TIDMEML
Emmerson PLC
14 October 2019
Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining
14 October 2019
Emmerson Plc ("Emmerson" or the "Company")
Publication of Quarterly Newsletter
Emmerson Plc, the Moroccan focused potash development company,
is pleased to announce its Q3 Newsletter. The full document,
inclusive of pictures, is available on its website:
https://www.emmersonplc.com/investors/company-newsletters/.
From the CEO
The third quarter of 2019 marked a number of significant
achievements by the Emmerson Plc ("Emmerson" or "the Company") team
which positions the Company exceptionally well to achieve its
target milestone of delivering the Feasibility Study for the
Khemisset Potash Project ("Khemisset" or "the Project") during the
first half of 2020.
In July, we released the results of a comprehensive
metallurgical test work programme which was undertaken at the
Saskatchewan Research Council ("SRC") laboratories in Canada. The
results were positive, confirming the technical viability of the
processing method selected in the Scoping Study (20 November 2018)
as well as the recovery rate assumptions used. It has also helped
our process design engineers identify any areas of risk and,
encouragingly, areas where they believe significant improvements
from the Scoping Study can be made.
During the quarter, our team of geologists completed a 9-hole
infill drilling programme at Khemisset on time and under budget.
The geological model is being updated and, as soon as assays are
received, an updated Mineral Resource Estimate will be released to
the market; we believe this will see a significant proportion of
the resource moved to the higher confidence Indicated or Measured
categories.
In July, our study consultants conducted a end to end site visit
to review all aspects of the Project and its potential execution.
This included inspecting the local project infrastructure
(electrical, roads, rail), potential plant sites and ports. The
site visit provides vital information for the Options Study portion
of the Feasibility Study, which assesses all parts of the Project
both quantitatively and qualitatively, to ensure that the optimal
development strategy is identified.
Khemisset is set to produce a significant quantity of by-product
salt (NaCl) which, in the Scoping Study, was assumed to be stored
as waste. During the quarter, the Company released a Preliminary
Economic Assessment ("PEA") for the sale of by-product salt into
the large USA de-icing salt market, which showed that there is an
opportunity to potentially monetise some or all of this "waste
stream". The numbers look compelling and provide us with
encouragement to continue to analyse this business opportunity.
Since re-listing in June 2018, the Company has enjoyed a healthy
balance sheet which has allowed it to continue to accelerate its
development plans for Khemisset. Although the Company was fully
funded through all the work currently underway, we elected to raise
an additional GBP2.25 million (pre costs) to give us the ability to
continue to fast track development and continue our strategic
partner discussions. Shard Capital provided strong support in the
capital raise and we appointed it as joint broker immediately
following the completion of the raise.
As part of the preparations to transform our exploration permits
into a mining permit, we decided to consolidate a number of our
permits into a single, larger area. This was completed in September
and simplifies our administrative and reporting burden and
positions us well for the upcoming mining permit application. We
were very encouraged by the strong support we received during this
process from the Moroccan Government and, in particular, the
Ministry of Energy, Mines and Sustainable Development.
At the end of the period, we met with the Moroccan Port
Authorities and completed a site visit of the very large Port of
Casablanca ("Port" or "The PoC"). The PoC is one of the largest
ports in Africa, currently moving over 8 million tonnes of goods
per annum and with capacity for over 10 million tonnes per annum.
Importantly for Emmerson, the Port already handles significant
quantities of salt, which have similar handling characteristics to
potash. As a result, we believe the PoC offers several advantages
over our Scoping Study assumption, including a reduction in capital
cost.
Prior to the end of the quarter, Emmerson and its Feasibility
Study consultants met to go through the detailed Options Study for
Khemisset. The Options Study seeks to identify all potential
development options and to rigorously analyse each in detail to
ensure that the best option is selected for the project. Financial
improvement is obviously a key driver, however, other
considerations play a role including execution risk, timelines and
ongoing operational risk. In most cases, the "go forward" case has
now been identified to allow detailed work to continue.
We continue to believe Khemisset has the potential to be a world
class potash project driven by industry leading low capital costs
and, as a result of its location, very strong margins regardless of
potash price. We are making rapid progress in the development and
look forward to delivering the Feasibility Study during the first
half of 2020.
Key Work Streams Completed During the September Quarter
Metallurgical Testing
In April, the Company commenced a comprehensive metallurgical
test work programme following a rigorous planning phase, which was
completed at the end of June. The work was undertaken by SRC under
the supervision of Emmerson's experienced processing consultant,
Don Larmour. SRC is a world leader in applied research, development
and testing across many fields but particularly in potash mineral
processing. The results were released in July and confirmed that
the process methodology used in the Scoping Study (November 2018)
is technically viable. More importantly, it confirmed that the
recovery rate assumptions from the Scoping Study were valid and
achievable. Finally, the metallurgical testing indicated there are
a number of areas for potential simplification and improvement,
which could potentially significantly reduce overall operating
costs.
