TIDMHNR
RNS Number : 3494T
Highlands Natural Resources PLC
19 March 2019
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED BY
HIGHLANDS TO CONSTITUTE INSIDE INFORMATION AS STIPULATED UNDER THE
MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR"). ON THE
PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION
SERVICE ("RIS"), THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN
THE PUBLIC DOMAIN.
19 March 2019
Highlands Natural Resources plc ('Highlands' or 'the
Company')
Fundraising to establish an organic cannabidiol operation
Highlands, the London-listed natural resources company, is
pleased to announce a fundraising to raise a minimum of GBP1.27
million via a subscription for ordinary shares of 1 pence each
("Ordinary Shares") (the "Subscription") and an offer for Ordinary
Shares via PrimaryBid.com (the "PrimaryBid Offer") at a price of
8.5 pence (the "Issue Price") (together the "Fundraising"). The
funds raised will be used to establish an organic, vertically
integrated cannabidiol ("CBD") operation in Colorado, USA, through
a newly established and wholly-owned Highlands subsidiary, Zoetic
Organics.
This initiative follows the completion of a recent trial, which
saw hydrogen from Highlands' rare naturally occurring gas operation
in Kansas, discovered during the summer of 2018, applied as a
natural, organic fertiliser at a cannabis operation in Colorado.
Encouragingly, the gas mixture increased plant size, height, root
diameter and flower count by up to 30%, surpassing
expectations.
The Company intends shortly to announce a proposed offer for
subscription via PrimaryBid providing an opportunity to new and
existing retail investors. A further announcement launching the
PrimaryBid Offer will be made shortly. The PrimaryBid Offer is
expected to begin at around 4:31 p.m. today and remain open until
9.00 p.m. on 19 March 2019.
Highlights
-- Zoetic Organics will target sales of organic hemp oil, retail
bottled tinctures, CBD-infused chewing pouches and pre-rolled
smokables into wholesale and retail channels
o Highlands expects first revenues by mid-2019 and profitability
by year end
-- A lease will be agreed over an extensive organic growing
operation, including a 33,000 sq ft indoor facility with a
potential 40,000 annual hemp plant capacity
o By 2020 Zoetic Organics proposes to plant a further 100 acres
outside, with a potential 250,000 annual hemp plant capacity which,
together with the development of new product lines, offers exciting
expansion potential
-- Highlands will appoint an experienced management team for Zoetic Organics and intends:
o To provide $2 million of start-up funding for the business
during the year; and
o To incentivise the team with 5 million warrants, exercisable
at the Issue Price at any time before 30 June 2019, and 12.9
million Ordinary Shares to be issued in 12 months' time
-- Low-cost entry into a rapidly growing market - growing hemp
in Colorado for CBD sales in that state is legal, and certain CBD
products are legal both in the USA and the UK (subject to legal and
regulatory compliance)
-- Near term focus on expanding hemp oil operations and developing the outdoor growing facility
-- Zoetic Organics will be developed alongside Highlands'
existing portfolio of assets - production from the 8 wells at East
Denver will cover the Company's overheads for 2019
Robert Price, Executive Chairman and CEO of Highlands, said:
"Zoetic Organics provides us with a compelling opportunity to enter
the rapidly growing CBD market at low cost and to secure for
shareholders the value that our large, rare and valuable gas
discovery creates for organic agricultural operations.
"This deal sees us bring our organic fertiliser together with
extensive growing operations, and we are delighted to have raised
these funds to expand and complete our new vertically integrated
operation in Colorado. Our immediate priority is to advance the
discussions currently underway with potential retail and wholesale
partners, purchase manufacturing equipment and expand our outdoor
growing, ahead of our intended harvest of our first 10,000 hemp
plants by mid-2019. Beyond this we will expand our harvest and
expand our product range.
"The CBD market is estimated by Brightfield Group to reach $22
billion by 2022. Zoetic Organic's operation will be totally organic
and sustainable, creating a key differentiator for our products. We
are very pleased to welcome our new Zoetic Organics team to
Highlands and look forward to generating revenues and profits
during the course of 2019."
Funding for Zoetic
Highlands estimates that the gross funding to establish Zoetic
will comprise:
-- Machinery: $500,000 for hemp oil distillation and pouch manufacturing machines
-- Initial cultivation start-up costs: $120,000 for purchases of hemp plants and indoor soil
-- Expansion of infrastructure: $150,000 for expanded gas and water infrastructure
-- Opex for year 1: $1.3 million of which the main items will be
salaries, grow supplies and utilities
In respect of the machinery, Highlands expects that the more
significant machines will be leased with a consequent net saving on
capital expenditure of approximately $300,000. Furthermore, noting
that Highlands expects Zoetic to be profitable by the end of the
year, the final quarter of operating expenditure is expected to be
largely self-funding.
