TIDMHMI
RNS Number : 6197Z
Harvest Minerals Limited
14 January 2020
Harvest Minerals Limited / Index: LSE / Epic: HMI / Sector:
Mining
14 January 2020
Harvest Minerals Limited ('Harvest' or the 'Company')
Shareholder Q&A
Harvest Minerals Limited, the AIM listed remineraliser producer,
has received a number of follow-up questions following the release
of its Annual Report, recent investor Q&A session and roadshow.
To maintain transparency and in line with its commitment to
increasing shareholder engagement, the Company is pleased to
provide answers to these questions. The Company aims to undertake
this exercise on a quarterly basis where thought necessary.
Brian McMaster, Executive Chairman of Harvest stated, "We are
grateful for the positive response and interest we have received
from shareholders in recent weeks. The publication of our final
results together with the information shared in our most recent
Q&A investor call has continued to drive much interest in our
Company and accordingly generate a number of further shareholder
questions. We are therefore pleased to be able to provide a
response to these queries as part of our continued effort to
increase investor engagement. We look forward to a productive and
prosperous 2020 and I would like to take this opportunity to wish
all shareholders a very happy New Year."
1. Question: Can you give an update on your coffee plantation
trials and how your trial farm is working?
Answer: As announced over the past six months, our coffee trials
have been performing exceptionally well. The most recent results
(September 2019) demonstrated that KPFértil produced superior
results to conventional fertiliser in new coffee plants.
Currently, we have seven trials being carried out by independent
consultants. Three relating to direct application to coffee plants,
two focussing on blending KPFértil with compost, one relating to
direct application to sugar cane and one for direct application to
vegetables.
We expect results from these tests to be available throughout
the year with the first results expected in Q2 2020.
At our own demonstration farm we have established coffee,
soybean, sugar cane and maize and we will be establishing a new
pasture area this year. The results to date have been excellent,
allowing us to demonstrate first-hand how effective KPFértil
is.
2. Question: Can you explain the buying process for farmers in
Brazil - Do they have to try it first or is it down to your
salespeople having to actually sell the product?
Answer: As discussed in a previous Q&A published in June
2019,
(https://polaris.brighterir.com/public/harvest_minerals/news/rns/story/w6lggkw),
the sale of KPFértil starts with a technical analysis of the
customer's needs and depends not only on the crop's own nutrient
requirements but also on the type of soil and any previous
fertiliser regime. To assist with this process, members of our
sales team are trained agronomists and/or experienced fertiliser
sales experts.
The buying process does vary, however, and our experiences to
date are that customers generally trial a small amount of our
product so they "can see for themselves" and once satisfied orders
increase from there. This is illustrated in a video we published in
December 2019 (https://youtu.be/QFvtQKdnSj0), in which one customer
discusses how it is converting to solely using KPFértil with
compost over the next couple of years.
3. Question: Do you have a loyalty/ referral programme for your customers?
Answer: No we don't.
4. Question: Can you take payment in kind?
Answer: In answering this question we assume by "in kind" the
questioner is asking if we can exchange our product for the farmers
end product. E.g., coffee, soybeans, sugar etc. The option to take
payment in product is open to Harvest and it is something we have
been exploring in recent months. To date, all sales have been for
cash consideration but going forward we would be open to broadening
this for some products/customers.
5. Question: What additional benefits will a full mining licence
bring and do you have to pay US$1m to the original project vendor
when this is received?
Answer: The granting of the full mining licence will trigger
payment of US$1m to the original vendor of the project, which will
be funded from existing resources. The main benefit of receiving
the full mining licence is that it will provide tenure to exploit
the resource further, positively effecting production output. Until
such point, however, Harvest is able to work to its current full
capacity.
6. Question: I still believe that the Company has massive
potential, but what is missing for me right now is clear evidence
that the market has accepted the product. A lack of sales forecasts
suggests you have a lack of conviction that the market will buy
your product. Is this the case?
Answer: Absolutely not. We have internal sales targets/forecasts
and have stated that we expect to reach a maiden profit for the
2020 financial year, which is evidence that we see the business is
progressing well. We have consulted with our advisers regarding the
best way to provide general forecast guidance, and they have
advised us that it is not normal, or a requirement, for a business
that is a relatively early growth phase to publish forecasts and
accordingly advise that we should not publish forecasts until we
reach a very predictable revenue state. We revisit this advice with
our advisers on a regular basis and we will look to publish
forecast guidance when the advice confirms it is required and
advised.
7. Question: Can you provide any evidence that 400Ktpa is not
just possible but actually probable in the long term, this would
make the investment case overwhelming?
Answer: We have stated previously that:
-- the size of the resource is sufficient to support a life of
mine in excess of 100 years at 400ktp;
-- the existing plant infrastructure has a capacity of 320ktpa
and plans have been approved to increase this; and
-- the known market within a radius of just 300km of the mine
site is over 9-27m tonnes per annum for soybean, maize, coffee and
sugar.
