You cannot make this stuff up. But here’s the state of affairs at Calgary-based Karnalyte Resources, a company “in the business of development and production of premium potash and magnesium products.”
Over the past year, Karnalyte has had four chief executives, two chief financial officers, a delay of more than three months in the release of its financials statements, the departure of some directors (including one this week), the imposition of a management cease-trade order (now lifted) and two dates for its annual meeting.
As well, after a long search to try and raise capital for its major development – the Wynyard Carnallite Project in Saskatchewan – it “has recorded a non-cash impairment expense of $59.1 million.” That asset, which is being “written off” because of the “current price environment” for potash, is now carried at $4 million.
Given the aforementioned litany of events, Karnalyte (market cap: $21 million) has attracted dissidents, the concerned shareholders. Robert Phinney — the company’s founder, former chief executive and its second-largest shareholder with a 14.60% stake — leads that group. He was removed the day after the 2014 annual meeting. Since then, two other chief executives have been hired and departed. The current chief executive, Stephen Goodman, was hired last November.
Relations between the two sides are less than cordial, indeed ugly.
The Phinney group has been active for more than four months — it called for a special shareholders meeting last December — and came together “to evaluate and pursue means of preserving and enhancing shareholder value.”
It claims to have the support of holders of 42.1% of the shares, including the 19.99% interest held by India’s Gujarat State Fertilizers and Chemicals. (It has an “off-take” agreement with Karnalyte.) The group says holders of about 59% of the shares “are supportive of an immediate reconstitution of the Board.
Karnalyte has responded, setting the record straight on the “inaccuracies and misrepresentations” made by the dissidents. Recently it started legal action against Phinney and his wife.
The competing stakeholders will meet at the June 23 annual meeting in Saskatoon. (The original meeting date was May 12.) The concerned shareholders have filed a circular (in March for the original annual meeting date); the company will be doing so in the future.
And the views are decidedly different. Karnalyte has decided, “it is not possible to finance and profitably construct and operate a potash production facility,” at the project. Accordingly, it has opted to suspend all activity at the site, not to do more development work and is considering trying to find a buyer. Calls to the company seeking comments weren’t returned.
The concerned shareholders have a different take. One week back they said the agreement with Gujarat State Fertilizers and Chemicals also includes “a proposed framework for raising funds required by the Company to implement the Company’s Wynyard Carnallite Project.”
Financing the project is not a new situation for Karnalyte. In late 2011, it announced a $115-million bought deal financing that didn’t close because the company couldn’t get a technical report cleared by the regulators in time. That cash (via the sale of shares priced at $13.30 a share) was the equity portion needed to construct the project.
bcritchley@nationalpost.com