Highlands Natural Resources PLC Trading Update (4419Y)

TIDMHNR

RNS Number : 4419Y

Highlands Natural Resources PLC

09 May 2019

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9 May 2019

Highlands Natural Resources plc

("Highlands" or the "Company")

Trading Update

Highlands, the London-listed natural resources company, is pleased to provide the following trading update on the progress at its East Denver project and Zoetic Organics ("Zoetic").

East Denver

Combined oil production from the eight producing wells is currently approximately 2,700 Bopd and combined gas production is currently approximately 4,000 Mcfpd. Highlands' operating partner continues to proceed with its conservative production strategy. Five of the new wells are being operated on a limited choke size of 25/64th inch with the sixth well at 29/64th inch.

The limited choke size is based on a considered methodology focused on maintaining well pressure and extending the well lives. It is anticipated that the chokes will be opened further in the coming weeks with the objective of maintaining a steady production at around 10% above current levels.

Notwithstanding the current flow rates, Highlands' 7.5% carried interest in the project is generating monthly revenue in excess of the Company's fixed operating costs (which includes expense items such as office costs, payroll and professional fees). Highlands also incurs certain variable and discretionary expenditure in relation to the operation of its other projects but the Company is developing two additional revenue streams: the sale of nitrogen in Kansas in conjunction with a local partner and imminent retail sales of a range of CBD (the naturally occurring compound found in the cannabis flower) products by Zoetic, the Company's wholly owned subsidiary, as described in more detail below.

Taking account of the expected revenues from these additional sources (but before the revenues from Zoetic's crops as described below), the Board remains of the view that the Company will generate sufficient cash flow to cover all overheads for the current year.

Zoetic Organics

Zoetic has been advancing its retail strategy for its Zoetic-branded CBD products. First deliveries manufactured from the current operations will be made to Schrader Oil convenience stores this month. This means that initial revenues will be recognised in June.

Zoetic has also established its own direct-to-retail website and further details will be announced when sales on that site go live. Highlands and Zoetic continue to actively develop new products and identify further sales and distribution channels, including other specialist stores, and Zoetic will continue to source the raw materials from Colorado wholesalers pending its own production.

Planting of hemp outdoors is now underway. Having refined its plans since the previous investor update in March 2019, the Zoetic team is proposing to plant two eight-acre fields. The planting density, the ability to sell the non-flower parts of the plant as biomass and current flower prices means that the revenue potential for Zoetic's outdoor crops this year is estimated to be an improvement on the previous plan.

Management considers the deadline for planting this year's crop to be 30 June 2019 but anticipates finishing its work well before that date.

Management also plans to deliver an additional revenue stream to this business, having evolved its strategy for plants at its 33,000 sq ft greenhouse. In addition to growing plants for CBD production exclusively, Zoetic also intends to produce feminised hemp seeds for sale to other hemp producers.

The greenhouse's capacity is up to 10,000 plants per season and a well-managed plant has the potential to produce in excess of 500 seeds. Whilst the growing cycle for seed production is marginally longer, management believe that not less than three seasons per annum is achievable. The Zoetic management team believes that the controlled conditions in the greenhouse, and the supply of Highlands' proprietary nitrogen-hydrogen gaseous fertiliser, has the potential to establish a robust seed-production operation. This provides Zoetic with a growth opportunity materially in excess of the previous plan outlined to investors. Zoetic's management team is currently working on the most suitable strains of hemp for seed production.

Demand for high quality seeds is very strong as the hemp and CBD industries continue to expand, and it is not unusual for the most sought after seeds to retail at up to $1 each. Seed producers do typically incur costs associated with laboratory testing, storage, seed-broker fees and quality control initiatives and Highlands has factored these into Zoetic's business plan.

A seed production strategy has a timing implication on revenue. Growers typically do not purchase seeds until planting time and so, whilst Zoetic's seed production can be carried out all year-round, revenue will be weighted towards the last quarter of Highlands' financial year.

Robert Price, Executive Chairman and CEO of Highlands, said: "The progress made by Zoetic since we established this operation less than two months ago has been excellent. From a standing start, we have three revenue lines underway within the Zoetic business and I look forward to providing further updates as our retail sales develop. This is a fast-moving industry but the combination of our facilities and innovative management team has enabled us to take a flexible approach which I am confident will deliver good returns to our shareholders in the years to come. In the meantime, our East Denver project is being operated to the highest standards and providing regular revenue to Highlands."

**ENDS**

Enquiries

Highlands Natural Resources plc [phone]

Robert Price

Nick Tulloch

Cantor Fitzgerald Europe [phone]

David Porter

Newgate Communications [phone]

Elisabeth Cowell

Fiona Norman

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May 09, 2019 02:00 ET (06:00 GMT)