FERTOZ LTD (ACN 145 951 622) Corporate Directory DIRECTORS Mr. Stuart Richardson Non-Executive Chairman (Appointed 2 December 2022) Non-Executive Director (Up to 1 December 2022) Mr. Patrick Avery Executive Director (Appointed 2 December 2022) Executive Chairman (Up to 1 December 2022) Mr. Greg West Non-Executive Director (Appointed 14 February 2022) Mr. Daniel Gleeson Managing Director (Appointed 2 December 2022) Mr. James Chisholm Non-Executive Director (Resigned 6 April 2022) Mr. Justyn Stedwell Non-Executive Director (Resigned 14 February 2022) COMPANY SECRETARY Mr. Justyn Stedwell (Resigned 4 February 2022) Ms. Nova Taylor (Appointed 4 February 2022) Ms. Rebecca Woodman (Appointed 4 February 2022. Resigned 7 June 2022) Mr. Max Crowley (Appointed 7 June 2022) REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS Level 5, 126 Phillip Street Sydney NSW 2000 SHARE REGISTER Automic Pty Ltd 477 Collins Street, Melbourne VIC 3000 Australia AUDITOR BDO Audit Pty Ltd Level 10 12 Creek Street Brisbane QLD 4000 CANADIAN LAWYERS Ontario Lawyers Petersen Law Professional Corporation 390 Bay Street, Suite 806 Toronto, Ontario, Canada, M5H AUSTRALIAN LAWYERS Delphi Partners Level 23, 307 Queen Street, Brisbane QLD 4000 BANKERS Commonwealth Bank of Australia STOCK EXCHANGE LISTING Australian Securities Exchange (FTZ) WEBSITE www.fertoz.com Contents Corporate Directory Chairman’s Message Operations Review Directors Report Auditor’s Independence Declaration Statement Of Profit Or Loss And Other Comprehensive Income Statement Of Financial Position Statement Of Changes In Equity Statement Of Cash Flows Notes To The Financial Statements Directors' Declaration Independent Auditor's Report To The Members Of Fertoz Limited Shareholder Information 2 4 6 10 30 34 35 36 37 38 64 66 72 Chairman's Letter Dear fellow shareholders, for Fertoz North America. Judy has more than 10 years of experience I am pleased to present the 2022 Annual Report for Fertoz Limited (ASX: FTZ) and provide an overview of our achievements for the financial year ended December 2022. in this role, working with several companies in North America and is a positive addition to the Fertoz team. In addition, Dylan Treadwell joined the organization as Mining & Operations manager, based in Canada, in February 2023, adding further experience to our management team. The past 12 months was a period of refocus including reviewing all aspects of the business under the direction and guidance of our newly appointed Managing Director/ CEO Daniel Gleeson, who commenced with Fertoz on 26 April 2022. Since then, Daniel has set about restructuring the organization in North America, and the building blocks Fertoz is looking forward to a solid and cashflow positive result in 2023. We have a forecast target of 40,000 tonnes sold (+200%) growth over the year and this is underwritten by inventory and known stockpiles of rock phosphate at Deerlodge, Montana. Operating costs are being addressed to improve gross margins, working towards a targeted 50% are now in place to significantly lift sales into 2023 and beyond, with a gross margin in 2023. laser focus on generating positive cashflow. In addition, 2023 should see material advancement in the carbon Key successes in 2022 included: reforestation project. • 20% YOY (2021 v 2022) growth in sold tonnes (12,000 tonnes). After raising $5 million in October 2022, our balance sheet remains well • Successfully launched the “Fertify” brand in a joint arrangement funded to achieve our goals. with Excel Industries, Montana, USA. • • • Initial orders of 18,000 tonnes of the pelleted NPK Fertify product received to December 2022. Restructuring of sales organization and strategy, additional support in operations and permitting, and appointment of USA- based CFO Emma Davidson. Further investments in storage facilities across North America and significant preparation of USA inventory for the start of 2023 which significantly reduced costs. • Continued to accelerate Fertoz’s entry into a reforestation carbon project in SE Asia, as well as expanding regenerative agricultural efforts in carbon-in-soil activities in Canada. I would like to thank our shareholders for your support in 2022, in particular those which participated in Fertoz’s capital raise, and I welcome new shareholders to our register. I would also take this opportunity to thank our Board, management team and staff led by Managing Director, Daniel Gleeson. All have contributed to positioning Fertoz Limited for an exciting 2023 and beyond. We have welcomed important new hires and the establishment of the joint operation with Excel Industries, whose combined skills and focus will assist in driving Fertoz towards profitability. I look forward to providing further updates on progress across our operations at Fertoz’s AGM which will be held in May 2023. • Signed a 10-year offtake agreement with a key Canadian Kind