Keras Resources : 2023 Annual Report

Registered number: 07353748

KERAS RESOURCES PLC

ANNUAL REPORT

FOR THE YEAR ENDED 31 DECEMBER 2023

KERAS RESOURCES PLC
CONTENTS
	Pages
Company Information	1
Chairman's Statement	2
Strategic Report	5
The Board	12
Corporate Governance Statement	13
Directors' Report	16
Independent Auditor's Report to the Members of Keras	20
Resources PLC
Consolidated Statement of Comprehensive Income	26
Consolidated Statement of Financial Position	28
Consolidated Statement of Changes in Equity
- 31 December 2023	29
Consolidated Statement of Changes in Equity
- 31 December 2022	30
Consolidated Statement of Cash Flows	31
Company Statement of Financial Position	33
Company Statement of Changes in Equity	34
Notes to the Financial Statements	35

Throughout this document 'Keras', 'Keras Resources' or 'the Company' means Keras Resources PLC, 'the Group' means the Company and its subsidiaries and '$' or 'USD' means the United States dollar.

KERAS RESOURCES PLC
COMPANY INFORMATION
Directors:	R Lamming (Non-Executive Chairman)
	G Stacey (Chief Executive Officer)
	B Moritz (Non-Executive Director)
	C Parry (Non-Executive Director)
Company secretary:	B Moritz
Company number:	07353748
Registered office:	Coveham House,
	Downside Bridge Road,
	Cobham,
	Surrey
	KT11 3EP
Nominated advisor	SP Angel Corporate Finance LLP
and joint broker:	35-39 Maddox Street
	London W1S 2PP
Joint broker:	Shard Capital Partners LLP
	70 Mark Lane,
	London EC3R 7NQ
Solicitor:	Locke Lord (UK) LLP
	201 Bishopsgate
	London
	EC2M 3AB
Auditor:	MAH, Chartered Accountants
	154 Bishopsgate
	London
	EC2M 4LN
Registrars:	Share Registrars Limited
	3 The Millennium Centre
	Crosby Way
	Farnham
	Surrey
	GU9 7XX

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KERAS RESOURCES PLC

CHAIRMAN'S STATEMENT

I am pleased to provide an update on our progress since the last report and to set out our outlook for the business going forward.

2023 proved to be a year of consolidation for Keras post the 2022 acquisition of the outstanding 49% in Falcon Isle Resources Corp and Falcon Isle Holdings LLC (together "Falcon Isle") which owns the company's high-grade organic phosphate business in Utah, USA. The consolidation was underpinned by the cooperation agreement with the Republic of Togo (the "State") on 17 May 2023 when Keras agreed to waive its rights to the Nayéga Manganese mine ("Nayéga") in Northern Togo in return for a US$1.7m (one million seven hundred thousand United States dollars) cash consideration ("Consideration") and for ongoing advisory and brokerage fees described below.

The cooperation agreement marked the start of the Company's transition into a fully focussed North American business targeting the robust organic fertiliser market. The timing of the transaction was key with the Consideration funding the second US$800,000 tranche due on the acquisition of Falcon Isle in July 2023. Going forward and with operations now recommencing at Nayéga I believe the advisory and brokerage fees will provide significant support to the cashflow being generated from the Utah operations.

The 2023 consolidation was promptly followed by the conclusion of the PhoSul Utah LLC joint venture ("JV") and the acquisition of the property in Sutherland, 8 miles north of the town of Delta, Utah ("Delta Facility") on 22 January 2024 which now houses the Company's 100% owned processing hub with the new Integrated Granulator Plant ("Granulator Plant"). The JV agreement comprises a five year 50:50 JV between the Company's wholly owned subsidiary, Falcon Isle Resources Corp ("FIR") and PhoSul LLC ("PhoSul"), a specialised organic soil enhancement fertilizer company with granulator operations in Idaho, United States ("US"). PhoSul will fund the construction and commissioning of the Granulator Plant and the JV will produce a PhoSul® granulate comprising 80% of FIR's high grade organic rock phosphate from its Diamond Creek mine.

PhoSul® is currently being produced at the PhoSul LLC's processing facility in Sugar City, Idaho. Current demand for the product outweighs PhoSul's Idaho processing capacity so the JV's product will be delivering into an established market with significant scope for growth in the south western states.

I believe this transaction will prove to be one of the key inflection points in the Company's trajectory to becoming the premier, high grade, organic phosphate producer in North America.

