Karnalyte Resources Responds to Counterclaim by Phinney
CALGARY, ALBERTA--(Marketwired - May 1, 2015) - Karnalyte Resources Inc. ("Karnalyte" or the "Corporation") (TSX:KRN) responded today to the counterclaim and subsequent news release of Robin Phinney of April 29, 2015.In connection with these latest actions, Mr. Phinney also sought urgent injunctive relief. To avoid further unnecessary legal costs, the Corporation has provided an undertaking to Mr. Phinney in return for an agreement by Mr. Phinney not to pursue the injunction application on an urgent basis.
The Corporation has undertaken not to sell its Wynyard potash project and related mineral assets (specifically magnesium) prior to the upcoming shareholders' meeting without first seeking shareholder approval. The Corporation is of the view that the injunction application is unnecessary, because the original contracts between the Corporation and Gujarat State Fertilizers and Chemicals Ltd. ("GSFC") give GSFC a contractual veto over any such sale. Mr. Phinney negotiated those contracts and is now acting in concert with GSFC. However, the Corporation made the undertaking to spare shareholders of the Corporation the extra costs created by Mr. Phinney's injunction application.
The Corporation has also provided an undertaking not to declare or pay any special cash dividends before the upcoming shareholders' meeting. While the Corporation has not proposed to pay any such special dividend, it is troublesome that Mr. Phinney is seeking to restrict the Corporation from giving shareholders back their own money, especially since Karnalyte's shares have traded at significant discount to net cash value. Shareholders should note that Mr. Phinney acquired many of his shares in the Corporation as seed stock at a price of 1/10 of a cent per share - his financial interests are very different than those of other shareholders who have acquired their shares at much higher prices.
In addition, the Corporation invites Mr. Phinney and GSFC to explain their plans for increasing shareholder value by pursuing plans to advance the Wynyard potash project or an unproven magnesium concept. The publicly filed affidavit that accompanied Mr. Phinney's counter-claim against the Corporation includes a letter in which Mr. Phinney describes the Wynyard potash project as "uneconomic". As previously disclosed, GSFC's representative on the Corporation's Board of Directors voted in favour of writing down the Wynyard potash project to its salvage value. Mr. Phinney has also publicly stated that the Wynyard potash project is at a "proof of concept stage". Given all of these facts, the Corporation is concerned that spending any funds, beyond care and maintenance expenses, on the Wynyard potash project or the unproven magnesium concept, would destroy shareholder value.
In addition, Karnalyte requests that Mr. Phinney provide clarity around the terms of the "framework" agreement he has apparently entered into with GSFC to develop the Wynyard potash project and/or unproven magnesium deposit. Given the decline in potash prices and the write-off of the Wynyard project, it is difficult to see how any such agreement would be in the best interests of the Corporation or its shareholders other than GSFC.
The positions taken by Mr. Phinney and GSFC stand in stark contrast to recent actions by the Corporation and its directors who are independent of GSFC. Karnalyte's management and directors have taken decisive steps to remedy challenging conditions in the wake of Mr. Phinney's tenure at the Corporation. The true economic nature of the Wynyard project has been recognized with the write-down of the Wynyard project to its salvage value. The "burn rate" of the Corporation has been substantially reduced with the closure of the office in Saskatchewan and the termination of the employment of a number of employees, originally hired by Mr. Phinney with the support of GSFC, to advance the now uneconomic project. As indicated in previous news releases, the Board of Directors of the Corporation continues to evaluate alternative opportunities to enhance shareholder value.
Forward-Looking Statements
This press release contains forward-looking statements. The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Karnalyte. Although Karnalyte believes that the expectations and assumptions on which the forward-looking statements 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. Additional information on these and other factors that could affect Karnalyte's operations and financial results are included in documents on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). 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, except as expressly required by applicable securities laws.
Contact
Investors: Karnalyte Resources Inc.
Stephen Goodman
President & Chief Executive Officer
306-986-1482
info@karnalyte.com
www.karnalyte.com
Media: Longview Communications
Joel Shaffer
416-649-8006