Regards, customer, with Fertoz expected to deliver 120,000 tonnes of rock phosphate in the first five years. Recapping 2022, Fertoz recorded a solid start to the year with record sales in Q1 and we achieved 20% growth in sold tonnage over the Stuart Richardson Chairman year, despite several factors impacting our second half results. It Fertoz Limited was disappointing that Fertoz was unsuccessful at securing further bulk permits to mine the Fernie deposit in British Columbia, Canada in FY 2022 which saw the Group “sold out” of Canadian inventory by September 2022. Remaining inventory was located at our Montana, USA facility and due to high transport costs was not economic to sell into Canada. Our management is confident in securing new mine permits in British Columbia, Canada in 2023 and remains optimistic that mining operations will commence in Fernie, British Columbia in late May. We established a new sales team based in the USA in late 2021/2022. This gives us confidence that our inventory in Montana will be sold in 2023, with mining of additional inventory expected to commence in June 2023 to support the growing demand from the USA customer base. Fertoz also restructured our permitting team and in December, we appointed Judy Matkaluk to lead mine permitting and regulatory affairs 4 ANNUAL REPORT 2022 5 Company Overview MISSION STATEMENT AND VISION Fertoz Limited (ASX: FTZ) is a sustainable land management company Fertoz partners with farmers and landowners to fundamentally which works with nature to provide solutions that help feed and improve improve agriculture and land management processes. our planet. Fertoz aims to become a leading provider of sustainable agricultural inputs for North America and a global developer of nature- Fertoz products improve soil health, increase plant based carbon projects. ESG Focus – social benefit creates value for all stakeholders. growth and thus sequester more carbon in the soil and in the plant, whether that soil and those plants are on farms or forests. Engagement with First Nations People and local communities is a key to We have a fertilizer inputs business and years of lab Fertoz’s projects and its success. Embracing its mission statement, Fertoz tests, soil tests, trials and actual production on farms – aims to improve livelihoods through better land management practices we can prove the benefits of using our products and we and traceability of food supply chains, ultimately reducing or eliminating now offer additional services in carbon management, the use of chemicals in the farming sector. Reforestation: the key focus carbon credit generation and trading. today in the carbon solutions division will empower communities and local villages with employment opportunities and provide funding streams (from carbon credit sales), which developed in consultation with the local communities will deliver key community infrastructure improvements. Fertoz’s Board and Management is focused on the needs of key stakeholders, farmers, partner groups, the environment, local communities as well as our employees and shareholders. . PLANET DEVELOPING THE FERTOZ CARBON DIVISION TO DIRECTLY COMBAT NEGATIVE EFFECTS OF CLIMATE CHANGE. Our products increase plant growth and thus CO2 sequestration; our products can be blended with synthetic/conventional fertilizers to reduce overall CO2 emissions (1t of nitrous oxide from conventional nitrogen fertilizers is equivalent to 296t of CO2) Importantly, our products contribute to a better environmental outcome through significant reductions in leaching of phosphorous into our waterways and the avoidance of phosphogypsum waste stacks (1 tonne of synthetic phosphate fertilizer creates 4 tonnes of waste) that contain radionuclides (radon) particles. GOVERNANCE 1. Fertoz has secured the majority of high-grade, low impurity IMPLEMENTING RISK MANAGEMENT POLICIES. rock phosphate deposits in North America and has had deposits COMPETITIVE ADVANTAGES certified organic by all the key Federal and State Authorities. 2. Our phosphate deposits/stockpiles contain significant tonnage to meet decades of anticipated supply and demand. PEOPLE DIVERSITY, INCLUSION, PAY EQUALITY, HEALTH, 3. Our facilities and contract processing throughout western North America are located close to a large grower base, thereby SAFETY AND EDUCATION. minimising logistic costs. PROSPERITY PARTNERING WITH STAKEHOLDERS TO ENSURE 4. Multiple crop and soil trials over the past decade gives us an important understanding and advantage to develop protocols for registration with carbon regulators focusing on plant and soil sequestration advantages utilising best practice regenerative and sustainable farming methods. 5. Fertoz is rapidly advancing carbon program protocols, contracts WEALTH DISTRIBUTION AND PERSONAL OPPORTUNITY. with our partner Trimble, and contracts with fertilizer dealers and growers that purchase our rock phosphate products. 