the Company are available on SEDAR atwww.sedar.com. Some of the statements made herein contain forward-looking information and accordingly please refer to the "Forward- Looking Information" section at the end of the MD&A.
OVERVIEW
GENERAL OVERVIEW
Karnalyte was incorporated under the Business Corporations Act (Alberta) on November 16, 2007 and is a Saskatchewan-headquartered company focused on the development of potash and magnesium operations in Saskatchewan. The Company's potash project in Wynyard, Saskatchewan (the "Potash Project") is a proposed 2.125 million tonnes per year ("TPY") potash mine utilizing conventional solution mining methods for potash production, with a vision of ultimately becoming the next greenfield, environmentally innovative mine. The Company proposes that the Potash Project, key to Karnalyte's goal of becoming a low-cost, sustainable producer of high-quality product, be developed in three phases using a modular approach, with a first phase ("Phase I") consisting of a production facility capable of producing 625,000 TPY of potash, increasing to 1,375,000 TPY of potash in the second phase, and ultimately to 2,125,000 TPY of potash in the third phase.
2022 - YEAR IN REVIEW
In 2022, Karnalyte commenced an update to its NI 43-101 Compliant Technical Report, successfully raised capital by way of a rights offering, and prepared an ESG Strategy Report.
POTASH PROJECT
Market Update - The market conditions for potash stayed strong in 2022 although softening slightly toward the end of the fourth quarter of 2022 and to date. Major geopolitical events including the Russian invasion of Ukraine resulted in unprecedented supply chain disruption for many commodities and especially for potash. It is expected that these conditions will persist into 2023 and likely beyond.
UPDATE TO THE NATIONAL INSTRUMENT 43-101 COMPLIANT TECHNICAL REPORT
In January of 2022, the Company announced the appointment of Wood PLC ("Wood"), a leading global consulting and engineering company, as lead author of an update to its NI 43-101 compliant technical report ("Technical Report" or "Report"). Wood was appointed after a significant improvement in the market conditions for potash which began in 2021 and continued through 2022.
Karnalyte has made diligent progress on this important step toward construction of its Wynyard Potash Project, despite unforeseen challenges that have resulted in delays.
Wood provided Karnalyte with preliminary capital cost and operating cost estimates using budgetary pricing for mechanical equipment, mechanical bulks, and tanks that take into account the changes to Saskatchewan's tax regime, currency exchange rates and cost of labour. Karnalyte has been reviewing these capital and operating cost quotes, along with exploring various price assumptions while Wood works toward the finalization of a financial model and final compilation of the report, expected soon.
The recent increase in potash prices and other commodity prices has resulted in significant growth in Western Canada's economic activity, and this, in conjunction with supply chain constraints impacting suppliers worldwide is, among other factors, causing delays to the update to the Technical Report. In conjunction with the update Karnalyte is also investigating certain capital cost efficiencies, opportunities to enhance sustainability and working towards getting more comfort on the assumptions used given the current market and economic conditions. Karnalyte will provide a further update as appropriate once the Technical Report is finalized.
"Karnalyte continues to focus on advancing the update to the NI 43-101 Compliant Technical Report and has continued making steady progress, despite challenges the mining industry is facing beyond our control and the Company's desire to move forward in a responsible way." said Danielle Favreau, interim Chief Executive Officer of Karnalyte. "The Company remains committed to following best practices as we work through this critical step, which will serve as a strong foundation for our Wynyard Potash Project."
To date, Karnalyte has achieved a number of key milestones in relation to the update to the Report. This includes engaging industry leading solution mining and engineering firm ERCOSPLAN ingenieurgesellschaft Geotechnik und Bergbau mbH ("ERCOSPLAN"), which provided Karnalyte with a positive review of core samples, and confirmation from Saskatchewan's Ministry of Environment that Karnalyte's previous Environmental Impact Study approval from 2013 remains valid.
NITROGEN - THE PROTEOS NITROGEN PROJECT
The Proteos Nitrogen Project remains under consideration as part of Karnalyte's future and may diversify our business by adding a second fertilizer product line. The Proteos Nitrogen Project is a proposed regional-scale nitrogen fertilizer plant to be located in central Saskatchewan, with a nameplate capacity of 700 metric tonnes per day ("MTPD") ammonia and 1,200 MTPD urea. Our primary target market is local, independent wholesalers within a ~400-kilometre radius of Saskatoon, Saskatchewan, with a secondary target market of Midwest USA wholesalers near the Canadian border. There were no significant developments to report on this project in 2022.
RIGHTS OFFERING
On June 22, 2022, the Company announced the launch of a rights offering (the "Rights Offering") as part of its capital raise strategy in order to provide a viable and attractive investment opportunity for existing shareholders. On August 3rd, the Company announced the successful completion of this Rights Offering, following its expiry on July 29, 2022, raising a total of $3,862,000 in proceeds as additional capital for, among other things, the development of the Potash Project.
Karnalyte was pleased to announce the participation of Gujarat State Fertilizers and Chemicals Limited ("GSFC") in the Rights Offering, a major agriculture sector business in India, providing additional investment in Karnalyte and further demonstrating its ongoing commitment and support for the Company and the Potash Project.
ESG STRATEGY DEVELOPMENT
In line with Karnalyte's environmental advantages and governance advancements, the Company engaged with Karri Howlett Consulting Inc. ("Karri Howlett Consulting" or "KHCI") in the year to prepare an Environmental, Social and Governance ("ESG") strategy report. In October 2022, Karnalyte received a first draft of the report analyzing key focus areas per Karnalyte stakeholders, with practical recommendations under each of the Environmental, Social and Governance categories.
Karnalyte is in the process of reviewing the recommendations as it seeks to enhance its existing policies and practices, ensuring the Company is up to date and in line with current and peer ESG trends. Karnalyte maintains its ultimate goal of operating the business in the best interests of shareholders and relevant stakeholders to further strengthen its strategic position in the potash sector.
OUTLOOK FOR 2023
In 2023, the Company plans to complete the update to its NI 43-101 technical report, to continue to work on identifying cost efficiencies, optimizing construction and operation plans, and enhancing project sustainability, and to increase business development activities to seek out and attract investment and strategic partners to move one or both Company's projects forward to development.
SELECTED ANNUAL INFORMATION
The information has been summarized from the Company's audited financial statements.
Selected annual results
(CAD $ thousands)
Year ended December 31
2022 | 2021 | 2020 | |
Total revenue | - | - | - |
Interest and other income | 62 | 19 | 65 |
Net and comprehensive loss | (1,728) | (2,193) | (3,429) |
Basic and diluted per share | (0.04) | (0.05) | (0.08) |
Total current assets | 4,209 | 2,498 | 5,291 |
Total assets | 9,883 | 8,393 | 11,241 |
Total current liabilities | 628 | 884 | 1,499 |
Total liabilities | 2,006 | 2,630 | 3,311 |
Total shareholders' equity | 7,877 | 5,763 | 7,930 |
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Disclaimer
Karnalyte Resources Inc. published this content on 27 March 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 March 2023 07:45:10 UTC.
