The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
We have no visibility of any communications with the Moroccan authorities or lack of them. They certainly won't share such details on an ongoing basis with shareholders. If there's anything notable they are duty bound to RNS it and let's hope it timely this time.
As for this "they are simply taking their salaries and doing nothing...", they have every motivation to ensure the viability of the company and its long-term future. The bigger and brighter the future, the more you can justify in salaries/bonuses etc.
Hi,
I am relaitvely new to this share and have invested in other mining companies who are stuck waiting for either mining or environmental permits. Can someone please enlighten me on what the permits status is with regards to Nalunaq and other sites? Thanks in advance
I agree with your sentiments Ideas but my point was please don't lose sight of other important (albeit less pressing/urgent) issues like the basic economics of the mine which look like they could be much more of a challenge than predicted a few years ago. Look forward to an update feasibility study.
There's been a big focus on the Environmental permit on this board and rightly so. However, are we missing on something even more fundamental? The financial feasibility of this mine?
The feasibility study was predicated on the MoP (Potash) price averaging $412 p/t. Currently, it is around $350 p/t. Far from the giddy heights of $1000 after the invasion of Ukraine. Costs (capital and operating) would have gone up significantly with inflation over the last few years. According to a Fitch ratings report from June, the long-term trend is into the $200's p/t. The cost p/t to Brazil (and this is 2 years ago) was estimated at $168 p/t.
From Fitch Ratings:
"The reduced 2023 potash price assumption reflects lower year-to-date prices, including the latest contract between Canadian exporter Canpotex and China, which was agreed at a level well below the spot market. The unchanged medium-term and mid-cycle assumptions continue to reflect the pressure on pricing from additional Canadian capacity and the continued flows of discounted product from Russia and Belarus."
Khemisset was always pitched as a low cost mine with numerous benefits over its competition. However, I am wondering given recent financial trends how an updated feasibility study would now look?
Correct if I am wrong but if you are relying on the LSE Share Trade info and classifications into Buys and Sells, I do not believe you can 100% rely on it. My understanding is that the classification of Buy or Sell depends on whether the agreed price is nearer the Bid or Ask. Nearer the Ask and its classed as a Buy; nearer the Bid it's a Sell. Sometimes this can result in incorrect classification.
I did invest yesterday but not the family silver. There are still a number of things to iron out so I invest what I can afford to lose in a worse case scenario. In today's meetings, here is my take on the questions and answers given but please DYOR and watch the video.
Cash Flow - we know from the RNS they have ~ 90K left and a burn rate of around 20k p.c.m. (4-5 months of cash left?). They confirmed this today but explained they can draw down more from an existing debt/loan facility. Got the impression that this is not a worry in the short-term.
Shell loan - Apparently they have a debt arrangement with Shell and mentioned a six month extension and a date of next March. Was not sure whether payments need to start therefore in March or Sept of 24. Gave the impression they expected Shell to be flexible.
Confidence in Pilot Farm-out materializing. - They mentioned good relations with the operator and are confident they will go ahead. Nothing more concrete than this. Of course, no mention of name. The Elke and Narwhal license is also being discussed with the same operator it seems but is not part of the same provisional agreement.
Production from P2244 - They mentioned a figure of 10,000 barrels per day once fully up and running. Of course, its a roughly 82%/18% split in favour of the Operator and I was told that capital outlay post First Oil will be of course split the same way. They hinted that a lot of early cash flow could be reinvested back into capital and of course there are operating expenses too. Mention was made of the Norwegian Bond market for further capital as some finance institutions are presumably more sensitive in investing in new fields (Soc Gen was mentioned here). Using such bonds would help to avert further share dilution although some is expected.
There was a lot of emphasis on the emissions and green credentials of their proposal for P2244. The CO emissions will be industry leading by using wind power. They had graphs to show how these compared with other fields and think this will impress the NSTA and the market generally.