6 ANNUAL REPORT 2022 ANNUAL REPORT 2022 OUR STRATEGY Fertoz’s vision is to become a leading provider of sustainable agricultural This foothold in the regenerative agricultural market has led to the inputs for North America and Australasia whilst delivering nature-based creation of our carbon project development division which provides solutions to soil health improvement and the removal of carbon from our atmosphere. Whether that is in the form of agricultural practices in Canada or reforestation in Southeast Asia, our objectives remain the same, which is high quality carbon credits that are measurable, verifiable, permanent, and unique. carbon projects. As a premium fertilizer provider that specializes in sustainable phosphate-based products, Fertoz is advancing its mining projects in the Wapiti and Fernie area of Canada, where it holds large, high-quality deposits of organic rock phosphate. In addition to this, we continue to secure long-term contracts with rock phosphate mines in the USA (Montana) and Mexico (Monterrey) to ensure consistent, high-quality supply throughout western North America. In addition, distributing fused magnesium calcium phosphate in Australia, New Zealand and the Philippines further supports our mission to provide solutions to regenerative practices which growers throughout the world are adopting. 7 Operations Review Fertilizer Fertoz reported a strong first half of 2022 with increasing fertilizer sales volume and revenue growth up 67% on the previous corresponding period (PCP). The fertilizer sector continued to grow at a rapid rate, in part due to the continued pricing pressure on synthetic fertilizers as a result of high energy, freight and labour prices as well continuing shortages of high-grade, low impurity phosphate within North America. Additionally, the transition towards sustainable fertilizers is being driven aggressively by government, ingredient companies, industry and growers alike. There is pressure from lithium iron phosphate battery Fertoz announced it had signed a 10-year contract to continue its rock phosphate operations from Deerlodge, Montana. Fertoz has been operating at Deerlodge with organic certification since 2018 under a five-year contract, which enabled it to establish its high-quality rock phosphate business. Rock material from Deerlodge has high phosphate levels with low metal content capable of organic certification. It is hauled from Deerlodge to Butte, Montana for crushing, screening and sizing by Fertoz’s processing partner. Fertify™ demand, which saw $2.6B of government investment in the USA During the year, Fertoz entered a joint arrangement (Fertify) with (announced in September 2022) and a dwindling supply of high-grade partner Excel Industries, based in Montana, USA, to build a fertilizer phosphate (>30%), which positions Fertoz resources as high value. pelleting plant. This will manufacture a fertilizer pellet product The 2H 2022 disappointed to the extent Fertoz was unable to secure permits to extract phosphate in Fernie, Canada. This certainly impacted sales in second half 2022 with lack of inventory in Canada to sell. Fertoz containing nitrogen, phosphorus and potassium (“NPK”) for the organic and regenerative agriculture market in North America. This market is expected to grow at more than 14% CAGR over the next five years2 . has employed a new head of Mining & Operations, who has a keen Fertoz will use material from Deerlodge in the Fertify fertilizer pellet focus to ensure we continuously develop permits and ensure we do production process. not have a situation where permits in any field season are not in good standing. A complete review of Fertoz’s processing facilities (contracted parties) was completed in late 2022/1Q 2023, which will result in a material improvement in 2023 gross margins. Management has made significant changes to operational procedures based on the 2022 result, and processing costs have been materially reduced going forward. Fertoz sees this as a first step to launching value added inputs to its high-grade, low impurity rock phosphate supply and developing higher margin sales. Strong sales are expected from this venture in 2023 and beyond, with forward order interest from farmers of 18,000 tonnes to be delivered in 2023. Fertoz has invested towards a more consistent supply chain flow to Carbon meet demand and customer satisfaction. This included new storage facilities in Montana which will store and process the current inventory in Montana and provide greater flexibility for processing in winter. This inventory investment is key to maintaining a reliable supply chain and Fertoz continues to advance positively on its reforestation project in SE Asia with a potential funding partner, ensuring that the project will withstand the rigorous environmental, social and investor scrutiny. retaining key customers and importantly facilitating sales 1H each