TIDMEML
RNS Number : 8894P
Emmerson PLC
15 June 2020
Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining
15 June 2020
Emmerson Plc ("Emmerson" or the "Company")
Emmerson's Focus Shifts to Permits, Finance and Growth
Projects
Emmerson Plc, the Moroccan focused potash development company,
is pleased to provide an update on the various workstreams underway
following the release of the Feasibility Study ("FS") for the
Company's 100% owned Khemisset Potash Project located in northern
Morocco ("Khemisset" or "the Project").
To view the full press release with illustrative diagrams,
please use the following link:
http://www.rns-pdf.londonstockexchange.com/rns/8894P_1-2020-6-14.pdf
Highlights
o Company focus now shifts to moving Khemisset towards "shovel
ready" status including operational capability build-out, Front End
Engineering and Design ("FEED"), detailed design and financing
o Permitting process is well underway including stakeholder
engagement, socio-economic impact assessments and the Environmental
and Social Impact Assessment ("ESIA")
o The FS, which confirmed a post-tax NPV(8) of US$1.4bn and
robust financials including over US$300m p.a. in EBITDA, provides
the catalyst for engagement with various potential financing groups
to commence detailed due diligence
o Detailed examination of various complementary growth options
including:
-- Developing a scope of work for a Pre-Feasibility Study
("PFS") for Emmerson's Sulphate of Potash ("SOP") Project, which
could take the combined post-tax NPVs for the Company's suite of
projects to over US$1.8bn
-- Technical and market impact of upscaled production of the
salt by-product in the first five years of operations at
Khemisset
-- Bring the vast remaining resources at Khemisset into the mine
plan by extending the overall mine life or offering the option of
increasing production in the first five years of operations
Hayden Locke, CEO of Emmerson, commented:
"We are pleased with the results of the Feasibility Study, but
now our attention must turn to the next phase of development as we
seek to move the Project one step further towards our goal of
becoming an independent potash producer.
"Despite the impacts of the Coronavirus pandemic, we continue to
make progress with our ESIA, which is one of the key workstreams
required to be completed prior to our application for a mining
permit at Khemisset. Our objective is to have it ready for final
submission to the Government authorities by the end of Q3 2020, in
line with our original schedule. While we know this will be a
challenge, our team has proven itself to be adept at continuing to
move key workstreams forward regardless of the circumstances and I
am sure this will be no exception. Once the ESIA is signed off by
the Government, we will be able to apply for our mining
permits.
"Financing will continue to be a focus for Emmerson. The
Feasibility Study is the catalyst for various discussions, across
debt, equity and non-traditional financing products, to commence in
earnest. Over the last two years, we have engaged with numerous
potential funding partners and have identified several which we
believe would make excellent partners for the Company in the
development of Khemisset. We look forward to updating the market as
these discussions progress.
"Building out a team with the operational capability to
construct and operate a large scale mine is a challenge for any
junior mining company, and I see this as one of the main execution
risks to address. We will look to add additional members to our
team in the coming months as we start this especially important
next phase of our development.
"Clearly, our focus must be on Khemisset, but we are also aware
that we have several growth options available to the Company, which
can add significant value to our shareholders over the life of the
project. One of the most pleasing aspects of the recent Feasibility
Study was the profitability of the salt by-product. Given the 1Mtpa
of sales assumed in the study represents less than a third of our
total de-icing salt production - the remainder is left as waste -
there is a clear opportunity for further improvement to our already
first-class economics by increasing the quantity of salt sold. In
addition, we intend to move our Sulphate of Potash project from a
Scoping Study level of definition to a PFS level. And finally, as
our current mine life of 19 years is based on only 43% of our total
Mineral Resource Estimate, we will examine the potential timing
with respect to bringing the significant remaining resource into
the Project's mine plan, which could more than double our current
mine life.
"We would like to thank our shareholders again for their
support, and we look forward to the next phase of our development
in partnership with you."
PROJECT WORKSTREAMS
The FS confirmed the world class characteristics of Khemisset
including industry leading capital cost to production and a
post-tax NPV(8) of US$1.4bn based on industry expert Argus FMB
price forecasts. Perhaps more importantly, it confirmed robust
cashflow generation (over US$130m in EBITDA) and IRRs (nearly 15%)
at potash prices well below the current contracted potash price in
its target markets of Brazil, North West Europe, the USA, central
America and Morocco.