Completion of Drilling Programme
On the 2nd of September 2019, Emmerson announced the completion
of its drilling programme at Khemisset. The infill programme, which
was undertaken by Drillon, consisted of nine holes, and
successfully achieved its objectives of providing additional
geological information in the area most likely to be the target of
initial mining operations, providing enough sample material to
complete a comprehensive metallurgical test work programme, and
detailed geotechnical testing.
The entire drilling programme was completed within the timelines
set by the Company and under the allocated budget. Final
geochemical assays are expected in coming weeks, which will allow
an updated geological model and JORC Mineral Resource Estimate to
be completed prior to the end of October 2019.
PEA for Sale of Salt By-Product
On 9 July 2019, Emmerson released results of an internal
Preliminary Economic Assessment ("PEA") completed on the potential
sales of de-icing salt by-product ("salt") from Khemisset.
The internal study showed the potential for salt to be marketed
in the East Coast US de-icing market competitively, delivering
attractive margins, due to the salt being a waste by-product of
potash production, the Project's locational advantages and the
outstanding infrastructure in Morocco. It is estimated the sale of
1 million tonnes of de-icing salt per annum would have post tax
cash margins of up to 40%, delivering approximately US$20 million
of additional post-tax free cash flow and a post-tax NPV10 of
US$133 million using historical salt prices in the US market. If
sales are increased to 2 million tonnes per annum, then the
additional NPV increases to US$266 million.
Based on preliminary studies, the Khemisset plant will produce a
relatively fine salt by-product with purity in excess of 95% NaCl.
This purity is saleable into the US de-icing market without
requiring any further product upgrading or processing, positively
impacting operating costs and margins. Compaction is expected to be
required due to the fine nature of the salt waste produced and the
strict sizing requirements for sales in the US market.
Salt is handled and shipped using the same infrastructure as
potash, so synergies are expected to be available and captured by
handling two comparable bulk products. In addition, Morocco already
exports approximately 1 million tonnes of rock salt to the US
de-icing salt market per annum shipped out of both the Port of
Mohammedia and the Port of Casablanca. The Company will benefit
from existing storage and expertise in handling in these ports. The
in-land logistics model comprises of trucking to closest railway
siding in Meknes, then loading into trains to take the product to
Casablanca port, which is connected via railway. Casablanca is a
significant port with capability for large, deep draft, vessels,
which reduces overall delivery cost to the US market.
As a by-product, the salt is available with a very low operating
cost, with the only real additional cost being those associated
with compaction to meet the US de-icing market specifications and
the freight and logistics to get it to the US market.
The US de-icing salt market is the largest in the world with
approximately 27 million metric tonnes of demand per annum.
Emmerson will focus its strategy on supplying the east coast US
de-icing salt market due to Morocco's proximity to the market, the
lack of local supply and the supply gap created due to the closure
of the New Brunswick Potash Mine by Potash Corporation of
Saskatchewan in November 2018. The East Coast de-icing salt market
is estimated to be approximately 10 million tonnes of demand per
annum, of which approximately 75% is supplied via imports from
Chile, Mexico, Morocco and Canada.
Capital Raise for GBP2.25 million pre-Costs
On 12 July 2019, Emmerson announced that it had raised GBP2.25
million (before expenses) through an oversubscribed placing of
60,000,000 new ordinary shares of no-par value each in the share
capital of the Company. The placing was led by joint brokers Shard
Capital Partners LLC ("Shard") and Optiva Securities Limited
("Optiva").
It is intended that the proceeds of the Fundraising will
principally be used for the continuation of development of the
Project post the delivery of the Feasibility Study, including
progressing debt financing and strategic partner discussions, any
additional technical work required post the Feasibility Study
including further drilling, metallurgical testing and engineering
studies and to cover general working capital expenses for the
Company.
Following the capital raise, Emmerson appointed Shard as joint
corporate broker to the Company with immediate effect.
Consolidation of Exploration Permits
Just prior to the end of the quarter, Emmerson announced that,
after broad consultation with the Ministry of Energy, Mines and
Sustainable Development, it received the approval required to
consolidate 21 of the core exploration permits of Khemisset into a
single permit encompassing the combined area of the 21 permits.
Emmerson is one of the first companies in Morocco to achieve a
consolidation of permits under the new mining code, which was
implemented in 2015, and highlights the perceived importance of
Khemisset to Morocco's rapidly developing mining sector.
His Excellence, Mr Aziz Rabbah, Minster of Energy, Mines and
Sustainable Development, commented:
"The Kingdom of Morocco implemented its new mining code in 2015
to provide a strong platform to facilitate and simplify the
administrative procedures for local and overseas companies, with
expertise in mining, to invest in our vast, largely untapped,
mineral resources. We are strongly supportive of companies that
approach investment in our country in the right manner, targeting
the development of long term, sustainable businesses for the
benefit of all stakeholders."
