TIDMHMI
Harvest Minerals Limited
26 September 2018
Harvest Minerals Limited / Index: LSE / Epic: HMI / Sector:
Mining
26 September 2018
Harvest Minerals Limited ('Harvest' or the 'Company')
Question and Answer Document
Harvest Minerals Limited, the AIM listed fertiliser producer, is
pleased to release this Q&A to publicly answer questions the
Company has received from shareholders over recent months. The
questions are repeated here as they have been asked and we have
grouped them into broad categories for the ease of reference
only.
OPERATIONS
Is the 320Kt pa current plant capacity based on 8, 12 or 24hr
production and can it be scaled up by simply increasing man hours
or is its storage/ plant the limiting factor?
The 320Ktpa production capacity figure is based on three x
7.5-hour shifts, 5.5 days a week for 50 weeks a year. That schedule
includes 1.5 days per week for routine maintenance and is a
commonly accepted industry shift rotation for an operation as
simple as ours. As we have said previously, to scale up production
further, we will need to install another processing line which is a
relatively straight forward process that should cost US$1m and take
circa 3-4 months to fabricate and install. There are no limiting
factors to expand capacity.
Will you need to do any further work at the plant?
No. The plant is fully operational. We have the option to switch
our power supply from generator to the national grid. The
infrastructure is in place for this and we are awaiting the power
company's technicians attending site to facilitate the transfer,
which we expect to happen this year. Once we have been connected to
the national grid, we have no further work planned at the
plant.
There appears to be a lot of dust product - is this a health and
safety problem?
We are crushing our product to produce a fine powder which
necessarily creates some dust. We designed the plant and
infrastructure to minimise any dust, including installing dust
suppression around the crushers and housing the operators in an
enclosure to prevent any dust exposure. The area most prone to dust
is the storage shed, however, the storage shed is specifically
designed so that no dust filters outside it and no staff are
required to be in the storage shed during production. The Ministry
of Agriculture ('MAPA') in Brazil has carried out an inspection of
the new processing facilities, including the storage area and
associated infrastructure, and advise that our facilities meet all
the required standards for dust suppression.
Are you able to accommodate site visits for shareholders?
Harvest's corporate policy is to not cater for site visits for
shareholders on an individual or ad-hoc basis, as is the standard
across the industry sector. Harvest is operating an active mine
site and related beneficiation plant, (including associated mobile
plant movements) and the introduction of non-operational personnel
presents potential insurance and health and safety issues.
When do you anticipate the mining permit to be issued?
We expect the mining licence will be issued in the 12 months
following the original application submission which was Q2,
2018.
How does the rainy season affect production and when does this
season begin/end?
The rainy season in Brazil typically falls during the summer
months between November and March. As all our production units are
undercover, processing should not, on average, be impacted by
rainfall although there will, of course, be temporary periods where
production could be interrupted by excessive rain.
SALES AND REVENUE
How much revenue will be recorded in your 30 June 2018 financial
statements?
Our year end results and Annual Report will be announced on 28
September 2018. The Company has made a decision to hold off revenue
recognition until the new financial year to properly align revenue
and related production expenses and additionally to assist
investors in seeing performance from a "standing start". We believe
the full year accounts to be released next summer will be far more
meaningful if all the revenue and related expenses are recoded in
one year rather than blending in the unrelated capital development
expenses incurred during 2017/18.
What is the rationale behind not announcing every sales
order?
The Company has met its objectives of moving to be a revenue
production company. It is not normal, or required pursuant to the
AIM Rules, for a company of this nature to report on its sales
activity in detail and we are no different. The Company will be
releasing bi-annual financial reports which will include all
financial metrics.
Can you give us an idea of sales achieved during Q1 of the new
financial year?
We understand that investors have identified sales orders as a
key metric to success. However, focussing on sales orders in
isolation is not appropriate as it does not cover the whole trade
cycle, which should include sales, production and the amount of
product delivered, invoiced and ultimately paid for. This whole
trade cycle can take many months and at this stage, Harvest is at
the commencement of its first trade cycle; it has announced
substantial sales to date and is now focused on fulfilling those
orders. Considering that the Company has only been in full
production for a short period, it is apparent that there is going
to be a period of some months where all production will be required
to meet the existing sales orders. Once produced and delivered, the
customers will be afforded normal trade credit terms before they
are required to pay for the product. Once we finalise our first
trade cycle and establish a trading "rhythm" the working capital
cycle will become normalised. This is the process that every new
business goes through.