The Company's focus will now shift towards the vital workstreams
required to move Khemisset toward construction and, eventually,
production. These include permitting, financing, operational
capability build-out and Front End Engineering and Design ("FEED")
before finally moving to detailed design and engineering ready for
the commencement of construction.
In addition, Emmerson will re-examine the potential of the
various growth and expansion options available to it including the
SOP Project, de-icing salt expansion potential and Khemisset Potash
Mine life extension. The SOP Project alone has the potential to
take the combined post-tax NPVs for the Company's suite of projects
to over US$1.8bn, based on the Scoping Study.
Permitting
On 22 May 2019, the Company released the permitting roadmap,
which outlined the process required to obtaining the various
permits for Khemisset. The major workstreams include:
-- Conversion of existing Research Permits to Mining Permits,
governed by the Ministry of Energy and Mines
o Requires the demonstration of technical and economic
feasibility, to be fulfilled by upcoming feasibility studies
-- Environmental Approval, to be governed by the Moroccan
Government Comité National de l'Evaluation de l'Impact sur
l'Environnement ("CNEIE"). The CNEIE will require the Company
deliver:
o ESIA to Moroccan standards. The Company will also ensure this
complies with IFC standards and Equator Principles
o An Environmental and Social Monitoring Program ("ESMP") to
formalise ongoing monitoring and management of any issues
identified in the ESIA
o A Public Enquiry period, during which relevant stakeholders
can formally request information of the Company
-- Water Usage Permits, governed by the relevant Water Basin Agency
-- Temporary Occupation Permits for any Government land intended to be utilised
-- Construction Permits for all structures and tailings facilities
Figure 1: Permitting Process Overview - See PDF
Financing
Since listing in June 2018, the Company has maintained regular
dialogue with a variety of potential longer-term financing partners
for the Project including banks, other debt funds, non-traditional
financing partners and a range of potential strategic partners. The
completion of a FS is generally a requirement to move to more
serious financing discussions with these groups; the Company
therefore intends to engage in more detailed due diligence with
these potential partners in the coming months.
The Company has no preconceived ideas as to the optimum
financing mix for the future development of Khemisset and will
examine each potential option, and potential combinations of them,
to ensure it moves forward with a financing structure that is
beneficial for its current shareholders.
Operational Capability Build-Out
Operational Capability is one of the key execution risks which
must be addressed required to commencing construction of a
large-scale mining project. Emmerson is currently a small Company,
which utilises external consultants wherever possible to provide
technical expertise and advice.
As the Company moves closer towards production, employing a
suitably skilled owner's team, which can manage the day to day
engineering, contract implementation and performance against
contracts, becomes increasingly important. Emmerson will continue
to identify and hire suitably qualified candidates to build out its
owner's team but will continue to adhere to its operating
philosophy of running a lean team with low overheads.
GROWTH OPTIONS
The Company will continue to pursue potentially value adding
projects which complement the core Khemisset Potash Project.
Sulphate of Potash
On 25 November 2019, the Company released a Scoping Study for
its SOP Project in Morocco. Emmerson has commenced scoping the next
phase of development for its SOP Project which would comprise a PFS
encompassing more detailed engineering and further site
investigations in Jorf Lasfar.
During the PEA, detailed analysis was conducted on all aspects
of the Project, providing a thorough understanding of the main
business drivers of the SOP business. Based on this, the Company
has identified several key areas where Emmerson is expected to have
a sustainable competitive advantage:
-- A captive source of MOP proximal to the Mannhein production facility by land;
-- Low-cost sulphuric acid, ideally co-located with the project;
-- Proximity to export ports and end customers;
-- Production facilities located in port with gas and steam; and
-- Proximity to either consumers of hydrochloric acid, sources
of phosphate rock and/or alternate limestone related options to
either neutralise acid or convert it into a high margin derivative
product. This is key as the primary operating issue that Mannheim
producers face is the disposal or monetisation of the waste HCl
stream.
The Scoping Study considered an SOP Mannheim facility with
production capacity of 240,000 of K(50) SOP per annum over an
initial project life of 20 years.
Financial analysis showed the SOP Project to be financially
robust, delivering strong NPVs and cashflows through a range of SOP
prices. A summary of NPVs at a variety of potash prices and
discount rates can be seen in Table 2 below.
Table 1: SOP Project - NPV Sensitivity to Price and Discount
Rate - see PDF
The Company believes the SOP Project offers significant economic
and strategic upside, as well as important diversification of
future product mix, which reduces overall business risk. It
therefore warrants the additional investment to further assess its
potential and to develop a strategy and timeline for its
development.