Management Visit to Port of Casablanca
At the end of the quarter, Management visited the large Port of
Casablanca to meet with the Port Authorities and conduct a site
visit to inspect the facilities and identify any areas of risk or
opportunity for the upcoming Feasibility Study.
The Port of Casablanca is one of the largest in Africa with
current movement of goods topping 8 million tonnes per annum. The
Port currently has 10 million tonnes of capacity with a number of
expansion projects underway to further increase its size.
The Port is mixed use importing coal, grains and other food and
goods and exporting fertiliser, chemicals and salt. Importantly for
Emmerson, salt has very similar handling characteristics to potash
and, as a result, the Company does not believe that any additional
capital will be required to ship its product from Casablanca.
Importantly for Emmerson, based on current information it does
not appear that there will be any additional operating cost in
using the Port of Casablanca rather than the Port of
Mohammedia.
Options Study
A key component of the Feasibility Study is the Options Study.
The Options Study seeks to identify, analyse and trade-off various
development and operational options which are available to the
Project to ensure than an optimal "go-forward" case is
selected.
Since kicking off the Feasibility Study in June 2019, the
Company and its Feasibility Study consultants, Golder Associates
and Barr Engineering, have spent a significant amount of time
analysing various development options. In late September, a final
options study meeting was conducted, and a go-forward development
strategy was identified for Khemisset.
Key areas considered include:
-- Site location
-- Mine Access
-- Mining equipment
-- Mining strategy
-- Process methodology
-- Waste management (salt, brine)
-- Water management
-- Infrastructure access
o Electrical, road, port
-- Optimal infrastructure
-- Transport and logistics
Based on detailed analyses and trade-off studies an optimal
go-forward development plan has been selected.
Current Workstreams
Feasibility Study
The Company is progressing well with the Feasibility Study and
continues to expect finalisation in the first half of 2020.
Detailed engineering work is well underway, which will result in
news flow as discrete items are completed, prior to the release of
the full study next year.
Environmental and Social Impact Assessment
Following the successful completion of the environmental and
social baseline study (refer announcement 18 March 2019) the
Company is well underway in its planning and preparation phase to
kick-off the full Environmental and Social Impact Assessment
("ESIA").
The ESIA is being designed to adhere to both the Moroccan
regulatory framework and the IFC Performance Standards. The process
will commence now that preferred surface site locations have been
identified and the impacted area can be studied.
The ESIA process will again be managed by the Company with the
expert assistance of Phenixa S.A.R.L, a Moroccan environmental
consultancy with deep experience in large industrial projects in
Morocco.
The Company remains committed to the highest levels of
environmental and social risk management as is seeks to develop a
sustainable mining project, which mitigates as far as possible the
environmental and social risks associated with mine
development.
Strategic Partnerships
Emmerson continues to have discussions with a variety of
potential strategic partners for all aspects of the project
development. These include financial, sales and marketing,
electricity, gas, infrastructure and transport and logistics
partners. The Company will update on the progress of each of these
discussions where appropriate.
Upcoming News Flow
The Feasibility Study continues to progress well, which will
lead to further news flow in the December quarter of 2019. The
Company expects to update investors on the following items:
-- Updated Mineral Resource Estimate
-- MOU with electrical partners
-- Release of discrete portions of the Feasibility Study as they are completed
-- Ongoing discussions with in-country partners including
electricity providers, port authorities, transport and logistics
providers and the Moroccan Government
-- Ongoing discussions with potential strategic and financing partners
For further information,
please visit
www.emmersonplc.com,
follow us on
Twitter (@emmerson_plc),
or contact: Emmerson Plc Tel: +44 (0) 20 7236
Hayden Locke 1177
Edward McDermott
Damon Heath Shard Capital Partners Tel: +44 (0) 20 7186
Isabella Pierre 9950
Isabel de Salis St Brides Partners Ltd Tel: +44 (0) 20 7236
Megan Dennison Financial PR/IR 1177
Notes to Editors
Emmerson's primary focus is on developing the Khemisset Potash
Project located in Northern Morocco. The project has a large JORC
Resource Estimate (2012) of 311.4Mt @ 10.2% K(2) O and significant
exploration potential with an accelerated development pathway
targeting a low capex, high margin mine. Khemisset is perfectly
located to capitalise on the expected growth of African fertiliser
consumption whilst also being located on the doorstep of European
markets. This unique positioning means the project will receive a
premium netback price compared to existing potash producers. The
need to feed the world's rapidly increasing population is driving
demand for potash and Emmerson is well placed to benefit from the
opportunities this presents.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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