Investor Q&A

Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining

22 October 2019

Emmerson Plc ("Emmerson" or the "Company")

Investor Q&A

 

Emmerson Plc, the Moroccan focused potash development company, is pleased to release this Q&A to publicly answer questions the Company has received from shareholders over recent months.

 

Why is the Khemisset Potash Project different in terms of development to other potash projects?

This is a relatively simple project, with industry leading capital intensity and total pre-production capital costs (it is estimated that it will cost less than 10% of the last potash mine built in Canada). Khemisset also has the potential for very high margins, which are underpinned by its proximal location to numerous high-price end markets. The Project has excellent infrastructure and logistics options already in place and Morocco has an extremely favourable mining code and fiscal regime, which supports development.

There is little to rival the Project in the global potash development space based on capital cost per tonne of production; the only real comparison is Highfield Resources, which has a market capitalisation of £160 million with similar capital and operating cost metrics.

Virtually all other projects have extremely large pre-production capital costs, running into the billions of dollars, which make financing significantly more challenging, and the large nature of these projects also increases execution time and risk.   

 

We see you own a large proportion of the basin in Morocco. Who owns the rest of the basin and is there a chance to acquire this project?

In terms of resources in the ground and extensional potential, based on our calculations, we own over 50% of the basin. The exceptions are the central area and a small section in the north east of the basin, which are both owned by Office Cherifien des Phosphates ("OCP") and L'Office Nationale des Hydrocarbures et des Mines ("OHNYM"). 

OCP is a global fertiliser manufacturing company with a dominant position in phosphates where it is the world's largest producer of rock phosphate. It already has several producing phosphate mines and a multi-million tonne fertiliser manufacturing facility in Morocco.  It is a significant consumer of potash to feed these NPK (nitrogen, phosphorus, and potassium) fertiliser manufacturing facilities and has an active global expansion strategy. Last year alone, OCP imported nearly 750,000 tonnes of potash, making it one of the largest consumers of potash globally.

We believe that it makes clear strategic sense, both from an economic and operational perspective, to consolidate the basin into a single, larger project and we are looking at ways to achieve this with the various stakeholders.

 

Where will you sell your potash?

Due to its location, Morocco is ideally located to sell to several high priced, end markets including Brazil, North West Europe, the southern USA (accessed via the port of New Orleans), the Caribbean, and the entire west coast of Africa. These markets together account for roughly half of global demand for potash and are currently supplied predominantly from locations far more remote than Emmerson's project in Morocco.

In addition, Morocco is one of the fastest growing import nations for potash globally, and currently has no domestic supply. The market has grown with a compound annual growth rate of c. 120% from 2012 to 2018. In 2018, Morocco imported a record of nearly 750,000 metric tonnes of potash. The Khemisset Potash Project is perfectly located to service the local Moroccan demand, which is centred at the Port of Jorf Lasfar fertiliser manufacturing facility.

 

Sirius has struggled to get finance. How will you fund the mine?

We have already had early engagement with several potential debt financing parties, one of whom provided Emmerson with an indicative debt financing proposal. This showed that it would be willing to finance around US$230 million, or roughly 60% of our construction cost based on the current capital cost estimates. Importantly, this early indication was made using very conservative underlying assumptions in the financial model, and the Company is confident that it will be able to negotiate better terms in several areas, which would increase this quantum and thus reduce the remaining amount to be financed.

This leaves the equity portion to finance. The Company is engaged with numerous potential sources of capital and will continue to progress these options in parallel. These include both financial and strategic investors. On the strategic side, there are several fertiliser industry participants for whom a secure source of potash would be highly valuable and, given Khemisset's low capital cost, Emmerson presents a much lower risk entry for these groups. This presents several opportunities to attract equity finance to construct the mine.

 

When will the Feasibility Study be complete?

The study is progressing well and remains well on track to be delivered in the first half of 2020.  We expect news flow from the study to commence in the second half of Q4 2019, as discrete portions of the study are completed.

 

What do the metallurgical results mean?

The metallurgical results were a huge de-risking milestone for the Company. Simply put, the results showed that the processing methodology used for the Scoping Study will be able to process the Khemisset ore and produce a saleable K₆₀ MOP (Muriate of Potash). It also confirmed that the recovery rate assumptions used in the study were valid. This metallurgical testing is a critical piece of work for bank financiers and strategic investors alike and provides comfort on the technical viability of the Project.

Importantly, the results also gave the Company's process engineers sufficient data to critically analyse the Scoping Study design and identify areas for simplification and optimisation. These areas have the potential to reduce both the capital and operating costs of the Project, which would improve the already world-class economics.

 

Is Morocco a safe investment jurisdiction?

Mining Journal's World Risk Report ranks Morocco as the number 1 investment jurisdiction for mining in Africa. It also ranks well ahead of many non-African jurisdictions. Its Government has been stable for a long period, the economy is strong, and Morocco is actively trying to attract foreign investment by providing attractive fiscal regimes and strong transparently policies.

In terms of Africa, Morocco is one of, if not the, best jurisdiction for mining investment. Notably, Morocco also offers other benefits such as a five-year tax holiday for new mining projects and 50% reduction in corporate income tax for exported products, VAT exemptions and the potential for co-investment by the Government in key infrastructure, land acquisition and training programmes.

 

Are you in discussions with any strategic partners?

The Company recognises that it will likely require a partner, either financial or strategic, to finance the equity portion for development of the Khemisset Potash Project and has a thorough understanding of the universe of potential partners.  It is not possible to comment on whether the Company is or isn't in discussions with any strategic partners at this point.

 

How significant is the African market for fertiliser including potash?

Although the UN Food and Agriculture Organisation estimates that Africa has around 60% of the world's uncultivated arable land, it has some of the lowest fertilisation rates globally. As a result, its total consumption of fertiliser is relatively small compared to other more mature markets.

However, Africa is a market which is on the move and is growing at many times the rate of the other markets around the world.

For instance, in potash, the worldwide market has grown, consistently, at between 2% and 3% per annum for several decades. In Morocco, by comparison, which is a leader in African fertiliser, potash consumption has been growing at 120% per annum since 2012, or around 40 to 60 times faster than the global market. This disparity in growth between the African market and other global markets is being repeated across the fertiliser industry. We expect Africa to play a larger and larger role in global agriculture and, therefore, fertiliser, in the coming years; Emmerson is ideally located to capture the upside from that trend.

 

Are there any potash mines in Africa?

There are no producing potash mines in Africa. There are numerous development stage projects, but none, other than Khemisset, have the potential for a low capital intensity development, which severely limits ability to obtain debt finance.

Khemisset is perfectly positioned to become the first African potash producer, addressing the spectacular growth in fertiliser demand, which has occurred and is expected to continue to occur on the continent.

 

For further information, please visit www.emmersonplc.com, follow us on Twitter (@emmerson_plc), or contact:  Hayden Locke Emmerson Plc Tel: +44 (0) 20 7236 1177 Edward McDermott   Damon Heath Isabella Pierre Shard Capital Partners Tel: +44 (0) 20 7186 9950 Isabel de Salis Megan Dennison St Brides Partners Ltd Financial PR/IR Tel: +44 (0) 20 7236 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% K₂O 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.