Falcon Isle - Diamond Creek Phosphate Mine

Falcon Isle owns the fully permitted Diamond Creek phosphate mine ("Diamond Creek") located on an 840-acre Federal Lease located approximately 75 miles north-east of the recently acquired processing facility located in the farming town of Sutherland, 8 miles north of the town of Delta ("Delta Facility"), Utah.

On 3 June 2024 the Company announced that dry commissioning of the Granulator Plant had commenced. Given the scale of what was required to transition from an outsourced production and ownership model operating from three rental facilities to the Company's wholly owned, fully integrated production facility at Delta in just four months has been an outstanding achievement by the project team as well as the Company's supportive funding partners.

FIR continues to produce organically certified 10 mesh and 50 mesh dry sized products with total sales for Q1 2024 of 1,969 tons, a 109% increase relative to the 941 tons sold during the same period in 2023 (Q1 2022: 829t) and demonstrates evidence of the increased traction that the Company's high grade certified products are attracting in the organic market. It's key to

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KERAS RESOURCES PLC

CHAIRMAN'S STATEMENT

to note that at full production, the JV is expected to increase FIR's quarterly sales of 50 mesh by approximately 2,280 tons per quarter (a further 115% increase on the Q1 2024 sales -i.e. traditional sales plus sales to the JV), with 100% of the revenue from the sales to the JV attributable to FIR while also sharing 50% in of the profit from the PhoSul® product produced from this material.

Wet commissioning under load conditions with granulator binder fluids ("C2") which will initially comprise test granulation of Falcon Isle's rock phosphate before introducing the additional constituents of the PhoSul® final product, is nearing completion and I look forward to reporting on the commencement of commercial production at the Delta Facility in the coming weeks. In addition, in July2024 we expect to commence our mining season at Diamond Creek which takes place during the summer season from July to November 2024, while the mine site is free of snow.

Nayéga Manganese Mine / Togo

On 9 May 2024 the Company announced that activities have recommenced at Nayéga and the Republic of Togo (the "State"), through its 100% owned investment company Société Togolaise de Manganèse ("STM") is currently managing a public-private partnership award procedure ("Tender") to appoint a contractor to manage all activities at Nayéga. The State has already mobilised personnel at Nayéga to ensure that the infrastructure, including water pipelines and access roads are in operational condition to ensure timeous re-establishment of operations at Nayéga.

The services expected from the successful bidder include the management of all mining and processing activities at Nayéga and a total logistics solution from mine to port. The tender process closed on 7 June 2024.

The progress at Nayéga is very positive for Keras from an additional cashflow perspective and will underpin what has been a hugely productive 6 months at the Company's flagship operation in Utah, USA. The Company continues to keep in close contact with the Togo Ministry of Mines in its advisory role it agreed with the State in May 2023 and we look forward to updating shareholders on progress in the near future.

Financial review

The Consolidated Statement of Comprehensive Income for the year shows a loss of £446,000 (2022 - loss £997,000).

In January 2024 and May 2024 the Company issued convertible loans of £300,000 (at a conversion price of £0.04) and £597,805 (at a conversion price £0.0275) respectively. On the same dates Falcon Isle issued Promissory Notes of $350,000 (at a 7% per annum interest rate) and £597,805 (at an 8% per annum interest rate) respectively.

The cash for the January funding was from the Diane H. Grosso Credit Shelter Trust , an associate of 17% shareholder Chris Grosso and the cash for the May funding was from the Diane H. Grosso Credit Shelter Trust , Chris Grosso and an associate of his. Graham Stacey and I capitalised US$100,000 (GBP78,401) of outstanding fees each due from the Company on the same basis (50% in the form of Convertible Loans and 50% in the form of Promissory Notes).

The Directors of the Company have the authority to issue shares for cash up to a maximum nominal value of £165,000. The total nominal value required for the restructuring, including interest is £254,308, therefore the funding is being completed in 2 tranches. Tranche 1, using existing authorities requires a nominal value of £156,801 and for Tranche 2 the Company will propose a resolution at the 2024 AGM, to be held on 26 July 2024, authorising the Directors to issue shares for cash up to a maximum nominal value of £97,507 (which includes £36,924 for interest accrued over the 4 year tenure).

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KERAS RESOURCES PLC

CHAIRMAN'S STATEMENT

The proceeds of the January funding were used to acquire the 8.4-acre Delta Facility, now the hub of the US operations and the proceeds of the May funding will be used to pay the third tranche of US$800,000 of the cost of acquiring the former minority interest in Falcon Isle plus $100,000 of the final severance payment payable to the previous CEO of Falcon Isle, and for general working capital.