year Fertoz continues to build a robust and sustainable approach that ahead of a season`s mining campaign. contributes to the success of this project and future projects the Fertoz’s sales strategy has also continued to evolve, with an increased Company expects to follow. focus on the large customer base within Montana, Idaho, Oregon and Carbon in agriculture that specifically targets the voluntary carbon North Dakota. We are targeting direct sales to corporate growers market in Canada continues to gather momentum. Growers, agronomy focused on alfalfa and hay production due to proximity of our supply groups and retailers are actively seeking Fertoz for signing up acres into and the need for cost effective, slow release phosphorous that improves contracts for both ‘No Till’ and ‘NERP’ protocols due to our efficiency, soil health. Having positioned our most recent sales team member in simplicity and reputation in the market. The targeted acres are trending Idaho, demand and interest in late 2022 has been very strong and will towards 1 million in 2023 for the combined protocols. be one of the building blocks for our objective to reach sales of 300,000 tonnes by 2026. With more than 50 million acres of harvested hay in the USA1 and 6 million acres of alfalfa in Montana, Idaho and the Dakotas alone, Fertoz is well positioned for sales growth in this region. Collaboration with key growers has the potential to support further project development in the area of high oil yielding winter cover crops such as specific breeds of canola that in turn will be processed into sustainable aviation fuel for several key companies. Further work Fertoz continues to look to expand the rock phosphate tonnage is being undertaken in this area with leading energy companies, and available and secured a new tenement in Canada after discovering Fertoz hopes to secure partnership agreements with the energy groups high-grade rock phosphate in the Fernie region of British Columbia. and large targeted farms to develop these winter crops. Current Initial drill holes down to a depth of 3-6m returned “field testing” grade government grants in Canada that support sustainable agriculture are of +25% P and low impurities (high-grade material). The deposit is being seen as an accelerator for intercropping programs, such as canola accessed from the surface, over approximately 25km strike length and and peas, which are fertilized with organic rock phosphate and nitrogen widths of typical 3-5m. Fertoz expects the new tenement to add easily from the peas and sown using ‘No Till’ methods further adding to the accessible phosphate material to its future supply capabilities to help Fertoz opportunity. meet growing demand. 1. https://hayandforage.com/article-2826-usda-nearly-everything-is-up.html 2. https://www.businesswire.com/news/home/20191216005341/en/Global-Organic- Fertilizers-Market-2019-2023-14-CAGR-Projection-Over-the-Next-Five-Years- Technavio 8 ANNUAL REPORT 2022 Initial trial results Fertoz ran with a major food ingredients company Current assets total approximately $5,967,785 and include inventory at in the September quarter showed a 17% increase in revenue to the cost of $1,226,915 . This inventory, after further minimal processing, is farmer (from $861/ac to $1008/ac) versus straight canola production, expected to have a gross sales value of $6 million and be sold in FY 2023. whilst delivering the raw materials crop to utilize in a sustainable fuel Current liabilities are $1,265,442 . Fertoz has a strong working capital source for energy companies. These trial results and more planned will position to commence the 2023 year. strengthen Fertoz`s ability to be a key input supply into this emerging Available cash balance at year-end amounted to $2,861,377 (2021: sustainable opportunity. Safety $5,196,846). Board Changes There were no lost time, injuries or environmental incidents recorded Daniel Gleeson was appointed as CEO in April 2022, and subsequently during the year ended 31 December 2022. appointed as Managing Director in December 2022. Greg West was also Outlook appointed a Director. Stuart Richardson transitioned to Non-Executive Chairman with Patrick The economic outlook for Fertoz remains positive as overall phosphate Avery stepping down as Executive Chairman to a role of Executive prices remain high despite decreasing prices for nitrogen and potassium. Director. Patrick Avery later shifted to a Non-Executive Director role This is in part due to the ongoing conflict in Ukraine as well as the block (February 2023). on exports from China which has historically traded significant volumes. Justyn Stedwell and James Chisholm resigned as directors in 2022. In addition to this, logistics costs remain high, emphasizing the strategic location of Fertoz’s operations in western North America. Fertoz expects a vastly improved financial result in 2023, starting with the $6 million (gross