REG - Emmerson PLC - Scoping Study on Breakthrough New Processing Route

EmmersonAnnouncement

01/02/2024 07:00

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RNS Number : 6124B  Emmerson PLC  01 February 2024

 

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

 

1 February 2024

 

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

 

Scoping Study Completed on Breakthrough New Processing Route and Updated
Financials

 

Emmerson PLC, the Moroccan focused potash development company, is delighted to
announce the results of an in-depth scoping study on a new, innovative
processing route (the "Scoping Study") at its 100% owned Khemisset Potash
Project ("Khemisset" or the "Project"), which significantly reduces the
Project's environmental impact and enhances its economic returns.

 

Highlights

Khemisset Multi-mineral Process

·    The Scoping Study sets out a ground-breaking proprietary processing
method named the Khemisset Multi-mineral Process ("KMP")

·    KMP involves the treatment of brine to remove magnesium and iron
chlorides through the addition of phosphate and ammonia, allowing the residual
brine to be recycled in the plant

·    KMP offers significant environmental benefits by eliminating the need
for deep well injection ("DWI") and reducing water consumption by
approximately 50%

·    KMP creates two new slow-release fertiliser products, struvite and
vivianite, while also increasing the recovery rate of Muriate of Potash
("MOP") from 85% to approximately 91%

·    Struvite and vivianite command a price premium as multi-nutrient,
slow-release fertiliser products, which reduce phosphate run-off and enable
less frequent application by farmers

·    KMP delivers a further substantial boost to the Project's economics,
increasing the post-tax NPV(8) by 120% to US$2.2 billion and delivering an
exceptional post-tax IRR of 40%

·    KMP has significant value as intellectual property with additional
potential licencing revenues. The Company currently has a patent pending

 

Financial Updates

·    Financial estimates for the Project updated from the feasibility
study announced in June 2020 (the "2020 Feasibility Study"), both for the
production process as originally designed ("Original Design"), and
incorporating the KMP (the Project, including the KMP, being the "KMP Process
Solution")

·    KMP substantially improves the Project economics:

o  Post-tax NPV(8) of US$2.2 billion (Original Design without KMP updated to
NPV(8) US$1.0 billion)

o  Post-tax IRR of 40% (Original Design IRR updated to 26%)

o  Annual EBITDA US$440 million per annum (Original Design US$258 million)

·    Total Project capex (incorporating KMP) now estimated to be US$525
million (Original Design capex US$539 million), reflecting industry-wide cost
inflation since 2020

·    All-in sustaining cost of US$163 per tonne ("/t") positions the
Project at the lower end of the cost curve and delivers robust returns across
a range of potash price assumptions

 

Environmental Approval

·    The Company is still awaiting notification from the Commission
Ministérielle de Pilotage (''Ministerial Committee'' or the ''Committee''),
to whom the Khemisset environmental approval was referred in July 2023

 

Chief Executive Officer, Graham Clarke, said: "The Khemisset Multi-mineral
Process is an exciting, innovative development that represents a major
improvement both environmentally and economically.

"The KMP arose from our team continuously exploring ways to minimise impact on
the environment, particularly when it comes to water; we are always striving
to protect this critical resource. It also forms part of the optimisation work
that we had committed to do in discussions with water authorities in H1 2023.
The KMP addresses these issues, while also delivering significant economic
upside through the production of new fertiliser products to complement
Khemisset's potash.

"The KMP transforms the environmental credentials of the Project by
eliminating the requirement for the disposal of brines through DWI and
significantly reducing process water consumption, both important points for
the Moroccan authorities and local communities. We believe it further
strengthens the case for approving our Environmental and Social Impact
Assessment ("ESIA").

"Struvite and vivianite are multi-nutrient fertilisers containing phosphate,
nitrogen, magnesium, and iron respectively. Their lower solubility means the
nutrients are released over a longer period, and are less prone to being
washed away by rain. This means that application rates can be less frequent,
and phosphate run-offs that cause eutrophication of streams and lakes are
significantly reduced.

"As part of our Scoping Study, we have updated our economic estimates for the
Project, both based on the Original Design and the new KMP. Cost inflation
since 2020 has inevitably resulted in an increase in capex of approximately
31% for the Original Design. In the case of the KMP, the elimination of DWI
reduces this increase to 28%.