The restructuring of the Company's short-term liabilities reduced the impact of a pure equity raise and ensures that the Company can meet its current obligations without negatively impacting the long-term growth profile at the high-grade organic phosphate business in Utah, USA.

Outlook

As discussed above, 2023 was very much a year of consolidation and transformation into a 100% owned, fully funded and excellently positioned business to deliver into the growing North American organic agricultural sector. This sector is underpinned by the macro-economic tailwinds of the global fertiliser markets, and we remain bullish on our premium phosphate product and our position as we continue to build market share.

Falcon Isle has broadened its product mix through the incorporation of the PhoSul Utah LLC JV which will produce the PhoSul® granulate comprising 80% of FIR's high grade organic rock phosphate from its Diamond Creek mine whilst still producing the traditional dry sized products. The growth in year to year sales of these traditional products has increased significantly as seen by the Q1 2024 sales but we expect a step change not only through the "internal" sales to the JV but the knock on effects from the sale of the PhoSul® granulate comprising 80% of our high grade organic PhosAgri #50 mesh product.

The Directors are confident that Falcon Isle will be an increasingly profitable and valuable asset for the Group, and we look forward to updating our shareholders on our progress as we continue to ramp up production and build our position and market share of the fast-growing US organic phosphate market. With this envisaged growth, the Company is actively looking at new projects both in Utah and surrounding states to augment the 23,500 tons per year capacity from the Diamond Creek mine.

Finally, I would like to take this opportunity to thank my colleagues on the Board and our management team for their hard work, and shareholders for their continuing support.

Russell Lamming

Chairman

26 June 2024

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KERAS RESOURCES PLC

STRATEGIC REPORT

Our stated objective is to become the premier producer of organic rock phosphate fertilizer products in the United States ("US"). This remains our firm objective having Increased our ownership of Falcon Isle to 100% on 30 March 2022, putting us in sole control of how we achieve our objective in the rock phosphate sector of the organic fertilizer market in the US. 2023 was a challenging year, with an unusually long winter leading to a late spring planting season impacting our primary markets in the western states of the US specifically the Central Valley of California. Mining operations were also impacted as the Diamond Creek Mine remained covered in snow into June. Despite this slow start to the year we were pleased to grow our sales from 4,276t during 2022 to 4,606t during 2023, a marginal improvement, however given the conditions we were not unhappy with that outcome.

From a strategic point of view, relying on sales growth of our milled dry products alone would not deliver the material sales and profitability growth goals set by the Company. The longstanding commitment to deliver our granulator plant remained a key objective to grow sales volumes and diversify our product range and as previously noted we've been in discussions with two organic fertilizer blending customers to produce a granulate with our rock phosphate being the key ingredient. After receiving consistent orders from PhoSul LLC ("PhoSul"), a specialist organic fertilizer producer based out of Sugar City Idaho, during Q4 of 2023, we commenced negotiating agreements towards the formation of a joint venture ("JV") to produce PhoSul®, a trademarked organic granulated fertilizer blend with extensive laboratory and field tests demonstrating the growth and yield benefits of the product by enhancing the availability of P2O5 which has typically been a challenge in the organic fertilizer space. PhoSul is a subsidiary of Propeat LLC which produces a range of potash/peat based products through its pan granulator plant in Idaho. Given the demand for Propeat granulates, plant capacity constraints led PhoSul to search for a strategic partner which initiated discussions with Falcon Isle knowing that we possessed an as-yet unconstructed granulator plant, as well as high-grade rock phosphate ore, an 80% constituent of the PhoSul® product.

In the course of finalising the PhoSul Utah LLC ("PhoSul Utah") JV agreements it became clear to us that there was a risk that the Spanish Fork property may be rezoned to residential/commercial status and at some point in the future potentially putting a 5 year JV agreement at risk. This catalysed our need to find a new property without these limitations and we succeeded in finding a property outside of the town of Delta which provided for all the requirements of the PhoSul Utah JV as well as for our own crushing & milling operations, and with space for expansion of the business in the future. The JV and Delta property acquisition were announced on 22 January 2024, involving the dismantling of FIR's Spanish Fork high pressure grinding rolls ("HPGR") milling plant and transport and reconstruction of both the HPGR milling plant and the granulator plant ("Integrated Plant") to the new Delta facility which commenced end-January 2024. Construction of the Integrated Plant commenced immediately with commissioning in June, and production of material for sale by the JV has now commenced.

