REG - Emmerson PLC - Q4 Update

EmmersonAnnouncement

09/01/2023 07:00

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RNS Number : 0152M  Emmerson PLC  09 January 2023

 

 

 

Emmerson PLC / Ticker: EML / Index: AIM / Sector: Mining

9 January 2023

Emmerson PLC ("Emmerson" or the "Company")

Q4 Update

 

Emmerson, the Moroccan-focused potash development company, is pleased to
provide an update on its corporate and operational activities for Q4 2022.

 

Highlights:

 

·     Environmental permit - discussions with relevant authorities have
progressed closer towards approval, with the focus on management of water

·     Other technical workstreams (basic engineering) have progressed and
are now near to completion

·     Offtake Memoranda of Understanding ("MOUs") signed in November

·     Strong expressions of interest from debt, equity financiers and
potential strategic partners

·     Potash prices fell back in the quarter from historic peaks but
remain well above long term averages

·     Liberum Capital appointed as Nominated Adviser

 

Graham Clarke, CEO, commented:

"At the end of Q3 we announced that we had renewed our strategic investment
for a further 12 months and had strengthened our balance sheet with the
raising of a further US$6.1 million, which will fund our planned activities in
2023 ahead of construction.

 

"During Q4, a considerable amount of work went into progressing discussions
with regard to the environmental approval of the Khemisset Project, for which
I am grateful to my team and the Moroccan authorities. A number of important
issues that had held up progress have been resolved, and discussions have
moved onto the specifics of the Project's water management, which is a key
area of concern in Morocco following low rainfall in recent years. Our
proposals (including specific revisions) are robust and I am cautiously
optimistic they will be accepted, but the timing of approvals is in the hands
of the Moroccan authorities. We appreciate the patience of our shareholders
and are committed to doing everything that is needed to get this over the
line.

 

"Work in other areas has continued. Our technical workstreams (which of course
include key elements relevant to water management such as sourcing water and
tailings facilities) are now nearing completion, and we were also able to sign
MOUs for around 2/3rds of our potash production on a take or pay basis,
demonstrating the strength of demand for potash. Discussions with financiers
continue, and we will provide updates at the appropriate times, although
understandably the environmental approvals will unlock progress, particularly
on the equity side.

 

"I am confident we will be able to provide some substantive updates over the
course of Q1, and that 2023 will be a transformative year for Emmerson."

 

Environmental permit

 

The Company's priority is to secure the necessary environmental approvals from
the Moroccan authorities for the Khemisset project ("Khemisset" or "the
Project"). As Khemisset will be the first potash mine in Morocco, the
authorities have sought to ensure that all aspects of the Project comply with
the highest standards. This process is iterative, and has taken time, and the
Company is aware of the frustration felt by shareholders over its inability to
provide firm deadlines, or detailed commentaries. To a large extent, this is
in the nature of such processes.

 

The Company has always emphasised the economic benefits of the Project to
local communities, as well as the strategic importance of building a new
source of potash in Morocco. These aspects have been widely acknowledged, and
the Project has received significant support both in Morocco and in the UK.

 

Over the course of 2022, the Company has been able to address a number of the
wider issues relating to the Project, in particular its potential impact on
local and neighbouring communities and businesses. Discussions have progressed
more specifically onto matters concerning the Project's water management.

 

Foremost among these is the confirmation of the capacity to use recycled water
from the Khemisset Waste Water Treatment Plant, instead of drawing freshwater
direct from the Ouljet Essoltane Dam. This revision, developed in conjunction
with Reminex SA, significantly mitigates risks around water supply levels
during dry periods.

 

The Company has also determined that a dry tailings system will now be
employed at Khemisset to reduce water consumption and essentially eliminate
any risk of saline fluid outflow in the event of an extreme rainfall event.
Such tailings storage facilities are in use at various potash operations
around the world.

 

The finer technical details of the above, and other specific areas, continue
to be reviewed by the environmental and water agencies. These proposals are in
line with Emmerson's determination, as a responsible investor, to pursue the
highest environmental standards in everything that we do at Khemisset. The
Company is working through these solutions with the relevant government
departments to ensure they are acceptable to all stakeholders, although the
timing of final approvals is in the hands of the Moroccan authorities.

 

Technical Workstreams

Basic Engineering workstreams have substantially progressed during the period.
Design of the processing plant by US-based Barr Engineering is now 90%
complete, and infrastructure design undertaken by the Moroccan firm Reminex SA
is 80% complete. Both streams will be completed within Q1 2023 in readiness
for financier due diligence and the transition into project execution.

Traffic studies for the proposed highway interchange and the overall logistics
model for transporting the final product from the mine site to the ports of
Casablanca, undertaken by the Moroccan consultants Novec SA, have also been
progressed to support both the wider Basic Engineering streams and the
Environmental and Social Impact Assessment ("ESIA") submission.

While the Company continues to advance its strategy regarding renewable energy
as part of its sustainability commitment, binding agreements for both the
225Kv and 22Kv powerlines have been signed with the Moroccan grid operator,
Office National de l'Electricité et de l'Eau Potable (''ONEE''). The 22Kv
line will be utilised as construction phase power before being converted to
its primary purpose as contingency power for the production phase, which will
be powered by the 225Kv supply.