"More significantly, the addition of new revenue sources delivers considerable
economic benefits, with the IRR of 40% for the Project including the KMP
considerably higher than most potash projects in development.

"The KMP process sets a new benchmark for the industry. The Company is excited
by the results of the study and is eager to progress the findings.

"With regards to the ESIA approval, we believe that the Moroccan authorities
are continuing to assess the Company's application. We will provide further
updates on all matters, including any formal notifications regarding the ESIA,
in due course."

KMP Presentation

A presentation, outlining the KMP, is available on the Company's website, on
the following page:

www.emmersonplc.com/investors/corporate-documents
(http://www.emmersonplc.com/investors/corporate-documents)

 

Khemisset Multi-mineral Potash Process

Scoping Study

The Scoping Study describes a new process, the Khemisset Multi-mineral Process
which was developed by Emmerson for use in the Khemisset potash project in
Morocco.

The Scoping Study was compiled by Emmerson's in-house technical team, but
incorporated sales and marketing reports from S&P Global and Mordor
Intelligence, process plant design work from Barr Engineering, and testwork by
the Saskatchewan Research Council, and Wardell Armstrong International.

The KMP process, in simple terms, involves the separation of magnesium and
iron chlorides from the brines through the addition of phosphates and ammonia,
creating in the process magnesium phosphate (struvite) and iron phosphate
(vivianite) fertiliser products in addition to ammonium chloride, while
allowing the brine to then be recycled back through the process plant for a
better recovery rate of potassium. These products are thus in addition to the
MOP product originally designed to be produced at Khemisset.

The KMP represents a transformational improvement to the Project both
environmentally and economically.

The conversion of a waste stream (the brine containing magnesium and iron
chloride) into further fertiliser products, struvite and vivianite, adds
significantly to the sustainability of the Project. Any outcome that reduces
waste is a positive but, in this case, an additional benefit is that the two
products produced in its place are slow-release fertilisers, which allow
farmers to reduce application rates and mitigate the negative impacts of
fertiliser production, transportation, and usage from a carbon footprint and
water run-off perspective.

Struvite and vivianite are likely to be suitable for use in climates
susceptible to heavy rainfall events, where less soluble slow-release
fertilisers reduce the risk of newly applied nutrients being washed away,
which also causes problematic run off issues. In addition, slow-release
products provide the nutrients when the plant requires them, allowing farmers
to use less fertiliser and to apply less frequently.

Morocco is already a global fertiliser hub, so the ability to add not only
potash but also these additional magnesium and iron phosphate products to its
nutrient portfolio will enhance its position as a global agriculture and
fertiliser lead, in particular on the African continent. The KMP requires a
supply of both phosphate and ammonia, both of which will be available in
Morocco, further reducing the negative impacts of transporting raw materials
over longer distances.

The KMP involves relatively modest changes to the process plant, primarily
through a reduction in crushing, and the addition of a separation stage and
the creation of two separate decomposition stages (one magnesium and one
iron).

As part of the Scoping Study, the economics of the Project have been refreshed
and updated to reflect capex/opex and pricing movements since 2020. These are
described in more detail below.

Process Basics

The KMP process involves the treatment of brine to extract magnesium and iron
chlorides, producing magnesium phosphate (struvite) and iron phosphate
(vivianite) fertilisers.

The ore that is processed at Khemisset is a mix of three potash-bearing
minerals: sylvite, carnallite and rinneite. The original process was designed
to handle this mix to produce the potash (MOP), and a brine waste containing
magnesium chloride and iron chloride requiring disposal by DWI.

While sylvite contains only potassium chloride, carnallite ore also contains
magnesium chloride, and rinneite contains iron chloride. The MOP production
process requires that these impurities are removed, and the Original Design
envisaged their disposal through injection into identified deep geological
formations in a process known as DWI.

The KMP separates the rinneite-rich ores from the sylvite/carnallite ores once
the Run of Mine ("RoM") ore has been presented to the front end of the
treatment plant. This is a two-step process that generates separate brines
with differing chemical profiles, one being a high magnesium chloride (low
iron chloride) brine whilst the second is a high iron chloride (low magnesium
chloride) brine.