FIR expects to supply the JV with a steadily increasing tonnage of Diamond Creek's high grade, 50 mesh organic PhosAgri product during the course of 2024 and into 2025 as we expand operations at the Integrated Plant to continuous operations to an estimated 10,500 tons of PhosAgri annually when the JV is expected to be fully operational in Q1 2025, which will be priced at a marginal discount to FIR's normal selling price. Post commissioning, 2024 will remain a building phase as we refine the production of PhoSul®, however the specific intention of entering into the PhoSul Utah LLC JV is to more than double FIR's annual turnover at steady- state operations, and in addition FIR will be entitled to 50% of the profits of the JV.

Our short- to medium-term strategy is therefore to continue milling our crushed run of mine ("ROM") ore through the mobile Prosizer horizontal impact milling and screening unit, and more importantly to optimise the operation of the Integrated Plant at our new Delta facility. Falcon

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KERAS RESOURCES PLC

STRATEGIC REPORT

Isle will retain the marketing & logistics functions of our own dry milled products (10, 50, and 350 mesh), with marketing of the PhoSul® product being handled by PhoSul LLC with our assistance on the logistics fronts.

In addition, we will continue to pursue the potential presented by liquid products, through the solubilising and/or microbial/bacterial digestion of our finer 100 mesh or 350 mesh products for use in liquid blends in fertigation (drip fed irrigation) and hydroponic applications. The application of liquid organic products at higher available phosphate (P2O5) (results from testwork conducted with industry experts Agrothrive LLC suggests potential for >20% available P2O5from our micronized 350 mesh product) ensures quicker absorption, provides for tighter quality control, reduces losses in the application processes and provides us with access to a rapidly growing indoor controlled environment agricultural ('CEA') sector.

In addition to organic expansion we are actively pursuing new phosphate leases which will enable capacity growth in the organic space but also the potential production of purified phosphoric acid ("PPA") for downstream application in the production of lithium iron phosphate ("LFP") battery cathodes. Energy intensive extraction methods used to date are being replaced with significantly lower energy consumption processes to produce equivalent grade PPA. LFP batteries are very much part of the carbon-neutral drive of our planet and phosphorous will play an important role in developments in this space.

Togo

As previously announced, we disposed of our intellectual knowledge including all exploration and feasibility work completed on the project, as well as the detailed results of the 10,000 tonne bulk sample completed from the Nayéga Project in June 2019 to the Togolese State. Under the disposal agreement Keras will be paid a 1.5% advisory services fee for a 3-year period from first sales, as well as a 6% brokerage services on gross revenue generated from the Nayéga Mine for the lesser of 3.5 years or 900,000 (nine hundred thousand) tonnes of beneficiated manganese ore produced and sold from Nayéga. As set out in the Chairman's Statement, steps have now been taken to commence the re-commissioning of the mine, and we expect to see cash flows from the advisory and brokerage services provided to the newly established Société Togolaise de Manganèse ("STM"), the State owned entity which will operate the Nayéga Mine.

In the interim, the Group disposed of its 85% shareholding in Société Général des Mines ("SGM") for a nominal consideration prior to the close of FY2023, so that Keras no longer holds any assets in Togo other than through the advisory and brokerage fee agreements referred to above.

From the Company's point of view, disposing of our interest in SGM allows us to concentrate our efforts in the US.

Mining projects

United States

Keras acquired a 51% interest in Falcon Isle, holder of the Diamond Creek phosphate mine and associated processing facilities, in December 2020 and subsequently acquired the outstanding 49% in March 2022. The mine is situated approximately 80km SSE of Salt Lake City, Utah. Diamond Creek is a fully permitted, high-grade direct shipping ore ('DSO'), low capex organic phosphate mine, which has significant historical estimated in-situ tonnage (these estimates have not been classified according to modern International Reporting Standards but have been based on sampling of surface outcrops) with sufficient phosphate ore exposed in-situ to provide for the 2024 mining season before any overburden stripping is required. The phosphate mineralisation is concentrated in the sedimentary shale beds at the base of the

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KERAS RESOURCES PLC

STRATEGIC REPORT

Meade Peak Member of the Phosphoria Formation. The mineralised zone is approximately 2.5m thick and averages 23% total P2O5with guaranteed available P2O5of 12%. Historic reports vary with "surface mineable resources" ranging from 3.10Mt to 4.60Mt. At an internally estimated peak production rate of 23.5ktpa, the opencast resources alone represent a significant mine life.

