TIDMHMI
Harvest Minerals Limited
06 December 2019
Harvest Minerals Limited / Index: LSE / Epic: HMI / Sector:
Mining
6 December 2019
Harvest Minerals Limited ('Harvest' or the 'Company')
Q&A Document
Harvest Minerals Limited, the AIM listed remineraliser producer,
is pleased to provide a Q&A document to summarise the
Shareholder Call held earlier today in which Chairman Brian
McMaster answered questions submitted by shareholders.
SALES
Can you give us some rough guidelines as to what you expect to
sell next year?
We've had indications from existing customers that they intend
to re-order either the same or more product than last year. We've
also built a list of potential customers who have said that they
plan to order next year. This, in tandem with our plans to continue
our market awareness and marketing campaigns, provide us with the
confidence to suggest that we will sell more than we did this
year.
For the sake of argument, suppose you are targeting 100kt of
sales for CY2020. Assuming 40 tonne trucks, that is 2,500 trucks.
From previously published presentations, it appears that most sales
are concentrated into roughly eight months of the year. In round
terms, that means 10 trucks per day during the busy sales periods.
Aside from the time it takes to load a truck, there is also the
round-trip time of delivery to consider, during which time a truck
can only be used once. For CY2020, is the plant capable of
processing 10 trucks per day, and will you have enough trucks?
It takes 30 minutes to load one 40t truck, so in a 10 hour shift
we can load 20 trucks from one loading bay. As we plan to expand
the product storage area during the year, we will add additional
loading bay/s. As we sell at mine gate, the customers are
responsible for providing the trucks used in deliveries.
What is the greatest number of trucks you have so far moved in
one day?
During 2019, we have routinely maintained a run rate of more
than 20 trucks per day from one loading bay.
The eventual target is over 300kt pa, or more than 400kt pa
after enlargement. That equates to 30 or 40 trucks per day,
assuming 40 tonne trucks. 40 trucks per day is one every 15
minutes, assuming a 10 hour day. Do the outline plans for
enlargement of the plant take this into account?
As noted above, we can increase loading capacity by +20 trucks a
day by simply adding additional loading bays. For example, if we
were to expand to an additional four loading bays, we could load 80
trucks a day.
What percentage of 2019 sales was to your largest customer, and,
in H light of previous mistakes (Geociclo), what is the risk that
the customer in question will not order at least the same amount of
product in 2020?
As noted in our 2019 Annual Report, our largest customer
accounted for +74% of sales. We expect this number to decrease
rapidly going forward as we develop a wider range of customers.
Harvest posted a video showcasing a trial with Veloso; how big
is Veloso and what possibility is there of a large order flow from
it if the trial goes well and when might this commence?
The video we posted was produced in conjunction with Veloso,
which like us, is excited to promote the initiatives of developing
organic compostable fertilisers.
Of the sales made last year, how many farmers have returned for
more product and have any of them increased their orders?
The first year of sales will conclude at the end of December.
Following that, we will start to collect repeat orders. Based on
feedback to date, we expect return customers to be close to
100%.
Has the plan to combine KPFértil with additional nutrients in a
fertiliser advanced?
We are continuingly looking for ways to further improve our
product. We have seen good growth in demand for use in composting,
where KPfértil is mixed with organic material to produce a product
that will meet all a crops' nutrient requirements, including
nitrogen, potassium and phosphate. The video released earlier this
week shows how one customer is blending KPFértil with cattle manure
and coffee husks, letting it mature to promote bacterial
development and then applying it to coffee plants. Our customer is
reporting better soil quality, crop quality, better water
retention, less disease and an overall cost saving of 20-30%. We
are working with other customers who are doing similar things and
we see this market continuing to develop.
What's the split by crop... soy / coffee etc? Is there one area
such as coffee that's stronger in terms of sales and why?
Presently our biggest market is coffee at 68% (direct 43% and
composting 25%), followed by soybean at 24%. The reason coffee is
so strong at the moment is because we have been working with coffee
producers since we started the project so have more test results
and established more relationships. We expect that this will evolve
over time as we get more results from other crops.
What has been the key stumbling block to increasing sales of
KPFértil?
We do not consider there has been a "stumbling block" in the
sales rate of KPFértil. In the space of only several years, Harvest
has progressed from a grass roots discovery to breakeven, with a
near term expectation of profitability. In the Board's eyes, this
is a remarkable achievement and one that has not been emulated by
any other small cap AIM quoted company that Harvest is aware
of.
During 2018, Harvest announced two sales contracts, which have
not performed as hoped; that has created an expectation gap, which
has disappointed the market. Whilst this is not satisfactory, it is
also old news in the context of the Company's evolution and
continuing to refer to that old news is not benefitting anyone.
Looking at the present and immediate future, the Company has
reached a sizeable sales run rate that it expects to improve on
next year as it reaches profitability. Ordinarily, a profitable,
dividend-paying company, which Harvest is targeting, will be
re-rated by the market as it meets the investment criteria of a
broader investor base.
Do you think you've got the right sales & marketing team in
place?
We believe our sales and marketing teams have done a great job
to date. As market awareness of our product develops, we expect to
expand these teams and efforts.