The high magnesium chloride brine is further processed to produce a magnesium
ammonium phosphate (Mg(NH(4))PO(4)) fertiliser by-product (struvite) through
the addition of phosphate and ammonia, whilst the high iron chloride brine is
converted into a phosphate-based by-product in the form of hydrated ferrous
phosphate (vivianite) (Fe(3)(PO(4))(2).8H(2)O).

Finally, the excess ammonia is removed from the two brine solutions as
ammonium chloride (NH(4)Cl). The brines, now stripped of their contained
magnesium chloride and iron chloride, are recycled back into the processing
circuit and re-used, significantly reducing water consumption and improving
the recovery of potash, as some of the potassium chloride and a considerable
volume of water would otherwise be lost in the brine disposed of by DWI.

Process testwork validating the KMP design has been carried out by two
internationally renowned metallurgical testing laboratories: the Saskatchewan
Research Council (SRC), Canada, and Wardell Armstrong International (WAI),
Cornwall, UK. Testing has included mineral liberation analysis, separation
tests, mineral decomposition tests, brine processing and product agglomeration
trials. Excellent results have demonstrated that the magnesium contained
within carnallite, and the iron contained within rinneite, can be recovered
from magnesium-rich and iron-rich decomposition brines and converted to
struvite/vivianite and associated products respectively, at both very high
grades and recovery levels.

Further testwork will be undertaken to optimise KMP and provide additional
information in support of engineering design.

Struvite production

Struvite is magnesium ammonium phosphate (Mg(NH(4))PO(4)). It is formed from
the reaction between magnesium chloride brine with ammonium phosphate
(diammonium phosphate ("DAP")), plus ammonia ("NH(3)").

Struvite is a known slow-release fertiliser that offers both nitrogen and
phosphorous plus the benefit of magnesium which is an essential plant
nutrient.

Vivianite production

Vivianite is hydrated ferrous phosphate (Fe(3)(PO(4))(2).8H(2)O).  Ferrous
phosphate formation is based on the reaction between ferrous chloride (brine)
with DAP, plus ammonia.

Vivianite is a slow-release fertiliser that provides phosphorous, plus the
benefit of iron, which is also an essential plant nutrient, although it is not
currently marketed as such.

Ammonium Chloride

Ammonium chloride (NH(4)Cl) is a by-product in both of the DAP/brine reactions
presented above.

Solid ammonium chloride is primarily used as a fertiliser, particularly in
southeast Asia, but is also used to make dry batteries and ammonia compounds,
as a soldering flux, and as a pickling agent in zinc coating and tinning.

The possibility of retaining the ammonium chloride in solution in order to
reduce the quantity of ammonia required as a reagent is under consideration as
potential further upside of the KMP.

Geology and Mining

The principal potash minerals in the Khemisset Basin are carnallite, sylvite,
and rinneite. These are distributed in three sub-basins within the main basin.

Rinneite is rarely described in potash deposits, unlike sylvite and
carnallite, which are more traditional targets for exploration and
exploitation. However, the high content of potassium oxide ("K(2)O") (34.56%)
in rinneite has been proven to be extractable through hot leaching and
crystallisation by metallurgical testing previously carried out by Emmerson,
and was therefore incorporated into the original potash processing route.

The KMP process means that different ore blends can be treated more
efficiently, which offers the opportunity to improve the mine plan, and
increase reserves. As well as the recovery of additional minerals from the
ore, the recycling of brines will result in augmented MOP recoveries through
the KMP, which will in turn allow lower cut-off grades and a further expansion
of reserves and resource.

The KMP process is designed to handle carnallite, sylvite, and rinneite as
planned to be extracted from the Khemisset resource in any reasonable ratio as
determined by the mine plan. On this basis, no changes are necessary to the
mining plan or mine access requirements as set out in the 2020 Feasibility
Study.

However, the combined benefits of improved recovery of potash by eliminating
the losses to DWI, as well as the recovery of magnesium chloride and iron
chloride from the ore, means that the target mining horizon cut-off grades and
mining height can be increased, allowing the use of larger machines, with
increased cutting rates that means fewer machines are needed, reducing capex,
opex and ventilation requirements. This assumption has been reflected in the
economic evaluation of the KMP.

The KMP process will also enable a more detailed review of the mining plan,
with the opportunity for an enhanced and flexible extraction strategy which is
less reliant on a consistent ratio of ore.