The 2023 mining campaign was completed in October 2023 with a total of 3,000 ore tons extracted from the pit. Primary crushing during the reporting period was undertaken using a contractor-operated mobile jaw crusher at the mine laydown site, with downstream processing conducted through a combination of contractor toll-milling (Prosizer producing 10mesh and -50mesh products) and Falcon Isle owned HPGR milling plant comprising front- end feed, primary crush, milling, ultra-fine dust extraction, 50lb and 1ton bagging circuits to produce -100 mesh and -350 mesh powders. As noted previously FIR's granulation plant has now been relocated to our newly acquired Delta Processing Facility where construction is nearing completion in collaboration with our JV partner PhoSul.

It was our initial intention to construct the granulator plant in a building adjacent to our former milling plant in Spanish Fork, however as we've established ourselves in the organic agricultural sector it became apparent that we could extract greater value from a blended granulate incorporating additional critical elements proven to improve growth and yields across a range of agricultural crops. The PhoSul® product is trademarked and has been subjected to extensive laboratory and field trials to demonstrate its efficacy at improving the availability of P2O5 from Falcon Isle's rock phosphate.

Our internal rock phosphate products have received Organic Certification by all three key certification agencies in the USA - California ('CDFA'), Washington State ('WSDA') and the federal Organic Materials Review Institute ('OMRI'), as well as Registration in Oregon. As a Direct Shipping Ore ('DSO') it requires no chemical/synthetic upgrade processes which is the basis for our organic certification. Our rock phosphate contains acceptable heavy metal impurities, significantly higher available P2O5than any other organic rock phosphate in North America, and a calcium content of >25%. PhoSul®, which we will commence producing during Q2 of 2024 is similarly being certified through the key state and federal agencies to enable organic sales country-wide.

Sustainability

Keras is committed to responsible mining and upholding ESG best practice across our business. We are similarly committed to our stakeholders and are focused on looking to create value and benefits for all whilst seeking to manage and mitigate the potential impacts that our operations may have. We are focussed on mining an essential resource that can contribute to a more sustainable future and importantly sustainable and regenerative agriculture. With the Diamond Creek mine, we are now moving towards running a more lucrative operation including production of granulated fertilizer through the PhoSul Utah JV. Our own business model involving only crushing & milling remains relatively straightforward and we remain focused on meeting our commitments across the ESG space and will continue to be proactive in this area as we look to develop and sustain a positive legacy.

Risk Management

The Board regularly reviews the risks to which the Group is exposed and ensures through its meetings and regular reporting that these risks are minimised as far as possible. The principal risks and uncertainties facing the Group at this stage in its development are:

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KERAS RESOURCES PLC

STRATEGIC REPORT

Market Risk

Unlike marketing globally traded, indexed commodities into international markets, growing market share within the niche organic fertiliser market within North America presents risk in terms of pricing and volume.

The business has a broad range of existing customers, three of which are anchor clients having provided commitments to purchase a pleasing base load of our planned annual production. Our marketing strategy rollout will include presence at industry trade exhibitions and conferences, as well as regular regional direct contact visits with a comprehensive schedule of contacts within the wholesale and distribution segments of the organic fertiliser market. Our business model will largely be driven by uptake from co-operative clients with wide distribution networks, rather than selling directly to farmers themselves.

Exploration Risk

The Group's business has been primarily mineral exploration and evaluation which are speculative activities and whilst the Directors are satisfied that good progress is being made, there is no certainty that the Group will be successful in the definition of economic mineral resources, nor that it will proceed to the development of any of its projects or otherwise realise their value.

The Group aims to mitigate this risk when evaluating new business opportunities by targeting areas of potential where there is at least some reliable historical sampling, drilling or more detailed geological data available.

Resource Risk

All mineral projects carry risk associated with defined grade and continuity. Mineral resources and reserves are calculated by the Group in accordance with accepted industry standards and codes but are always subject to uncertainties in the underlying assumptions which include geological projection and commodity price assumptions. The Group reports exploration targets, mineral resources and ore reserves in accordance with internationally approved codes where our operations/projects are located, which set minimum standards for public reporting of mineral exploration results, mineral resources and ore reserves.

Development Risk

Delays in permitting, financing and commissioning a project may result in delays to the Group meeting development and/or production targets. Changes in commodity prices can affect the economic viability of mining projects and affect decisions on continuing exploration activity.

Mining and Processing Technical Risk

Notwithstanding the completion of metallurgical testwork, trial mining and pilot studies indicating the technical viability of a mining operation, variations in mineralogy, mineral continuity, ground stability, ground water conditions and other geological conditions may still render a mining and processing operation economically or technically non-viable. The Group has a small team of mining professionals experienced in geological evaluation, exploration, financing and development of mining projects. To mitigate development risk, the Group supplements this from time to time with engagement of external expert consultants and contractors.

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