Electrical Resistance Tomography ("ERT") results from the most recent
exploration campaign have provided a sensible basis for finalising the mine
site location, precise siting of key infrastructure (portal, declines and
processing facility) and adapting the design to in-situ rock competence for
site wide foundations.

Other technical details have been further de-risked in partnership with
globally renowned subject matter experts. Cuttability testing has been
completed on core samples obtained from the most recent exploration campaign
in Komatsu laboratories, confirming adequacy of continuous miners for both
underground workings and development of the access declines. Howden have been
instrumental in progressing the ventilation model for the decline and the
mine, enabling development of underground mine planning, final sizing of
declines, and surface equipment specification, sizing and location.

Potash and Salt MOUs

 

In November, the Company announced the signing of non-binding MOUs relating to
the offtake of potash and salt to be produced at Khemisset, as follows:

 

·    With Keytrade AG for the sale of a minimum of 245,000 metric tonnes
per year of MOP for a period of 10 years; and

·    With Hexagon Group AG for the sale of a minimum of 245,000 metric
tonnes per year of MOP and a minimum of 500,000 metric tonnes per year of salt
product ("NaCl"), both for a period of 10 years.

 

Importantly, the MOUs contemplate "take or pay" provisions whereby the
off-takers will market the product to end users and compensate the Company for
any quantities not taken by end users or otherwise sold by the off-takers.

 

The MOUs are non-exclusive, and Emmerson will continue to engage in ongoing
offtake discussions with other wholesale customers, distributors, and global
traders for the remaining production capacity from Khemisset.

 

These initial offtake MOUs represent a material development for Emmerson and
underpin an adequate proportion of future potash and salt sales to satisfy the
banks. The Board believes that this is a strong endorsement for the Project,
de-risking the financing.

 

Financing update

 

The Company is now finalising the first stage of securing the bank funding
needed to bring the Project into construction. As previously noted, strong
expressions of interest have been received from international and Moroccan
lending banks, as well as development financial institutions and other
financing counterparties, to underpin an attractive construction financing
package. Updates in this matter will be provided in due course.

 

Global potash market outlook

 

Potash prices rose sharply in 2022 following the invasion of Ukraine, and the
imposition of sanctions on both Russia and Belarus, who together account for
approximately 40% of global potash production. By the end of the year, prices
had fallen back somewhat, following a short-term drop in demand due to high
prices and dry weather, but remain well above historic levels.

 

In the near-term, the market for agricultural produce such as grain, oilseed,
and soya, are expected to be tight, leading to sustained high prices for those
commodities as well as fertilisers such as potash. Longer term, the growing
global population and the transition to more resource-intensive diets,
combined with scarcity of cultivatable land, will lead to an increasing use of
fertilisers to improve yields. Because the continent of Africa will have the
highest population growth of all, it will also have the greatest need for
increased food production.  Khemisset, which is expected to be the first
commercial potash mine on the continent in almost 50 years, is therefore
important due to geography, as well as in the context of worldwide potash
demand.

 

Appointment of Nominated Adviser

 

On 3 January 2023, the Company announced the appointment of Liberum Capital as
Nominated Advisor, enhancing our relationship with them following their
appointment as Joint Corporate Broker to the Company in February 2022.

 

**ENDS**

For further information, please visit www.emmersonplc.com
(http://www.emmersonplc.com/) , follow us on Twitter (@emmerson_plc), or
contact:

 Emmerson PLC                                                  +44 (0) 20 7236 1177

 Graham Clarke / Jim Wynn / Charles Vaughan

 Liberum Capital Limited (Nominated Advisor and Joint Broker)  +44 (0)20 3100 2000

 Scott Mathieson / William King

 Shard Capital (Joint Broker)                                  +44 (0)20 7186 9927

 Damon Heath / Isabella Pierre

 St Brides Partners (Financial PR/IR)                          +44 (0)20 7236 1177

 Susie Geliher / Charlotte Page

Notes to Editors

Emmerson is focused on advancing the Khemisset project ("Khemisset" or the
"Project") in Morocco into a low cost, high margin supplier of potash, and the
only primary producer on the African continent. With an initial 19-year life
of mine, the development of Khemisset is expected to deliver long-term
investment and financial contributions to Morocco including the creation of
permanent employment, taxation, and a plethora of ancillary benefits.  As a
UK-Moroccan partnership, the Company is committed to bringing in significant
international investment over the life of the mine.

 

Morocco is widely recognised as one of the leading phosphate producers
globally, ranking second in the world in terms of tonnes produced annually,
and the development of this mine is set to consolidate its position as the
most important fertiliser producer in Africa. The Project has a large JORC
Resource Estimate (2012) of 537Mt @ 9.24% K2O, with significant exploration
potential, and is perfectly located to support the expected growth of African
fertiliser consumption whilst also being located on the doorstep of European
markets. The need to feed the world's rapidly increasing population is driving
demand for potash and Khemisset is well placed to benefit from the
opportunities this presents. The Feasibility Study released in June 2020
indicated the Project has the potential to be among the lowest capital cost
development stage potash projects in the world and also, as a result of its
location, one of the highest margin projects. This delivered outstanding
economics, including a post-tax NPV8 of approximately US$1.4 billion using
industry expert Argus' price forecasts, and the spot price for granular MOP
fertiliser has since risen, further enhancing the valuations.

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