PERMITS & CERTIFICATIONS
Do you know what the delay to the Mining Permit has been?
Our application for a Mining Permit is in progress. The
Environmental Permit was the last component required for the Mining
Permit. Everything else has been signed off and we are at the last
stage of the process awaiting the final signature from the National
Mining Agency ('ANM').
Has your IBD certification lapsed?
No. It is current until November 2020 and is renewed
annually.
FINANCIAL
You've still got cash in the bank. What are you planning on
using this for?
We are very fortunate to have cash in the bank. These funds
provide the necessary working capital support required to build out
the business to profitability and beyond that allow us the luxury
to consider growth opportunities. As mentioned in our recent
trading statement, we expect to record a maiden profit before tax
for CY2020.
How much value is there in tax losses (A$14m) and how/when might
they be utilised, if at all?
Ordinarily (and subject to professional tax advice), the tax
losses will be recouped by future profits. On the face of it, that
makes them valuable as we move into a profitable phase.
What cost initiatives are being taken and how much might they
yield in terms of cost savings?
As mentioned in our recent RNS, cost initiatives are ongoing and
will be reported on in late Q1, CY2020.
The Company recorded revenue of A$1.6m, but receivables are
A$1.3m - what is the aging analysis of receivables and when do you
expect payment thereof?
As mentioned in our recent RNS, we expect the working capital
cycle to conclude in Q2, CY2020.
Of the A$3m of opex (ex Geocicio impairment), it seems that
consultants' fees, directors' fees and wages and SBC account for
A$2.5m. How much of this is recurrent and how much is one-off? What
is the anticipated run rate going forward?
As mentioned in our recent RNS, breakeven is approximately
US$2.4m, which represents the annual, all-in total cost of
production, overhead etc. As also mentioned, we will be announcing
a costs savings initiative, which will see this number reduce.
What currency is the A$9.5m cash held in?
The operational currencies of the Company are USD, GBP and
Brazilian Reis. Funds are held in these currencies as required.
Please refer to the Company's annual results for more details.
Can you explain and elaborate on the 'Deferred exploration and
evaluation expenditure'?
This amount is the capitalised cost of the investment in
exploration projects.
The anticipated fall in COGS on a unit basis from US$12/t to
US$8/t.... this implies some level of fixed cost in the operations.
What is that fixed cost? What percentage of COGS is fixed and how
much variable currently?
Operational costs decrease from efficiencies gained by
processing larger volumes.
PP&E depreciation rate is 33%. Opening PP&E was A$485k,
so wouldn't depreciation be at least A$160k (0.33 x $485k)?
The depreciation charge is itemised in the annual accounts
Even excluding the A$747k of PP&E additions. Yet it was
lower than this at A$125k. How so?
Opening PP&E will be A$1.1m at end June. That implies a
higher depreciation charge for the next period. Has that been
factored into the breakeven/profit estimate?
Depreciation is a non-cash item and is not considered as part of
our consideration of cash flow profitability or break even at this
point. We make sufficient allowance for wear and tear and repairs
and maintenance and those costs are considered.
As a comment, the related Party Transactions look bad and, I
think, should be eliminated in future.
The related party transactions are all on terms equal to, or
better than, those available in the broader market. The reality is
that with a small cap company like this, cost efficiencies must be
achieved where possible and entering into transactions with certain
related parties, on appropriate terms, helps realise this.
How and when are the farmers paying for the product?
The farmers pay in cash. The timing of payments depends on the
individual trade terms we have negotiated with them.
GENERAL
Will political events outside of Brazil have any effect on the
Company?
We believe that the demand for food generated by our customers
will only increase. Our customers have indicated that the desire
for a local organic fertiliser product is strong and as such we see
these factors being somewhat immune to broader macro
influences.
Can you hold the AGM in the UK?
Harvest is an Australian company governed by the Australian
Corporations Act, which means that it is appropriate that the
formalities of its AGM be conducted in Australia. Despite this,
Harvest is opening other forums (such as this Q&A and a
forthcoming investor event) to allow shareholders the opportunity
to ask questions and interact with management. The Company is also
available at info@harvestminerals.net if any questions arise.
Is the Company vulnerable to a takeover and if so, how can you
prevent this?
Any Company at any time can be the subject to a takeover.
Whether we would welcome that or seek to prevent it is a matter of
several conditions, including price and shareholders own views.
That bridge will be crossed at that time.
Since the Chairman took a large number of shares at 18p in the
placing, presumably expecting to eventually make a profit, why are
other executives not buying shares at the current price, when they
claim it is undervalued?
We continue to maintain that the Company is severely
undervalued. As the Chairman said recently, he believes strongly in
the future of Harvest. Until recently, the management team has been
in a "black out" period pending the release of the annual accounts.
The Company is aware that some junior level executives have
purchased stock in recent days following the end of this black out
period.
In a recent interview, Brian McMaster indicated that we could
expect more frequent shareholder communications during 2020
detailing business developments than has hitherto been the case.
Please can you confirm this?
We plan to increase our investor communications through regular
Q&A shareholder calls, presentations, YouTube videos and social
media updates.
*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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