Member Info for Ideas

Final results are due at Companies House for next Tuesday, 31 May, which will trigger a backward looking RNS.

The company can issue these at any time before 31 May. Last year, they published on 17 May.

Hasn’t been posted, thanks for sharing.

Suggests timing to start construction end of year and production end of 2024.

Confident extract at the close , “everyone believes in this project, whether at ministerial or local level”.

When I say "control" of the process, I mean are they able to understand and appreciate the stages and timelines or is it opaque; those stages and timelines may not be published, but with an active relationship generally it might be reasonable in a lot of cases to assume that a public body will give reasonably reliable guidance of business courtesy but also to promote the territory as a stake place to do business.

EML may have this visibility now but previous RNSs haven't shown that and in fact have shown the business to be wrong-footed, when it understood permit issuance was on the brink.

So in that sense, I'm just making an observation that the process appears more opaque than clear.

As to the wider points, I don't want to start a flame war about this as none of us have any facts, so I can only ask the rhetorical questions:

- why, if inward investment is the priority, there are no intervening factors the ESIA was internally approved in Sept would the govt sit on the issuance of the permit for 8 months so far and running - it doesn't have a promoting international trade feel about it; and

- with the strategic investment we have so far being conditional on the ESIA, is it right to say we need not be curious if it runs on until later in the year - there is at least some jeopardy if the investors don't share the same mantra, and an out-cost for us as that investment starts to become repayable.

These are only thoughts and not intended to replace your own. Thanks for prompting me to clarify ‘control’ as clearly in a literal sense that sits with the public body.

P.s. thank you for the article on the new mining law changes. I don’t think they shut down the possibilities I was musing over but they are interesting.

My take outs:

- making it easier to prospect (thankfully, past for us, for now);

- greater onus on using local and national suppliers (fits with EMLs recent tweets about the local economy - note some leading market suppliers are directly indirectly owned by decision makers);

- desire to increase inward investment (does not preclude co-funding or inward investment by JV).

As to the last point, approving the ESIA would be the easiest way to encourage inward investment, in the context of this project as there will be huge external funding.

I’m not saying there’s anything malevolent going on but I do think a year from believing you’ve satisfied all concerns is enough to work out any niggles, as we find with the water by Sept; that’s why I’m searching for what more there could be - it goes to risk as it’s a go/no go step.

As per Westie, my heart says that these things will suddenly unlock and fall one after another. My head is simply being more circumspect and that makes me interested in the other rigorous views around.

I’ll reply properly with any extras but for promptness OOSM:

1. I do as a general concept think it reasonably conceivable that the government or royal family will end up with a share of the business, directly or indirectly. Reasons to support this hypothesis:

(a) I gave the example below of the other business in which a business owned by the president, who was previously a minister involved in natural readiness and it just sounds too fishy to be a genuine arms length outcome);

(b) to my understanding there are no counter examples, and EML tweeted the other day about JVs - correlation not showing causation I admit but we’re all guessing at the end of the day.

2. I don’t think they’ll be expected to just give anything away. A JV with anyone could be useful and a capital raise from the govt, etc. still brings capital. What I’m unsure of is whether the terms will be as arms length as they might be with someone that isn’t holding an unsigned ESIA permit.

3. You’re right to raise the question and no I’m not stirring on the permit. DShox has made the ESIA is all ticked as of last RNS so should be out soon and it’s relevance balancing information to say it’s actually been all sorted since June.

Again it’s fair to mention that the water company came after, that still was resolved by Sept 21, to the point above, and only now remind that the business wasn’t transparent when this really was a reasonable set back - maybe to avoid scaring the ‘strategic investor’ but still goes to trust.

The other relevant reason for mentioning it was that I was surprised it was considered sorted that early and had forgotten and also, of course, that Audible still says there’s no delay. My concern is whether the business has a grip and is giving us competence and experienced estimates, not whether the govt has over shot, per se, as that’s expected anyhow. So the relevant information here for me is that I don’t think that we can have confidence that the business is in control of the permit process. And all of that is relevant because it begs the question, if EML does not have reasonable awareness with an ex-ambassador on board, who is controlling the timetable and why - see 1 above : )

My sensibility is that if the reason for the delay was rigour in the process then we would hear about it (eventually) as we did last September. What we hear is the business repeating that it thinks it has done everything needed. Takes me back to 1 above.

All speculation but equally stimulates the mind while we stay tantalised as to the real status.

Thanks for the view, Westie.

I too am imagining it all unlocking in one go, once the right triggers can be put in place; not to say this is inconsistent with Taipan71s comments either. GLA!