A revised mining plan is a more detailed exercise that will be undertaken in
due course.

Environment

The Company remains committed to developing the Project with minimal risk to
the environment, and over more than three years has introduced a number of
optimisations designed to mitigate potential environmental impacts.

The development of the KMP arose out of the general objective of the Company
to minimise potential environmental impacts wherever possible, but also,
importantly, reflects the interactions with the authorities whose particular
focus is on water management, a precious resource in Morocco.

The KMP process represents a material improvement to the environmental
footprint of the Project, most significantly in the elimination of DWI
entirely, but also in the reduction in process plant water consumption by up
to 60% (50% of the total water). In the context of concerns around water
availability in Morocco, the importance of these benefits is difficult to
overstate.

Disposing of brines through DWI, as envisaged in the original design, is still
considered to be a good solution, but injectivity testing would still need to
be performed to confirm the best location.

The KMP plant would also produce new fertiliser products that would enhance
Morocco's credentials as a fertiliser hub and help address food security
issues.

Sales and Marketing

Struvite

Struvite is currently mainly manufactured as a by-product of water treatment
plants, where the natural phosphates recovered from wastewater are reacted
with magnesium to produce small quantities of struvite, which is currently
sold as a premium slow-release fertiliser in North America.

Struvite sales are therefore currently relatively small, with estimated
production in 2022 of approximately 250 thousand tonnes, although a new
facility has been announced to bring a further 200 thousand tonnes per annum
("ktpa") to the market in the US.

The KMP would produce around 750ktpa of struvite, which is considerably higher
than the current market supply. However, in reality the struvite market is
currently limited by production with demand potentially much higher as
confirmed by marketing studies commissioned by Emmerson.

Furthermore, agronomic tests support struvite as being a premium slow-release
source of phosphates as well as nitrogen and magnesium, able to attract a
premium price, particularly as KMP-produced struvite will contain no
deleterious heavy metal elements that exist in struvite from water treatment
plants.

A S&P Global report, commissioned by Emmerson, estimated a value based on
the nutrient content of struvite as US$424/t. However, Mordor Intelligence
reported that actual struvite prices in North America are in excess of
US$1,000/t. Emmerson has taken a more conservative position between these
extremes, particularly in view of the size of the current market and has
assumed US$500/t in its economic model, which nonetheless delivers
considerable value.

Vivianite

Vivianite is not currently sold in significant quantities as a fertiliser but
shares similarities with struvite in that both are slow-release phosphate
fertilisers containing an additional micronutrient. Struvite contains
magnesium and vivianite contains iron, with both micro-nutrients seen in
existing fertiliser blends depending on crop requirements.

As with struvite, it is realistic that a premium price is achievable, although
the base case financials assume a sales price derived from nutrient content of
US$299/t, as estimated by S&P Global.

Ammonium chloride

Ammonium chloride is an inorganic compound used to make dry batteries and
ammonia compounds, as a soldering flux, as a pickling agent in zinc coating
and tinning, and as a fertiliser. Ammonium chloride has a relatively
established market.

Costs and Financials

As part of understanding the economic impact of KMP, it was necessary to
update the financial model for the Project both based on its Original Design,
and after incorporating the changes from integrating the KMP process.

The starting point for this process was the financial model included in the
2020 Feasibility Study, which was prepared in detail by Golders, and which was
originally announced in June 2020.

The revised figures, used in updating the 2020 Feasibility Study, take into
account revised pricing expectations for specific items of plant and mining
equipment, as well as input costs such as electricity, LPG, and diesel. Where
relevant, the estimations also include updates arising from optimisations
(such as the switch to dry-stack tailings, the incorporation of four declines
rather than two, and the sourcing of water from Khemisset waste-water
treatment plant), and the basic engineering work completed on the process
plant by Barr Engineering and on mine access and other infrastructure by
Reminex SA.

Key Performance Indicators

A summary of the key financials of the KMP compared with the Original Design
and the 2020 Feasibility Study is as follows:

 

It should be noted that the project offers considerable upside in the event of
higher prices being achievable (notably struvite), while also being resilient
to a lower price environment, including for potash. The following tables
illustrate the NPV(8) and IRR of the project incorporating the KMP enhancement
at various MOP and struvite prices.