Taking these factors into account, Highlands expects the net
cost to shareholders of starting up Zoetic to be in the region of
$1.5 million.
Zoetic Organics
Highlands Natural Resources has formed Zoetic Organics, a 100%
owned subsidiary, to establish a vertically integrated, organic and
sustainable CBD operation in Colorado.
During the summer of 2018, Highlands discovered a naturally
occurring source of nitrogen; which was subsequently found to
include hydrogen, making it a natural, organic fertiliser. During
autumn 2018, Highlands began selling this gas to an organic
cannabis grower and the results have surpassed expectations,
increasing plant size and production by up to 30%.
With this in mind, Highlands will enter into an agreement to
lease an extensive organic growing facility from a company which
has now ceased its cannabis operations. The management team have
previously operated that facility, bringing with them all the
skills and abilities for Zoetic Organics to commence operations
immediately. To incentivise the team, Highlands will issue them
with 5 million warrants, exercisable at the Issue Price at any time
before 30 June 2019, and will agree to issue a further 12.9 million
Ordinary Shares in 12 months' time. The Board believes that this
will ensure that it secures the benefit of the up to 30% yield
uplift for Highlands shareholders better than simply selling the
gas for a few $ per litre.
In a rapidly growing market (the US alone is forecast to be
worth $22 billion in three years), Zoetic Organics will seek to
distinguish itself by producing only premium, organic products. CBD
is becoming an increasingly mainstream supplement, which is
available in Boots, Holland & Barrett and other high street
stores in the UK.
Highlands plans to grow approximately 40,000 hemp plants per
annum in a 33,000 sq ft greenhouse (a minimum of 3 harvests per
year is anticipated). The land also includes the ability to grow
hemp outside and Highlands has a target to plant 20 acres this
year, equating to around 50,000 hemp plants, and rising to 100
acres in 2020 (250,000 hemp plants, one harvest per year).
Operating at full capacity in 2020 could see the business harvest
approximately 290,000 hemp plants in that year.
Highlands will target a yield of 12 grams of CBD per indoor
plant and 30 grams of CBD per outdoor plant. Estimated wholesale
prices are $3 per gram although the Board believes sales made
direct to retail channels could be at a premium of over 5 times
this.
The Board has no plans to grow any cannabis at Zoetic Organic's
facility. Zoetic Organics plans to grow only hemp, taking advantage
in particular of the regime being put in place under the 2018 US
Farm Bill.
The business is expected to generate first revenues in the
middle of 2019 and to be self-funding by the end of the year. The
Board has identified a range of opportunities to drive growth
through Zoetics Organics beyond this, including:
-- Expanding outdoor facilities
-- Expanding products for direct sale to retailers
-- Developing Zoetic as a premium brand
The PrimaryBid Offer
A further announcement will be made regarding the PrimaryBid
Offer shortly.
***S***
For further information:
Highlands Natural Resources plc
Robert Price +1 (0) 303 322 1066
Cantor Fitzgerald Europe
Nick Tulloch +44 (0) 20 7894 7000
David Porter
Keith, Bayley, Rogers & Co. Limited
Brinsley Holman +44 (0) 207 464 4098
Newgate Communications
Elisabeth Cowell +44 (0) 20 3757 6880
Fiona Norman
Notes to Editors
Highlands (LSE: HNR.L) is a London-listed natural resources
company with a portfolio of high-potential assets and technologies.
The Company's core projects include:
-- Colorado Shale: Highlands holds a 7.5% carried interest in
the East Denver Niobrara shale project. East Denver is currently
producing from eight wells, with the potential for up to 24 wells
in total. At its West Denver project, Highlands holds c.
5,300-acres of leases geologically similar to the East Denver
project. This division also includes its patented anti well-bashing
technology, DT Ultravert, successfully deployed in the Permian in
2018 and Piceance basins in 2016.
-- Kansas Gas Resource: 3,457-acres with the first well
producing nitrogen with an initial flow rate of 2,581 Mcfpd.
Potential for an additional 24 wells.
-- Highlands Water Resources: formed to facilitate a range of
initiatives focused on easing the water shortage currently being
experienced across the US oil and gas industry, and particularly
across more arid States such as Colorado. Utilises the E10X modular
solar powered water-recycling units. Highlands is also exploring
the potential to supply water from its 154,072 acreage in
Montana.
-- Zoetic Organics: newly formed subsidiary targeting the
production of premium organic CBD products into wholesale and
retail channels from a 33,000 sq. ft. indoor facility (potential
annual harvest of 40,000 hemp plants) and an initial 20-acre
outdoor growing facility (potential annual harvest of 50,000 hemp
plants).
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