At the moment, the sales orders that are already in the book are
more than sufficient to see the Company reach profitability and
become cashflow positive. Accordingly, our first priority is to
fulfil those orders, which we are doing. Alongside this, we are
developing our market across a range of crops and we are educating
farmers on the benefits of KPfértil so that we have follow-on
orders into 2019 and beyond. This process is underway and the
results to date are outstanding. The Company remains confident in
the strength of customer demand at present and going forward, as
evidenced by our investment in enlarged plant capacity.
We are aware that some investors are expecting to see a linear
trajectory of sales from zero to 320ktpa without interruption and
in quick order. This is unrealistic. It is, however, realistic to
assume that it is going to take a period for a trade cycle at full
production to be achieved, in line with the findings of analyst
research. Achieving profit and becoming cashflow positive in the
first year of production is an extraordinary achievement and that
is the Company's primary focus right now.
Does this put you ahead or behind where you expected to be at
this stage and what external factors have impacted this?
At the start of the year we spoke publicly about a sales target
of 30Kt. The contracts we have signed significantly exceed that
target and so we are well ahead.
How is the relationship with Geociclo working and have you seen
any benefit yet?
We announced the strategic alliance with Geociclo at the end of
July 2018, so only 2 months ago. The relationship is very simple.
It has an established sales and marketing team which has been fully
trained on KPfértil and is selling our product in its region.
Additionally, it has MAPA approved laboratory facilities and we
have access to those facilities to conduct test work for product
development. Additionally, we can use its production facilities as
a logistical depot. The relationship is fully operational and to
date, we have seen obvious advantages to proceeding with the
relationship.
Will your margins be similar for pastural when compared to
traditional crops?
Yes.
In your recent video, you mention that there is a significant
possibility of being profitable by the end of the year based on
current contracts that you are delivering against. How likely is it
that this number will be exceeded if deals within the current
pipeline convert?
In very broad terms, based on our existing structure, the
Company will reach profitability and become cashflow positive once
it achieves sales of approximately 25,000 tonnes per annum. We have
announced sales exceeding that number for 2018/2019.
PRODUCT AND KPFÉRTIL
What does KPfértil do and why is it a good product?
KPfértil is a natural multi-nutrient fertiliser and
remineraliser. It contains potassium and phosphorous, which are two
of the three essential nutrients (nitrogen being the third) as well
as many other micronutrients required by plants which are released
slowly over time with very little loss due to leaching.
Additionally, the silica content in KPfértil improves plants
resistance to disease and improves their ability to take in water.
As a remineraliser, it rebalances soil PH, improves the soils
ability to retain and make available soil nutrients to plants,
improves moisture retention and unlike traditional fertilisers, is
salt and chloride free improving crop quality. It is free of any
hazardous chemicals making it safe to apply.
Are you going to register KPfértil as a fertiliser as well -
will this help sales?
There is no current requirement to register as a fertiliser to
assist sales activity. We monitor customers' requirements and
demand levels and if we identify a need or market potential going
forward we may look to register as a fertiliser, but at this stage
we are not intending to do so.
What is the cost savings for farmers using KPfértil on coffee/
grass?
Cost savings will vary depending on a range of things including
the specifics of application rates, time of season, historical
application rates of KPfértil and other products etc. However, the
independent test results indicate that on a like-for-like basis,
significant costs savings are available.
We are naturally excited by the potential for Pastural use of
KPfértil. Are there alternative products being used by farmers at
present or has cost been historically prohibitive?
There are several fertilisers and remineraliser products
available, however, within our market area, we believe that there
is no other product that offers the nutrient and associated
benefits at the same cost point that KPfértil does. Accordingly, we
consider the market opportunity for us is significant, as evidenced
by the very early take up of the product by farmers.
It is our assumption that the use of KPfértil will enable
farmers to retain an 'organic label' - is this correct and how
important is this to the pastural industry in Brazil?
We cannot comment on the specifics of whether or not a
particular farmer can obtain "organic" certification. However, it
is commonly understood that in order to obtain organic
certification, a farmer would be required to demonstrate that the
various inputs to the production cycle are organic. KPfértil is a
completely natural organic product and accordingly it follows that
the use of KPfértil will meet the criteria of demonstrating that
the production input is organic. The "organic" accreditation is
growing in stature in Brazil as in other countries. We believe that
going forward, this will become increasingly important and
accordingly bodes well for KPfértil.