Given these factors, that is, we have the resource, we have the
production capacity and we have the market potential, it seems
clear that the opportunity to grow to a run rate of 400ktpa is
possible.
8. Question: If you are really selling the product in increasing
quantities why are you not giving clear evidence of sales?
Answer: We announced a trading update in early December 2019
outlining sales levels for the preceding 12 months.
https://polaris.brighterir.com/public/harvest_minerals/news/rns/story/r7ne2vw
9. Question: Why has there been a slow uptake in sales
considering the so-called high demand stated by the Board on
numerous occasions?
Answer: This question is not supported by the facts. Harvest
commissioned the processing plant in June 2018. To go from a
standing start to a breakeven sales run rate within the first 18
months is a credible achievement for a new product and cannot on
any measure be considered "a slow uptake."
10. Question: How many coffee plantations are actually on your
doorstep i.e., in close proximity, excluding Velsoso?
Answer: There is high demand for fertilisers localised to the
area Harvest is located. This demand is driven by coffee
plantations, sugar plantations, soybean, maize, pasture and
vegetables. But in specific answer to the question regarding
coffee, Brazil is the largest coffee producer in the world,
exporting over 2.6mtpa. Over half of this comes from the coffee
planted in Minas Gerais where our project is located. There are a
lot of coffee farmers close to the project, ranging from small
family businesses to large scale major exporters. Expocaccer, one
of the local coffee co-operatives based 130km for Arapua, has 560
producer members itself.
Harvest has an office in Carno do Paranaiba, and if you look at
that on Google Maps, you will be able to see for yourself the
hundreds of coffee plantations on the project's doorstep.
11. Question: The story told last year (2018), has not met the
facts (sales) up to now, what went wrong?
Answer: The facts of the past 18 months or so have met the
"story" told in 2018. The full story outlined in the May 2018
capital raise was that we would develop the infrastructure to build
a facility capable of producing 320ktpa and that we would commence
selling product with a ramp up expected over the course of several
years or so. We have done exactly that. During the period since May
2018, it is correct that we had a failure with the relationship
with Geociclio but that was turned into an opportunity for us to
grow our internal sales team. Similarly, in May 2018 we spoke of
the distributer model (e.g., Agrocerrado) and subsequently we have
learned that there are more benefits to us developing our own sales
expertise. So whilst there has been some learning along the way,
the facts remain that we have built the mine and related
infrastructure we said we would, we have achieved a breakeven sales
position in the first 12 months of selling and we expect to report
a maiden profit for the 2020 financial year.
There seems to be much made of the perception that we have
missed targets or generally underachieved since May 2018. A proper
review of the facts would reasonably lead to the conclusion that is
not the case. It is normal for not everything to go perfectly in
developing a new business. It is commendable that Harvest has
achieved as much as it has as quickly as it has and we believe the
future continues to look bright.
12. Question: The fact you had 74% of sales from one customer is
a significant negative factor for me and I believe puts your
business at risk. In the last Q&A you said, "We expect this
number to decrease rapidly going forward as we develop a wider
range of customers." Does this mean you have lost your major
customer, that sales to other customers are going to increase
significantly or both?
Answer: The 74% of sales from one customer relates to the period
ended 30 June 2019, which is dominated by the sales contract with
Agrocerrado. This contract was a significant portion of our initial
sales strategy and since executing that contract we have been
committed to developing our own direct sales channels.
Consequently, going forward, Harvest will be selling directly to
customers which will, by design, reduce the significance of the
relationship with Agrocerrado and see us selling to a larger pool
of customers. We have already seen the broadening of our customer
base develop.
13. Question: Were sales to Agrocerrado included in the results
to June 2018?
Answer: No. First sales to Agrocerrado were recorded in the
financial accounts as at 31 December 2018.
14. Question: How much KPFértil was actually sold in 2019?
Answer: As announced in December 2019, approximately 50,000
tonnes.
15. Question: One poster on ADVFN wrote that in October your
sales were 3,899t at an average sales price of 210BRL/t. Where did
they get that from or is it fake news?
Answer: The only accurate source of information is from the
Company directly. We would caution readers to be sceptical of any
information published from sources other than the Company.
16. Question: Why do you report in A$, it is needlessly
confusing?
Answer: Harvest is an Australian domiciled company governed by
the laws of the Australian Corporations Act, which dictate that the
company must publish its results in Australian dollars.
17. Question: Is the company viable?
Answer: The Board of Directors believe so. A review of the
Annual Report and related RNS' will provide sufficient information
for the reader to make an informed decision of their own.
