Karnalyte Resources Inc. Completes Nitrogen Prefeasibility Study

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SASKATOON, July 21, 2020 - Karnalyte Resources Inc. ("Karnalyte" or the "Company") (TSX: KRN) announces that it has completed its previously-announced nitrogen prefeasibility study and that it will continue its disciplined consideration of the Proteos Nitrogen Project. The nitrogen prefeasibility study is part of the ongoing strategic planning process of the Board and management in charting the future for the Company.

With input from local advisors in Canada, including Wood Canada, the prefeasibility study was initially prepared by Karnalyte's strategic partner and largest investor, Gujarat State Fertilizers and Chemicals Limited ("GSFC"), and ultimately updated and completed by Karnalyte. GSFC is India's premier fertilizer and chemical manufacturing company and has over five decades of relevant experience in the production, sale and distribution of nitrogen fertilizer.

The prefeasibility study provided a review of key elements of the project, including site location, production process and technology options, process selection for both the ammonia and urea plants, and an analysis of raw material, utility and product specifications. The study also considered the environmental implications and risks inherent in the project, provided financial analysis and laid out a project implementation plan and schedule. While the prefeasibility study is not sufficient to conclusively arrive at a project execution decision, it allows the Company to determine whether the Proteos Nitrogen Project should remain in consideration as part of the Company's future business strategy.

The prefeasibility study's key conclusions included:

• the preliminary economic viability of the Proteos Nitrogen Project, with an internal rate of return and equity rate of return that approaches Company benchmarks, based on the average pricing over the past four years for bulk urea and ammonia;
• potential market growth of urea in Saskatchewan to approximately 2.64 million tonnes, up from current demand estimates of approximately 1.2 million tonnes, based on Government of Saskatchewan information; and
• the project's implementation is expected to require three years following the preparation of a detailed project report and assuming a positive investment decision and commencement of construction by Karnalyte.

While Karnalyte is encouraged by the results of the prefeasibility study, Karnalyte will continue to consider the Proteos Nitrogen Project with discipline and caution. As previously announced, Karnalyte intends to engage an independent strategic consultant. Karnalyte will now include the consideration of the Proteos Nitrogen Project in the scope of work required from the strategic consultant who, in the course of its full review of Karnalyte's strategic options, will independently review the prefeasibility study.

Readers should not place undue reliance on the above-noted preliminary conclusions of the prefeasibility study.

BACKGROUND TO THE PREFEASIBILITY STUDY

The idea for the Proteos Nitrogen Project was first announced in the spring of 2018. At that time the Company announced that with the help of its strategic partner, GSFC, it would invite expressions of interest to help the Company understand the capital required to develop the project in Saskatchewan and explore the viability of the Proteos Nitrogen Project. The various expressions of interest the Company received provided a wide range of estimation of capital required to develop the project where the difference between the lowest and highest estimated capital costs equalled approximately $1 billion. The Company also considered engaging an independent third party to prepare a feasibility study of the Proteos Nitrogen Project. The cost estimates received for the requisite work, however, were between $2 and $5 million.

After a change in management in the fall of 2019, and recognizing that stakeholders had not received a meaningful update on the Proteos Nitrogen Project until that time, the current Board and management concluded that it would be in the best interest of Karnalyte and its shareholders to find a less costly alternative to spending between $2 million and $5 million on a feasibility study, given the Company's cash resources at the time. Current management and the Board worked with GSFC to prepare the prefeasibility study at a cost of $65,000, which now allows Karnalyte to continue considering the Proteos Nitrogen Project with discipline and with a focus on preserving value and the interests of all shareholders, and as part of the Company's ongoing strategic planning.

ABOUT KARNALYTE RESOURCES INC.

Karnalyte Resources Inc. is a development stage company focused on two fertilizer products, potash and nitrogen, to be produced and manufactured in Saskatchewan. Karnalyte owns the construction ready Wynyard Potash Project, with planned phase 1 production of 625,000 tonnes per year ("TPY") of high grade granular potash, and two subsequent phases of 750,000 TPY each, taking total production up to 2.125 million TPY. Karnalyte is also exploring the development of the Proteos Nitrogen Project, which is a proposed small-scale nitrogen fertilizer plant with a nameplate production capacity of approximately 700 metric tonnes per day ("MTPD") of ammonia and approximately 1,200 MTPD of urea, and a target customer market of independent fertilizer wholesalers in Central Saskatchewan.

www.karnalyte.com

FORWARD-LOOKING STATEMENTS

Certain information included in this press release is forward-looking, within the meaning of applicable Canadian securities laws. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "could", "estimate", "expect", "plan", "intend", "forecast", "future", "guidance", "may", "predict", "project", "should", "strategy", "target", "will" or similar words or phrases suggesting future outcomes or language suggesting an outlook.

The forward-looking statements contained in this press release are based on certain key expectations and assumptions made by Karnalyte, including, without limitation, assumptions as to: projected economics for the Company's planned potash production facility, the confirmation in an independent feasibility study of Karnalyte's assumptions regarding the technical and economic viability of the Proteos Nitrogen Project, the ability of Karnalyte to obtain financing on terms favourable to the Company, and the ability of Karnalyte to receive, in a timely manner, the necessary approvals from the Company's board of directors, shareholders, regulatory authorities, and other third parties.

Karnalyte believes the expectations and assumptions upon which the forward-looking information is based are reasonable. However, no assurance can be given that these assumptions and expectations will prove to be correct. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this press release. Without limiting the generality of the foregoing, readers are cautioned that the Company has not received a feasibility study prepared by a third party with respect to the Proteos Nitrogen Project.

Actual results may vary from the forward-looking information presented in this press release, and such variations could be material. Risk factors and uncertainties could cause actual results to vary from the forward-looking information in this press release. Additional information on forward-looking statements 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 Company's profile on the SEDAR website (www.sedar.com).

These forward-looking statements are made as of the date hereof and are expressly qualified in their entirety by this cautionary statement. Subject to applicable securities laws, the Company assumes no obligation to update or revise them to reflect new events or circumstances.

SOURCE Karnalyte Resources Inc.