Keras Resources LON:KRS, the AIM-listed phosphate mining company operating in Utah, might have a breakthrough year in 2024. The company eventually defined its direction of travel, committing to being solely a US-based producer of organic fertilizer, and forgoing its African adventures, withdrawing from its Togolese manganese project.
Keras started life in 2006 as Ferrex Group, an explorer looking for gold, tantalum, and base metals, primarily in West Africa with a focus on Mali, Gabon, Sierra Leone and Liberia. Its first years were not great, and it soon ran into financing difficulties with low capitalisation and challenges in getting its assets, especially in iron ore, through feasibility. In many ways the company’s early travails were a result of bigger base metal explorers being over-optimistic in the early noughties, leading to a sector-wide discount, which disproportionally punished the smaller explorers trying to break through.
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On the back of a rise in global fertiliser consumption and a ramp in pricing, 2010 became a metamorphic year for Keras. After changing its name from Ferrex – to disassociate itself from its iron ore past – the company acquired a share of the Diamond Creek phosphate mine in Utah, US, one of the highest-grade organic phosphate deposits in the country and began developing the mine and building processing facilities to become a fully integrated mine-to-market fertilizer operation.
Global Fertiliser Consumption 1961-2021
The company started mining operations in 2016 and went into production 2020 and commercial production in 2021, and has since steadily ramped up its production numbers and developed its product range to supply directly to the vast US agricultural industry.
In its last published results to the end of June 2023, Keras made a loss of GBP255,000 for the six months to 30th June, which was a bit less than the GBP467,000 loss it made for the same period in 2022. The change is fortunes were supported by increased revenue of GBP397,000m for half-year, up 87% y-o-y.
Keras Resources contributing to a more sustainable
Although the company said it had been a tough first half of 2023, its management remained very positive about both the future of Diamond Creek and the fertiliser market’s macro-economic conditions that underpin its future.
Fundamentally, the trend of diversification away from synthetic fertilizers and the demand for more low carbon-intensive and localised sourcing of fertilizers – a process accelerated by the war in Ukraine, with Russia being taken out of the fertilizer market – plays into Keras’ hands. Notably in the North America market. And Keras’ ability to source an essential resource that can create value, while at the same time being part of a greening of the economy and contributing to a more sustainable future bodes well for the company.
Production figures are a bit difficult to establish for Keras Resources, with no specific mentions either in its Interim Report or Annual Report. The Annual Report does offer some insight into the company’s production, with Keras saying that it was operating at full capacity throughout 2022, with “record nameplate production capacity of 1.2 Mtpa by 4Q22,” indicating a significant increase in potential output. The company cites “strong sales volumes” with a 28% increase in from FY21.
Surface mineable phosphate ore
The company does note the resource that is available at Diamond Creek, citing a resource estimate from 1980 of 3.89Mt and 1.17Mt of surface mineable phosphate ore in the southern and northern sections of the project area respectively. Although the company says that Diamond Creek’s mineral resource has not been classified to international reporting standards, Keras Resources claims it is based on a significant amount of work including historical production records.
Keras, acquired the remaining 49% equity interest in its subsidary, Falcon Isle for USD3.2m in 2022, giving it whole ownership of the mining and processing facilities in Utah, and at the start of the week (22nd January) signed a 50:50 joint venture with US company, Phosul, a specialised organic soil enhancement fertilizer company with granulator operations in Idaho.
The agreement is for the construction and commissioning, of a five tonne-per-hour granulator plant to produce phosphate-based granular fertilizer, which will contain by volume 80% phosphate, all sourced from Keras’ mine. The plant will be funded by Phosul.
200% increase in sales from Falcon Isle subsidiary
The agreement will also underpin a significant expansion in processing capacity, with Keras’ subsidiary acquiring an 8.4 acre property with 77,000 square feet of recently constructed undercover warehouse infrastructure for USD700,000.
The agreement sees Phosul provide Falcon Isle a USD270,000 zero-interest loan to construct the plant, repayable after five years with operating expenses split equally, but Keras selling rock phosphate to the plant at production cost. The deal will see Keras have a 200% increase in sales from the Falcon Isle subsidiary based on 2023 sales of 4,606 tonnes of rock phosphate.
The plant should be ready to go by the end of April this year and dealing with 11,000 tonnes of rock phosphate from 2H24. Keras Resources will continue to sell its phosphate to other fertilizer manufacturers outside of the JV as well.
The company’s share price has disappointed. On publication of the details of the JV with Phosul (22nd January) it had a 20% rally, up to 3.8p in the morning’s trading. Over one-year the company has returned 65%, but over a longer period of three-years Keras’ share price is down 77% and was trading at near 50p a share in 2019. The company has a market capitalisation of GBP2.48m.
Although one swallow doesn’t make a summer, the recent development should be a shot in the arm for Keras, and when combined with the divestment from Africa and the buyout of Falcon Isle, the direction of travel has been confirmed and if the company maintains its focus, shareholders should be looking at more fertile returns in the next few years.