18. Question: When you say you will be breakeven at the profit
before tax level for 2019 and aiming to be profitable before tax in
2020, this could just represent a difference of $1. If you broke
even in 2019 and most of the customers have repeated their orders,
shouldn't any additional sales made constitute a significant
profit?
Answer: We have announced recently that the breakeven point for
the 2019 calendar year was 50,000t, which we reached, and that
going forward we expect to implement a cost reduction programme
that will reduce that breakeven point further. It follows that once
we have reached our breakeven level of sales, the gross profit from
each additional tonne will "fall to the bottom line" and represent
net profit.
19. Question: What is the timing difference between accounting
and cashflow breakeven?
Answer: As outlined in our trading update announced on 2
December 2019, we anticipate completing the first working capital
cycle in Q2 2020.
20. Question: The largest line cost item in the accounts is
Consultants, this is not great and almost double the prior year.
Why are the wage/consultant fees so high?
Answer: These costs were higher due to the costs of the ramp up
of the production phase and some related one-off costs. We
anticipate that this cost line will be reduced going forward as
some of these costs are one off in nature.
21. Question: It is impossible to determine how the Company
should be valued. Why do you not have any forecasts going
forward?
Answer: Please see response to question 6 above.
22. Question: Nice to see revenue is picking up, but can you
explain how losses became so big and what are you going to do on
the cost side to get to profitability?
Answer: We are looking at costs and will provide an update to
the market on initiatives being made in support of this late in Q1
2020. The annual accounts for the past several years outline the
expense items that are included in the cumulative loss.
23. Question: Quick glance at the accounts showed that cashflow
from customers is not matching your revenue; presumably there are a
lot in receivables, what are you doing to fix this?
Answer: The amount held in accounts receivables is detailed in
the accounts. It is common within the industry to have a long
working capital cycle and we are working through that cycle
now.
24. Question: What are the actual share holdings of the
directors and senior management?
Answer: These amounts are stated on the Harvest website as
required by the AIM Rules.
25. Question: The market appears to have not only priced in your
slow performance, but complete failure at this point. Is the market
wrong?
Answer: Market speculation is naturally outside of the Company's
control but we firmly believe that Harvest has performed positively
and has strong growth prospects. We maintain that it "is the right
business, in the right place, at the right time."
26. Question: My biggest fear as a shareholder remains dilution
at this price. A clear statement from the board stating that there
will be no share issue / fundraising for expansion etc would be
very well received.
Answer: The Company has stated repeatedly that it does not need
to raise cash for any purpose at this present time.
27. Question: Are the existing institutions that backed HMI at
18.5p still generally supportive and "get" why the price is the
price?
Answer: We maintain regular dialogue with shareholders and
recent feedback from institutional meetings confirms that they are
understanding of the Company's business plan and achievements and
excited about the next stage of growth.
28. Question: Why don't the existing institutions top up?
Answer: We cannot comment on the position of others but believe
Harvest's value proposition remains strong.
29. Question: Can you clarify the dividend policy?
Answer: We intend to provide the market with a more detailed
announcement covering this in due course.
30. Question: Would you consider a share buyback programme?
Answer: Not at this present time. The cash the Company holds is
being utilised to accelerate the growth of a high margin, high
demand product. The economics from the sale of our product are
compelling and the anticipated economic returns from continuing to
grow our market are the best use of capital for the Company at this
time.
*ENDS*
For further information, please visit www.harvestminerals.net or
contact:
Harvest Minerals Limited Brian McMaster Tel: +44 (0) 203
(Chairman) 940 6625
Dr Mark Heyhoe
(COO)
Strand Hanson Limited James Spinney Tel: +44 (0) 20 7409
Nominated & Financial Adviser Ritchie Balmer 3494
Jack Botros
Shard Capital Partners Damon Heath Tel: +44 (0) 20 7186
Broker 9900
St Brides Partners Ltd Charlotte Page Tel: +44 (0) 20 7236
Financial PR David Penson 1177
Notes
Harvest Minerals Limited (HMI.L) is an AIM-quoted low-cost and
high margin Brazilian remineraliser producer, located in the heart
of the largest and fastest growing fertilizer market in Brazil.
Our product, KPFértil, is a registered and approved organic
multi-nutrient direct application fertiliser. It contains many of
the essential nutrients and minerals required by plants and, unlike
most fertilisers, it does not require any complex processing or
chemically alteration, instead it can be applied directly to
crops.
KPFértil is produced at the wholly owned Arapua project, that
consists of a fully permitted mine, production and storage
facilities able to produce and deliver KPFértil to customers. Known
mineralisation at the Project is expected to support 100+ years'
production at 450Ktpa.
Our focus now remains on growing our business and we have the
dedicated in-country sales and marketing team with the skills,
experience and contacts to sell KPFértil into the potential
multi-Mtpa market on the doorstep of the Project.
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
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