sales value) of available inventory at site in Montana, USA, and reduced costs of goods from lower partner processing costs enabling a budgeted cashflow positive result in FY2023. Confidence is supported with strong early customer demand based around strategic marketing campaigns for our rock phosphate and Fertify™ products and Fertoz is well positioned to start 2023 with record sales. CORPORATE Financials The loss for the consolidated entity after providing for income tax amounted to $4,215,190 (2021: $3,752,831). Sales for the year ended 31 December 2022 were 59% higher than the previous year, up from $2,243,501 to $3,556,807. This does not include receipt from sale of materials removed from the Company’s Fernie project in Alberta amounting to $828,627 (2021: $943,450), which are offset against the exploration and evaluation asset. The Group also spent $1,085,989 (2021: $988,418) on exploration expenditure during the year. Contributing to the loss were additional costs related to processing ore into a state ready for sale. This has been fully reviewed and significant changes have occurred within Fertoz operations to ensure a commercial return is achieved on every tonne of phosphate to be sold in the future. Staff have been replaced and cost savings will occur in staffing benefits in 2023. The 2022 statement of profit or loss and other comprehensive income and the loss recorded reflects these issues, mainly around elevated cost of goods and third party contractor costs. Management’s focus has been to attain significantly better pricing across all aspects of finishing the product for sale and this will in turn benefit operations and financial performance in FY2023. 9 Directors' Report For The Year Ended 31 December 2022 10 Directors' Report ANNUAL REPORT 2022 11 Directors' Report 12 Directors' Report ANNUAL REPORT 2022 13 Directors' Report 14 Directors' Report ANNUAL REPORT 2022 15 Directors' Report 16 Directors' Report ANNUAL REPORT 2022 17 Directors' Report 18 Directors' Report ANNUAL REPORT 2022 19 Directors' Report 20 Directors' Report ANNUAL REPORT 2022 21 Directors' Report 22 Directors' Report ANNUAL REPORT 2022 23 Directors' Report 24 Directors' Report ANNUAL REPORT 2022 25 Directors' Report 26 Directors' Report ANNUAL REPORT 2022 27 Directors' Report 28 ANNUAL REPORT 2022 29 Auditors’ Independence Declaration For The Year Ended 31 December 2022 30 Auditors’ Independence Declaration ANNUAL REPORT 2022 31 Consolidated Financial Statements For The Year Ended 31 December 2022 32 Consolidated Financial Statements ANNUAL REPORT 2022 34 35 36 37 38 64 66 72 33 Consolidated statement of profit or loss and other comprehensive income 34 Consolidated statement of financial position (As of 31 Dec 2022) ANNUAL REPORT 2022 35 Consolidated statement of changes in equity 36 Consolidated statement of cashflows ANNUAL REPORT 2022 37 Notes to the consolidated financial statements 38 Notes to the consolidated financial statements ANNUAL REPORT 2022 39 Notes to the consolidated financial statements 40 Notes to the consolidated financial statements ANNUAL REPORT 2022 41 Notes to the consolidated financial statements 42 Notes to the consolidated financial statements ANNUAL REPORT 2022 43 Notes to the consolidated financial statements 44 Notes to the consolidated financial statements ANNUAL REPORT 2022 45 Notes to the consolidated financial statements 46 Notes to the consolidated financial statements ANNUAL REPORT 2022 47 Notes to the consolidated financial statements 48 Notes to the consolidated financial statements ANNUAL REPORT 2022 49 Notes to the consolidated financial statements 50 Notes to the consolidated financial statements ANNUAL REPORT 2022 51 Notes to the consolidated financial statements 52 Notes to the consolidated financial statements ANNUAL REPORT 2022 53 Notes to the consolidated financial statements 54 Notes to the consolidated financial statements ANNUAL REPORT 2022 55 Notes to the consolidated financial statements 56 Notes to the consolidated financial statements ANNUAL REPORT 2022 57 Notes to the consolidated financial statements 58 Notes to the consolidated financial statements ANNUAL REPORT 2022 59 Notes to the consolidated financial statements 60 Notes to the consolidated financial statements ANNUAL REPORT 2022 61 Notes to the consolidated financial statements 62 Notes to the consolidated financial statements ANNUAL REPORT 2022 63 Directors' Declaration • 31 March 2023 64 ANNUAL REPORT 2022 65 Independent Auditors' Report For The Year Ended 31 December 2022 66 Independent Auditors’ Report ANNUAL REPORT 2022 67 Independent Auditors’ Report 68 Independent Auditors’ Report ANNUAL REPORT 2022 69 Independent Auditors’ Report 70 ANNUAL REPORT 2022 71 Shareholder Information 31 December 2022 72 Shareholder information ANNUAL REPORT 2022 73 Shareholder information 74 ANNUAL REPORT 2022 75
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