Conversation prompted me to look back on the previous comments on these things. Snippets only but FYI as fed into some of these points. Everything is a moving feast, so these are started at the time but may not hold true now:

Investor Meet Company, November 2021
Discussing relationship with OCP. Gist: At that time, no firm negotiations. The question is about whether EML would build a mine for OCP but Graham appears to close his reply talking about offtake.
https://youtu.be/z4TG_YhEoXU?t=1888

Has the team met the new Moroccan mining minister? Gist: Not yet had hope to and will hope to do so in the new year. Have we heard more on this? Perhaps the team was hoping to meet when over in country around March/April.
https://youtu.be/z4TG_YhEoXU?t=1888

Investor Meet Company, June 2021
19.20 ESIA by June 2021
Is the ESIA still on track for June [2021]? Gist: We've said first half [2021]. No red flags, we expect that to come through [in the first half 2021].
https://youtu.be/e-efeSuYRtY?t=1140

A general update as Dshox suggested could no doubt clear up .

Agree!

Graham said up to a year ago that OCP had gone cold and had not shown interest in engaging with EML (DYOR Source: LSE interview).

He seemed put out and suggested the business would find its own way without OCP.

With the ESIA waiting since September [FN1], it’s those sorts of things that make me wonder if equity and offtake are co-dependent, as you suggest, and if OCP was called off - a 10%+ nationalised stake and, with an, I presume not, but possible Board seat, OCP would have a stronger bargaining position later in the day.

With the rising market EML, may now have new opportunities to find someone else to take that offtake at a better price, notwithstanding the transport. What that would mean for the ESIA, who knows!

A lot of moving parts and just needs to get the jigsaw together. GLA!

FN1 “We are pleased to say that all parties are currently satisfied with the thorough supplementary work and the final meeting with the Environmental Evaluation Committee ("EEC") (referred to in Morocco as the "Commission Regionale Unifiée de l'Investissement"), should take place in due course.”
Source: RNS 30 Sept 2021

Would welcome any critique or additional thoughts on the hypothesis below:

I think there could be a number of races happening, on the following assumptions:

1. the ESIA depending on both (a) the government / royal family directly or indirectly taking 10 - 15% equity in the project, AND (b) OCP getting an off take agreement at profit for EML but well below current market prices (for anyone saying it’s all approved in principle, well, it was also last September);

2. announcing those things will hurt the share price *compared with* the dream price of approval without those impacts (particularly below-market-price offtake); and, therefore

3. The business, ask of understanding this, will be trying to get its debt finance in place and announced ahead of those things; firstly to get the most favourable debt terms using the best view of market pricing, and, secondly, to inflate the share price *before* the 10 -15% nationalisation and so that when that happens it raises the most capital (10% of the business at onlya slight premium this price would still leave a lot of equity and dilution to follow and to raise the funds needed).

As such, I would imagine that what's going on is a funnelling exercise whereby they try to synchronise and line up all the ducks to go through in the right order at the right time (crucially to be done before the September deadline on the existing investment).

I'd imagine any offtake negotiation with OCP would be tough in terms of holding ground, so I'd agree that, while it sounds as though the dominoes are lined up, it may be deceptively complex.

I think the difference is between potential on the one hand and tangible, derisking progress on the other.

The potential is increased (though little has been publicly addressed about input costs).

The go/no go risk is unchanged.

PIs have rushed in recently but for institutional investors, who will be needed for real and sustained gain, its just too high risk for them, while it remains a risk.

People will still buy off the odd tweet but I think we’ve seen the extent of PI demand, without more news. I can’t see any more brokers reports coming out so that next news will presumably be through RNS.

N.b. In my post below, “ The Akwa Group is a billionaire” should read, “ The Akwa Group *CEO* is a billionaire”

Any ‘delay’ that I understand people are referring to is between now and the guidance given by Emmerson - ‘imminent’ and the rest.

That is to also say, I do not understand that anyone is saying that the government is being in its timelines. I’m not aware of any published timeframe for approval, and that is why investors have relied upon Graham’s more informed position.

What I did find while looking at this is that Sound Energy Plc got its EIA approval for gas wells around six months after meeting with the ministry and presenting its EIA for scrutiny.

In its related RNS (footnote 1), it also announced a binding offtake agreement for its product with Afriquia Gas SA, national leader and part of the Moroccan Akwa Group. Furthermore, Afriquia Gas SA took a 9.8% equity stake in the business.

The Akwa Group is a billionaire businessman, ex-Minister of Agriculture, and current President of Morocco.

Inferences (if any)?

- Maybe nothing, the above may all turn on its own facts;

- It may suggest that approval will necessitate a material equity investment and / or off take agreement;

- It raises interesting questions about Graham’s apparent frustration that OCP didn’t want to deal and that EML would find other partners. Perhaps off take is not EML’s trump card but the government’s, which would prefer to suppress the share price until a satisfactory deal is done and therefore to invest at a lower price - ‘sharing the benefits’ ‘fairly’ as has come into the recent Emerson RNS language and blog posts.