P2320 license - they mentioned applying to get this back with the Operators involvement but again no real details other than confidence in their relationship with the NSTA.
NPV value - someone asked Steve given the news what kind of value could be attributed now. I got the impression around 140p but PLEASE PLEASE check this on the video when released. I may have misheard this or misunderstood.
There are some who suggest the BoD invest in desalination and pipelines to the mine yet offer no idea of the capital and operating costs of such. Given EML do not own any land near the sea to locate such a plant, another obstacle. This overall cost if not in the $10m's could be low $100m's when land and pipelines are considered. And it will take several years to build even once the above are resolved including loaning the capital and getting multiple planning permissions.
It surely makes more sense to invest in a plant jointly with a company in the business, especially a plant already developed or being developed to supply the local area or nearby. We pay for the expansion and extra pipeline plus subsidize the plant in some way.
Agree that this could be relevant and is a great spot. However, it is a single borehole and could be of limited local benefit ("Center Of Mâaziz"). We don't know the volumes of water this could generate but it will have a positive impact on local supplies the greater need for which are underlined by this tender.
I can understand why people are cynical when it comes to investing in companies and BoD's when things do not go to plan. However, they can make vastly more money out of shares and options than out of any gains from salary and pension contributions which will also be short-term if things are not successful.
This is my experience in numerous IT start-ups and despite recent events with EML, I believe the BoD share the same motivations.
Re previous message, it seems that the EIA and ESIA are somewhat different and the former has to accompany any mining license application. My bad. However, the fact that Aya's EIA was approved only last year despite their location, their massive use of water resources (more than EML it seems) and some past issues with the operation contaminating local water supplies has got to be encouraging. I am sure the CSR side I mention below helped the process.
The subject of how many ESIA mining approvals have been granted in recent years has come up a few times. These are hard to find evidence of even when using the usual search engines.
One company I found is Aya Gold and Silver although they use miss out the "Social" part of ESIA to become EIA.
https://ayagoldsilver.com/press-release/aya-gold-silver-announces-eia-approval-for-zgounder-and-its-community-investment-program-with-the-bda-foundation-in-morocco/
https://ayagoldsilver.com/wp-content/uploads/2021/08/AYA-2020-Sustainability-Report-LR-1.pdf
It looks like their environmental permit to expand mining operations was granted early 2022 after being applied for in 2020. OK it is an expansion rather than a new mine but they appear to have had issues with water contamination locally and are based in the desert. They talk on page 10 of the sustainabilty report about water usage/resources and mention storing water in the rainy season. Clearly they managed to pacify the authorities.
Furthermore, in the first linked announcement of the EIA, they introduce their Corporate Social Responsibility (CSR) partnership through which they will help "Ecopreneurs and local agricultural businesses in Morocco to succeed in Africa's emerging botanical and agricultural industry".
I have never seen any reference or mention of CSR from EML ever? It looks like Aya may have had some "pre-conditions" for acceptance of the EIA .
Https://www.emmersonplc.com/wp-content/uploads/2020/10/Emmerson_plc_EML_House_Stock_at_4_3p.pdf
A few years ago Emmerson did explore a partnership with Voltalia who could potentially supply electricity generated from renewable sources. They may have this particular supply issue covered.
A few years ago EML predicted 3 Billion Litres of water p.a. Things have clearly changed from early plans (see below).
BTW 3 Billion litres is around 10 days of output from the largest desal plant in Morocco.
Taken from Shore Capital research published Sept '20:
"Water from river: new upstream dam will smooth the flow, prevent flooding
Khemisset’s water requirements will be c.3GL/year, which the company plans to abstract
from the Oued Beht River, which flows from south to north across the project area.
The river is dammed for irrigation by the El Kansera dam, c.20km downstream of the project.
