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Keras Resources aims to be top US organic phosphate producer

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Keras Resources AIM:KRS, the AIM-listed phosphate mining company operating in Utah, published an updated presentation and forecast  (13th September) focussing on its primary asset, the Diamond Creek phosphate mine.

Diamond Creek is wholly-owned by Keras Resources, and chief executive Graham Stacey said it is one of the highest-grade organic phosphate deposits in the US and is a fully integrated mine to market operation with in-house processing facilities. Diamond Creek produces a variety of organic phosphate products that can be tailored to customer requirements for fertiliser.

“Diamond Creek ticked lots of boxes for Keras,” said Stacey, “…it’s close to Salt Lake City and its infrastructure and has a history of mining; and although the asset has been dormant between the 1950s and 1990s, across an 840-acre lease has at least 5 million tonnes (Mt) of phosphate to mine.”

Keras Resources believes that it can operate the mine for at least 60 years in surface mining operations.

Keras Resources increasing market share

The company is focused on increasing its market share in the fast-growing US fertiliser market and is planning upon Diamond Creek becoming the premier organic phosphate producer in the US. Stacey said that Keras is a high margin, low capex, scalable operation, backed up by strong market fundamentals and the mining strategy at Diamond Creek is to keep it simple, developing an open pit, low strip ratio mine with minimal processing requirements and a low carbon footprint.

Keras Resources also has an 85% interest in Société Générale des Mines SARL (SGM) which holds the research permits for the Nayega manganese project in northern Togo, West Africa. Nayega has a JORC estimate of 13.97Mt of manganese at a 12.4% concentration and an ore reserve estimate of 8.48Mt at a 14.0% concentration, with additional upside identified.

However, it’s Diamond Creek which makes Keras most excited, and Utah is where the company has been pooling the majority of its resources since 2020.  The company paid an initial USD2.5m (GBP 2.2m) for 51% the mine on the back of a 500-tonne bulk sample and then spent time upgrading its infrastructure. Mining commenced in July 2020 and produced 7,000 tonnes in the mining season.

Stacey noted that the mining season runs from July through to October due to US Forest Service permit restrictions, largely due to the amount of snow during winter months making access to the upper mountain, where the deposit lies, impossible. He noted that mining throughout the summer ensures that Keras has sufficient ore to feed its milling operations through the winter and fulfil annual sales requirements.

In-house processing

Initially Keras Resources contracted out milling, as it did not own its own processing facilities, but last year found a site in Spanish Fork, 20 miles from the Diamond Creek mine, and in 2021 started building its own processing plant. The company is looking at developing a second processing plant at Pleasant Grove.

Phosphate is an essential element for plant growth. It is an anion composed of phosphorous and oxygen atoms. Phosphorous is one of the ‘NPK’ ingredients that go into all fertilizers – in the UK you can find a NPK ratio on fertilizer bottles and packets, which refers to nitrogen (N), phosphorus (P), and potassium (K) – which are blended for different uses. Phosphorus is needed for plants to develop flowers, fruits, and root systems.

Keras has benefitted from the war in Ukraine. Synthetic fertilizers rely on the oil and gas sector for the raw materials to make their compounds, and with rising gas prices, have found supply constrained and prices skyrocketing. Keras produces organic, not synthetic fertilizer.

Synthetic price rises

Stacey said: “The worldwide pricing of synthetic fertilizers has seen unprecedented growth over the last 12 months, due in large part to geopolitical instability impacting global supply of feed elements for synthetic fertilizers, which has seen organic fertilizers gaining market share in the global market. We believe that fertilizer market demand fundamentals will remain robust, and we see the potential for real price growth to support increasing margins in our market segment going forward.”

He explained that not only is Keras’ fertilizer classed as organic but is also better environmentally: “For each tonne we supply, we produce between 0.2 tonnes and 0.3 tonnes of carbon dioxide emissions. Synthetic manufacturers produce 1.3 tonnes of CO2 per tonne of product.”

The organic nature of Keras’ product has been embraced by farmers in the US – especially in the company’ s key market of California. “The cost of synthetics [in the US] is leading farmers to change to organic fertilizer, but there is also a psychological change as farmers look to organic production, and therefore are looking for organic inputs.”

Keras believes that in the US, organic fertilizers offer a buoyant market with robust long-term fundamentals, with organics making up less than 22% of the total market currently. Research shows that the dry organic fertilizer market is forecast to grow at CAGR of 8.7% by 2027, and 14% in US dollar terms with demand forecast to exceed supply.

Keras Resources to generate carbon credits

The company also hopes to add carbon credits to its revenue line, as organic fertilizers’ lower carbon footprint relative to synthetics present an opportunity to generate carbon credits.

In the next 12 months Keras will optimise Diamond Creek’s operations, by maximising the mine’s operational run rate; centralise operations at Spanish Fork; construct a new granulator plant and rationalise costs.

Stacey’s priorities were to increase volumes: “…we need to create economies of scale to ensure we can get volumes up and develop our relationships with clients and expand our client list,” Keras primarily supplies wholesale to blenders, but is exploring opportunities to supply to farmers direct or through retailers such as Wal-Mart, “…our biggest threat is if the ‘big boys’ start to go organic as that would erode our market.”

Keras closed the day at 6.5p, offering a one-year return of -29.5%, a year-to-date return of 10.9% and its shares have ranged between 3.3p and 13.6p over a 52-week period. It has a market capitalisation of GBP5.2m.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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