We need to pull our socks up because, I may be wrong but believe the further ‘strategic investment’ from Asia falls away at the investors option if the finance and permitting isn’t approved by September (i.e. these are conditions precedent). Payment on the notes will also presumably kick in at this share price, which will drain cash flow while we have no income.

Perhaps we are being too naive to the territory and its not so much a permitting problem but a deal that we need to do, or perhaps we are on it and negotiating; Rupert, after all, must know if all this has any substance and the local ways of working.

Sound Energy RNS: https://www.soundenergyplc.com/investors/regulatory-news-rns/rns-announcement/?rid=3958777

Had a look at the permitting environment following the comment below and this turned up (can’t vouch for its reliability):

“ The Government of Morocco has been criticized for a lack of effective resource governance, which has been mainly linked to an incomplete regulatory framework and insufficient disclosure policies (NRGI). Morocco is the world’s largest exporter of phosphate, which is an industry controlled by the royal family and by the elite who monopolize larger, multi-sector industries and who are close associates of the monarch. These influential families enjoy undue advantages as they are most likely to win public bids and contracts, and they enjoy immunity for corrupt practices (BTI 2012). Corruption is also rampant in Morocco’s sand quarrying industry, which is generally controlled by well-connected people with privileged access to natural resources (Morocco News Board, Feb. 2013).”

Source: https://www.ganintegrity.com/portal/country-profiles/morocco/

I would tend to agree that if the business has just taken on an FTE for permitting, there must be a body of work and more to do. Fundraising could logically come before and be conditional on permits.

I think the inferences are being drawn because 6 months just seems a long time to wait for a meeting with no outstanding obstacles

Backwards looking. Does not confirm that water is causing the current permit delay, but is the only transparency we have seen.

This is where it says the water authority delayed the ESIA: https://www.lse.co.uk/rns/EML/operational-update-khemisset-potash-project-3irvg7ss03aspyi.html

Extract:

“The water authority discussions necessitated the production of an additional study, adding time to the permitting process that was not envisaged earlier in the year.

We are pleased to say that all parties are currently satisfied with the thorough supplementary work and the final meeting with the Environmental Evaluation Committee ("EEC") (referred to in Morocco as the "Commission Regionale Unifiée de l'Investissement"), should take place in due course.”

Source: RNS dated Thu, 30th Sep 2021

This is interesting because it could be that new ESIA approvals require no drain on local water (and potentially, following this OCP example, a net contribution to local water supply).

I don’t immediately understand what (if any) impact this would have in the project. Does anyone (with zero effort) recall if desalination units are in the business case already?

Replying to OnlyOneShareMe here, as you wrote a detailed post addressing me the other day.

Each of the notes below are simplified to reflect my broad understanding to be brief, so please excuse any semantic errors or anything misconstrued.

1. I said that wheat prices may pressure the economy and you said WHEAT PRICES MAY NOT DEFINITELY AFFECT THE MOROCCAN ECONOMY - well made points that perhaps they will not be definitive for Morocco.

I could better phrase my thought by saying, “could *any* of the world economic challenges on now cause Morocco significant headwinds in the next few years?”.

If yes, the question for me is what (if anything) is the delta between the pricing and deal the government *thought* it was making vs. the return EML could now make under extreme market conditions.

Only if (a) economic headwinds exist and (b) EML is seen to be be in line for outsized returns will this be an issue. If those conditions were or are in the cards then that’s where I think it could explain the ESIA go-slow or govt wanting more value.

2. REGULATORY INTERVENTION - you thought it unlikely the government would press for equity because of the effect on inward investment. I agree. I said that I read many jurisdictions ask for 5-15%, thinking out loud, but sadly you can’t edit or remove posts. It seems unlikely.

3. BRIBERY ACT - you made an interesting point that the UK Bribery Act would prevent EML offering or the government seeking an advantage.

Two thoughts:

a) if it’s bothered, I do not see a government being limited by this. I could see the government saying “those aren’t our laws and it’s your problem to sort not ours - find a way through to get your ESIA”; and

b) I don’t think the Bribery Act is any limitation. It prevents advantages being given, typically to public officials etc. to get them to act improperly and there is a full defence if local laws allow advantages to be sought. Any deal here will go to a governmental organisation rather than an individual, the decision to grant the ESIA would not be an improper act (rather the expected behaviour) and local law may well allow deals to be struck, just as developers here enter into s106 agreements to put a local playground, etc. in to get their new build signed off, and its not ‘bribery’. The Shard in London and contribution to redevelopment of London Bridge Station is another example. If we have an operating company in territory, that may be even more distant.

So, no definitive analysis but I don’t see the UK Bribery Act preventing a government from withholding the ESIA consent for perks, of itself, particularly if it were to be able to show it was making any environmental concession that it would not normally make (I have no idea whether any concession is needed and do not suggest this build is anything unordinary; this only covers the concept that I can see that the business could be caught in a barter situation, even if it seems unfair).