Meanwhile, the Ouljet Essoltane dam, c.17km upstream of Emmerson’s project area, was
commissioned in late 2019. A key function of this new dam (aside from irrigation and c.12MW
of power generation) will be stabilisation of downstream river flow. As such, it should
eliminate any potential for flooding at Emmerson’s project site (which used to be a flood plain
prior to Ouljet Essoltane’s construction) while ensuring water availability for downstream
users (including Emmerson) during dry seasons.
Given the river’s other existing water uses, we have been encouraged to learn from
Emmerson that Morocco’s water agency has been supportive of the company. We
understand that in-principle approval should be sufficient for the Environmental and Social
Impact Assessment (ESIA; see below), with ultimate extraction author"
My earlier posts were designed to highlight the new level of commitments the likes of OCP (and others - who knows?) are making to solving the water supply issue at mines and operational plants for manufacturing fertilizers. EML does not have the land to build desal plants (we do not want to build on top of the mining land), it does not have the permission to build and more importantly does not have the £m's of capital they need for this. Desal plants are not net generators of electricity. They are power hungry as are the pipelines to transport the water over what would be a large distance.
As far as the market and II's are concerned, it would mean explaining to them we are now in the "water business" too and we need loads more time and capital. Incidentally, I am sure I have seen recent articles on the fact that drinking water has been in such short supply over the last few years it has been diverted away in some areas from agriculture which is a major part of the Morocco economy.
The original ESIA application as submitted 3 years ago now? Things have since taken a big turn for the worse on the water front. I am not so sure all of this was predictable. If someone had told me people were being evacuated en mass from Greek islands during the Summer a few years ago, I would have not believed them.
Https://www.ocpgroup.ma/news-article/ocp-group-launches-its-new-green-investment-program-2023-2027
This article is particularly interesting in that it refers to piping desalinated water to one of its mines (Khouribga):
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OCP Group's strategy will also strengthen local value chains in its industrial and mining sites. For example, on the Khouribga-Jorf-Lasfar axis, desalinated water from Jorf will be transported to Khouribga by pipeline and the energy needs of this strategic axis will be supplied through 760 megawatts (MW) of photovoltaic farms
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Another example
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On the Gantour-Meskala-Safi axis, the investment plan provides for the installation of a new chemical and mining complex in Mzinda. This will process rocks from the mines of Benguerir and Youssoufia, together with the new Meskala mine, with a total capacity of 6 million tons of rock by the end of 2027. The construction of 440 MW of solar farms on the mining grounds will power production as well as the desalination plant located in Safi. The future desalination plants should be able to produce at least 200 million m3 by 2027.
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I cannot see EML getting close to this level of investment if this is the new environmental bar that is being set. The pipeline for the first example above is approx. 100km long. Does this mean some joint partnership/ownership with OCP where the above type of supply or processing is given in return for a significant stake??
TP3, does this help?
https://www.afrik21.africa/en/morocco-ocp-to-treat-seawater-for-the-el-jadida-and-safi-water-boards/
To quote the Q2 update re the ESIA:
"In particular, the issues raised have centred around the disposal of brines through deep well injection; the storage of salt tailings at surface; the use of water from local sources; and the impact of the project on local highways and land users"
It looks like 4 separate issues and every litre of waste water taken from the small local Khemisset water plant is one litre less to process back into clean water for domestic consumption or for "land users". Could they mean local farms (agriculture is a major part of the economy as we know)?
What I am most intrigued about is the delay between the regional "decision" being made and the Q2 update. GC mentioned something along the lines of "releasing news as early as they could" or words to that effect but if there were days or weeks between the two, what stopped them RNS'ing earlier? Anyone get anywhere/info on the above?
Taking Kimhappy's summaru of outstanding issues, for me the most disappointing aspect is that after a few years of work on the ESIA and several iterations, there are still several issues unresolved. You would expect there to be one at most and EML close to resolving it. I get that recent droughts and lack of rainfall has not helped but that does not account for all these issues surely? Have they simply misread/underestimated the mood of the local committee?