De-icing Salt Expansion
The FS confirmed both the technical and economic viability of
the sale of 1Mtpa of salt by-product produced from Khemisset. The
Project produces, on average, a total of approximately 4.5Mtpa of
salt by-product over the life of the mine. As a result, there is
clear potential for significant increases in the tonnages of salt
which could be sold into the US de-icing salt market. As the salt
at Khemisset is a by-product of potash production, the operating
cost associated with its production is very low (refer Table 2) and
Emmerson is, therefore, expected to be a very competitive producer
on a delivered cost basis to the US market.
Operating Cost Item US$/t NaCl
Process Plant 5.8
----------
Labour and Materials Handling 1.1
----------
Compacting 1.7
----------
Total Cash Cost to Mine Gate 8.6
----------
Trucking to Port of Casablanca and Port
Charges 14.1
----------
All-in-Sustaining Cash Cost (FOB Casablanca) 22.7
----------
Freight to East Coast US 10.0
----------
All-in-Sustaining Cash Cost to East Coast
USA 32.7
----------
Table 2: Salt By-Product Delivered Cost to East Coast US
Market
The US market is the largest salt market in the world with
consumption of approximately 57 million tonnes in 2019, of which
approximately 42 million tonnes was supplied by domestic supply.
This leaves around 15 million tonnes of potential demand for low
cost, imported, salt supply. Emmerson believes there is sufficient
opportunity for sales of additional tonnes over and above the 1Mtpa
considered in the FS, which would deliver further enhancement to
the Company's already exceptional economics. Global potash
producer, K+S, through its subsidiary, Morton Salt, has achieved an
average received price for its de-icing salt product, since 2017,
of US$64.50 per metric tonne of de-icing salt (refer Table 3).
Revenues (US$ M) 699.0 843.4 464.7 54.5 79.1 236.8 835.1
------ ------ ------ ----- ----- ------ ------
Sales volumes (Mt) 10.7 13.5 7.1 0.9 1.3 3.5 12.7
------ ------ ------ ----- ----- ------ ------
Average price (US$/t) 65.6 62.4 65.4 63.4 62.3 68.4 65.8
------ ------ ------ ----- ----- ------ ------
Table 3: Summary of K+S De-icing Salt Sales 2017 - 2019
Based on K+S' received prices and using the estimated FS
operating costs for de-icing salt from Khemisset into the US
de-icing salt market, sales would deliver additional, post tax cash
flows of approximately US$26 million per additional 1 million
tonnes of salt sales per annum. Khemisset produces 4.5 million
tonnes of salt by-product on average, which equates to nearly
US$120 million per annum of potential post-tax free cash flow based
on these metrics.
Khemisset Mine Life Extension
The FS showed a 19-year life of mine, which was achieved using
only 43% of the total Mineral Resource Estimate ("MRE") of 537
million tonnes with an average grade of 9.24% K(2) O. This mine
plan is concentrated in the north eastern extent of the current MRE
and utilises approximately 204 million tonnes of the total 537
million tonnes of resource.
The South West MRE, which is also only 450m below surface, has a
similar sized resource (190 million tonnes) to the current FS mine
plan. To access this resource, a second decline is likely to need
to be constructed, given the resource is distal to the proposed
Mine Infrastructure Area ("MIA"). Management believes that,
assuming the cost of a decline in the south western area is similar
to the Khemisset Project mine access estimate, it will make
economic sense to construct this decline to access the South West
deposit.
Figure 2: Khemisset Mineral Resource Estimate (MRE) - See
PDF
Furthermore, the central section contains nearly 150 million
tonnes of additional resource, which is around 60% of the size of
the FS mine plan resource. This could be accessed from the current
underground mine design. It should be noted, that a portion of the
remaining Central Area MRE may not be extractable due to the
location of the resource relative to the city of Khemisset. Further
work will be undertaken to understand whether this is
extractable.
**ENDS**
For further information, please visit www.emmersonplc.com , follow
us on Twitter (@emmerson_plc), or contact: Emmerson Plc Tel: +44 (0) 207 236
Hayden Locke 1177
Damon Heath Shard Capital Tel: +44 (0) 207 628
Isabella Pierre 3396
Tel: +44 (0) 3137 1904
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 537Mt @ 9.24% 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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