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Press release from CNW Group

KARNALYTE RESOURCES INC. ANNOUNCES FIRST QUARTER 2011 RESULTS

Thursday, May 12, 2011

KARNALYTE RESOURCES INC. ANNOUNCES FIRST QUARTER 2011 RESULTS17:38 EDT Thursday, May 12, 2011CALGARY, May 12 /CNW/ - Karnalyte Resources Inc. ("Karnalyte" or the "Corporation") (TSX: KRN) today announced its financial results and operational highlights for the quarter ended March 31, 2011."This quarter, Karnalyte accomplished several key goals that are essential to the progression of the Wynyard Carnalite Project," said Robin Phinney, President and CEO of Karnalyte Resources Inc. "The Subsurface Mineral Lease we obtained encompasses the area for the Environmental Impact Statement and feasibility study that Foster Wheeler, GeoEngineers and ERCOSPLAN will complete this year. The drilling licenses we received enable us to continue the exploration and development of our lease and permit holdings so that we may prepare for the construction of a commercial potash facility and pursue additional potash resources."Karnalyte's First Quarter 2011 Financial Statements and Management's Discussion and Analysis (MD&A) are available at www.sedar.com.Selected HighlightsClosed the over-allotment option granted in connection with its December 2010 initial public offering in January 2011, raising an additional $4,042,000 for total gross proceeds of more than $64 million;Selected engineering firm, Foster Wheeler, in January 2011, to lead the feasibility study, in conjunction with GeoEngineers Inc. and ERCOSPLAN Ingenieurgesellschaft Geotechnik und Bergbau mbH;Completed two drill holes required for the feasibility study, which are currently undergoing caprock analysis;Received approval from the Government of Saskatchewan's Ministry of Energy and Resources in February 2011 to convert 16,825 acres of Karnalyte's Permit KP 360 area to a Subsurface Mineral Lease (KLSA-010); andReceived seven additional drilling licenses from the Province of Saskatchewan, permitting drilling and exploration of the Corporation's potash resources. To date, three of the seven drill holes have been completed.OutlookOver the short term, the Corporation will continue to focus on the following key initiatives:Pursuing completion of a third party feasibility study and filing the Environmental Impact Assessment;Finalizing the current drilling program and obtaining full analysis of drill cores;Continue exploration and development of its mineral holdings through additional 3D seismic analysis;Obtaining independent assays of product samples recovered from the pilot test facility; andOptimizing product quality in cooperation with machinery and equipment suppliers. KARNALYTE RESOURCES INC.BALANCE SHEET(Unaudited)ASSETS             As at   March 31,2011  December 31,2010  January 1,2010       Current assets       Cash $    56,384,392 $    59,000,457 $      2,490,823 Investments                         -                           -            6,147,759 Trade and other receivables             328,786               43,276            279,283 Prepaid expenses            814,275             312,865             216,949        57,527,453        59,356,598          9,134,814Restricted cash             125,000             125,000                         -  Capital assets          1,371,939             459,376            396,938Intangible exploration and evaluation and other assets      15,286,412        10,748,278          6,867,019       TOTAL ASSETS $    74,310,804 $    70,689,252 $    16,398,771       LIABILITIES             Current liabilities       Trade and other payables $      2,386,860 $      2,288,123 $        680,795 Current portion of capital lease liability                 6,904                 6,904                         -             2,393,764          2,295,027            680,795Capital lease liability                 5,178                 6,904                         -  Provisions            117,034             116,039                         -  Total liabilities         2,515,976          2,417,970             680,795       SHAREHOLDERS' EQUITY             Share capital        76,621,317        72,313,190       17,771,007Warrants and rights          1,260,227          1,273,605            293,494Contributed surplus           2,872,662         2,359,264                 6,161Deficit         (8,959,378)         (7,674,777)         (2,352,686)Total shareholders' equity        71,794,828        68,271,282        15,717,976       LIABILITIES AND SHAREHOLDERS' EQUITY $   74,310,804 $   70,689,252 $    16,398,771       KARNALYTE RESOURCES INC.    STATEMENTS OF LOSS AND COMPREHENSIVE LOSS    Three months ended March 31,(Unaudited)     2011 2010    Expenses    General and administrative$         810,425 $          610,796 Depreciation and amortization              56,656                10,221 Share-based payment expense             458,204           1,374,281          1,325,285           1,995,298Other (income) and expense    Other income              (60,668)               (15,864) Other expense                19,984                  2,165Net other income              (40,684)               (13,699)    Net and comprehensive loss         (1,284,601)          (1,981,599)    Loss per share    Basic and diluted$             (0.06) $            (0.16)    KARNALYTE RESOURCES INC.     STATEMENTS OF CASH FLOWS     Three months ended March 31,(Unaudited)                        2011                  2010Cash Flows from (used in) Operating Activities    Net loss for the period $    (1,284,601) $    (1,981,599)Items not involving cash:     Depreciation and amortization               56,656              10,221 Share-based payment expense             458,204        1,374,281 Net other income             (40,684)             (13,699) Interest and other income received               60,668              11,736Changes in non-cash working capital:     Trade and other receivables           (286,206)             (16,988) Trade and other payables               51,210             (97,252) Prepaid expenses               13,179                2,630            (971,574)           (710,670)     Cash Flows from (used in) Investing Activities    Additions to intangible assets        (4,372,419)        (1,090,998)Additions to capital assets           (959,736)             (55,436)Decrease in temporary investments                        -             139,541         (5,332,155)        (1,006,893)     Cash Flows from (used in) Financing Activities    Issuance of common shares          4,564,897              11,500Share issue costs           (858,244)                          -             3,706,653              11,500     Effect of foreign exchange on cash             (18,989)               (2,165)Change in cash        (2,616,065)        (1,708,228)Cash, beginning of period        59,000,457         2,490,823Cash and cash equivalents, end of period $    56,384,392   $        782,595About Karnalyte Resources Inc.Karnalyte is engaged in the business of exploration and development of high quality agricultural and industrial potash and magnesium products.  Karnalyte intends to develop and extract a carnallite - sylvite mineral deposit through a known solution mining process at competitive costs and with minimal environmental impact.  Using a staged approached to potash plant construction, the Corporation plans to operate a solution mining facility that will initially produce 500,000 tonnes of potash per year, increasing to 2 million tonnes of potash per year. Karnalyte owns a 100% interest in Permit KP 360 and Subsurface Mineral Lease KLSA-010 located near Wynyard, Saskatchewan, comprising a total of 85,126 acres.Forward-Looking StatementsThis press release contains forward-looking statements. More particularly, this press release contains statements concerning the Corporation's future operations. The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Karnalyte, including with respect to the Corporation's future operations. Although Karnalyte believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Karnalyte can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals, risks associated with the mining industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations. The forward-looking statements contained in this document are made as of the date hereof and Karnalyte undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.  For further information: Robin Phinney, President & Chief Executive Officer Ron Love, Chief Financial Officer & Vice-President Finance Julius Brinkman, Vice-President Corporate Development Telephone: (403) 995-6560 E-mail: info@karnalyte.com Website: www.karnalyte.com