Does the application amount per hectare of KPfértil differ
significantly for pastural use in comparison to traditional crop
usage such as coffee etc?
Application rates do differ between crops due to the different
nutrient requirements and based on individual farms and farmers
requirements. There is no blanket answer to this question.
MACRO
Is there any indication whether HMI will be affected by the
current elections?
No. Agriculture is the third largest component of Brazil's GDP
and is a mainstay of its economy. The Brazilian Government has been
demonstrating its support for the agricultural industry and
encouraging the development of domestic fertiliser production.
Are sales/ Harvest being affected by the weak Brazilian
economy?
No. We benefit from the increased cost of importing fertiliser
products into Brazil.
Is the depreciation of the Real impacting the Company?
No. The increased price of imported fertilisers is making
KPfértil more cost effective.
Has the Government updated its target to be self-sufficient in
fertilisers by 2020?
The target is still in place but looking less achievable as the
demand for fertilisers continues to grow and the sources of local
product are not increasing to meet the demand.
CORPORATE
Will another placement be needed as it could take a couple of
years to get to full capacity?
The Company currently has no plans to raise additional
capital.
If the placing was so heavily oversubscribed, why are people not
buying now the price is below that of the placing?
One of the principal objectives of the recent capital raise
conducted by Shard Stockbrokers and Arden Partners was aimed at
identifying and securing the long-term support of particular
institutional investors, which was achieved. It is typical for
these types of investors to take a longer-term view and it is not
typical for them to buy on market as prices vary. From that
perspective, the recent capital raise has been an outstanding
success.
Similarly, at the project level the Company has had continued
success. Harvest has achieved all the objectives identified early
in the year and more. The project is in full production and sales
and marketing activities in Brazil are very active.
In contrast, the AIM market has been experiencing a particularly
soft period of retail investor interest. It is typically this
interest that buys and sells shares based on momentum and sentiment
and for reasons unrelated to Harvest, this interest has been waning
throughout the summer. We believe it is this general market
sentiment that has weighed on Harvest (like so many other
company's).
General Comment
Please note that the only party with accurate information is the
Company, not individual pundits commenting in unregulated forums.
The Company is committed to full and accurate disclosure through
its normal RNS announcements. However, to assist investors with any
matters that require clarification and to avoid any
mis-information, either deliberate or otherwise, Harvest aims to
release Q&A announcements such as this on a regular basis going
forward. Accordingly, shareholders with questions should submit
them to info@harvestminerals.net
*ENDS*
For further information please visit www.harvestminerals.net or
contact:
Harvest Minerals Limited Brian McMaster Tel: +44 (0) 20 7317
(Chairman) 6629
Strand Hanson Limited James Spinney Tel: +44 (0)20 7409
Nominated & Financial Adviser Ritchie Balmer 3494
Jack Botros
Arden Partners plc Tim Dainton Tel: +44 (0) 20 7614
Joint Broker Paul Brotherhood 5900
Paul Shackleton
Shard Capital Partners Damon Heath Tel: +44 (0) 20 7186
Joint Broker 9900
St Brides Partners Ltd Isabel de Salis Tel: +44 (0)20 7236
Financial PR Gaby Jenner 1177
Notes
Harvest Minerals (HMI.L) is a Brazilian focused fertiliser
producer advancing the 100% owned Arapua Fertiliser Project, which
produces KPfértil, a proven, multi-nutrient, slow release, organic,
MAPA-certified remineraliser. KPfértil offers many economic and
agronomic benefits and addresses the significant demand for locally
produced fertiliser in Brazil, with its abundant agricultural land;
currently, the country imports 90% of the potash it uses but has a
target to be self-sufficient in fertilisers by 2020. Covering
14,946 hectares and located in the heart of the Brazilian
agriculture belt in Minas Gerais, Arapua is a surface, low cost
mine with an indicated and inferred resource of 13.07Mt at 3.1%
K(2) O and 2.49% P(2) O(5) . This is based on drilling just 6.7% of
the known mineralisation, leaving significant upside potential.
This resource is equivalent over 29 years' production and the known
mineralisation expected to support 100+ years' production at
450,000 tonnes per annum.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
NRAPGURUBUPRGMA
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