 

 

Capex

Updated financials for the Original Design reflect cost inflation, as well as
the impact of optimisations and improvements since the 2020 Feasibility Study.
Overall, this resulted in capex increasing by 30% from US$411 million to
US$539 million, which is broadly in line with process plant equipment price
index movements over that period, as well as cost increases experienced by
other mining projects.

The KMP capex is slightly lower at US$525 million, with US$25 million saved
from eliminating DWI mitigated by US$11 million of additional equipment in the
process plant.

 

Potash Costs

Cash costs (excluding the KMP additional products) for both KMP and Original
Design have also increased since 2020, with inflation impacting energy,
equipment, and other operating costs, mitigated by operating efficiencies
(particularly in mining).

 

KMP unit costs are lower than the Original Design primarily due to the
improved recoveries of potash as a result of recycling brines back into the
circuit.

 

 

KMP Unit Costs

The KMP products are, like salt, by-products of the potash process, but their
expected unit margins are sufficiently large that it is not meaningful to show
their value as a net credit to potash costs.

Instead, the table below shows their estimated production costs per tonne. It
should be noted that ammonium chloride is considered a secondary by-product,
and KMP costs have been allocated to struvite/vivianite only.

 

Pricing Assumptions

 

The following price assumptions were used in the economic assessment:

 

MOP prices were kept in line with 2020 assumptions. Although prices rose
dramatically in 2021 and 2022, fertiliser prices have now normalised.

Struvite prices were estimated to be US$500/t. S&P Global estimated the
value of the contained nutrients to be US$424/t, to which a conservative
premium was applied to reflect the incremental benefit of being a
multi-nutrient, slow-release product.

Vivianite price assumptions were based on S&P Global's estimates of
nutrient content. Vivianite has similar qualities to struvite, and it is
therefore reasonable to expect a premium, however, a more conservative
assumption was adopted to reflect the lack of an established market.

Other pricing assumptions were based on current pricing levels.

Opportunities and Next Steps

The KMP Scoping Study and updated financials underlines the robust financials
of the Original Design but outlines that the new process will deliver
significant improvements both in terms of environmental impact (particularly
relating to water management), and economically.

Further enhancements can also be anticipated that are not, as yet,
incorporated into the economic analysis. These include the following:

·    Redesigning the mine plan to take into account the improved potash
recoveries and a wider range of economically extractable minerals made
possible by the KMP

·    Exploring more cost-efficient sources of phosphate (e.g. monoammonium
phosphate (MAP)) to lower production costs

·    Drying of struvite to reduce water content and create a higher value
product (dittmarite)

·    Recycling ammonium chloride to reduce requirement of ammonia

·    Negotiating sources of key reagents, notably phosphates and ammonia

·    Developing marketing plans for struvite and vivianite and signing
offtake agreements

·    Option to develop on-site blending with MOP for production of a
variety of multi-mineral fertilisers

·    Processing IP could be transferrable to other operations in Morocco
and beyond

 

The Company will then move forward with discussions with key suppliers,
offtakers and other stakeholders regarding this new optimisation. Further
testwork, crop studies, and design amendments will then be fed back into the
overall project design, before ultimately being incorporated into a revised
bankable feasibility study (including an updated mine plan), ahead of
completing financing and commencing construction.

 

Market Abuse Regulation (MAR) Disclosure

This announcement contains inside information for the purposes of
the UK Market Abuse Regulation and the Directors of the Company are
responsible for the release of this announcement.

 

Competent Persons' Statement

The technical information in this report is based on information reviewed by
Mr. Graham Clarke, a Competent Person who is a BEng Mining Engineering and a
Fellow of the Institute of Materials, Minerals and Mining. Mr. Clarke is
employed by Emmerson PLC and has sufficient experience which is relevant to
the information reported here. Mr Clarke consents to the inclusion in the
report of the matters based on his information in the form and context in
which it appears.

 

**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) 207 138 3204

 Graham Clarke / Jim Wynn / Charles Vaughan

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

 Scott Mathieson / Matthew Hogg / Kane Collings

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

 Damon Heath / Isabella Pierre

 BlytheRay (Financial PR and IR)                               +44 (0) 207 138 3204

 Tim Blythe / Megan Ray / Said Izagaren

 

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
first 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 third 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.

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