Karnalyte Resources Inc T.KRN

Canaccord: Sell and $1.10 target for Karnalyte Resources

[hockeyguy123]

According to Canaccord Genuity:

https://app.box.com/s/l2jr98czg6x5scahsmfe

Karnalyte Resources

Rating: SELL

Target: C$1.10

AN UPDATE ON KARNALYTE RESOURCES

Investment recommendation

Following the release of the company’s updated financials Thursday evening and the announcement of a change in the CEO earlier this week, we are providing an update on the shares of Karnalyte Resources. The main hurdle facing the company today is the same issue that has plagued the company for the past few years – a lack of investor interest for funding potash juniors given the softer potash market backdrop. Unfortunately, we continue to believe that the equity markets are currently closed to the potash juniors today, and the best course of action may very well be to sell the company in its entirety versus the risk of not being able to finance the project.

Investment highlights

• Karnalyte Resources announced earlier this week that CEO Robin Phinney has been replaced by interim CEO Thomas Drolet, who is expected to lead the potash development company for 6-12 months, and during that time, will include the preparation of a strategic plan for the company going forward, the continuation of an active search for construction financing for Karnalyte's potash project, and to initiate the search for a permanent CEO to bring the project into full production.

• We had previously assumed that the earliest the asset could enter production was mid-2017. Given the ongoing difficulties in financing junior potash assets, we have pushed back our timeline assumption to a mid-2018 start-up.

Valuation

We continue to rate the shares of Karnalyte a SELL, but have lowered our target price to C$1.10 (from C$1.40), based upon 1x our NAVPS (15% discount rate) of C$1.08.