Last checked at 9 Jul 2019 07:00
Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining
9 July 2019
Preliminary Economic Assessment for Sale of Salt By-ProductShows Potentially Strong Economics
Highlights
· Internal Preliminary Economic Assessment completed for the sale of de-icing salt into the East Coast US market
· Khemisset Potash Project estimated to produce more than 4.6Mtpa of high-grade salt as a by-product of its potash operations
· PEA assumes conservative sales of 1Mtpa into the large USA de-icing salt market
o East Coast US market is estimated to be over 10Mtpa
o Upfront capital required US$12 million including 30% contingency
· Potential to deliver additional nominal post tax NPV10 of up to US$133 million based on historical US de-icing salt prices[1]
o Strong post tax cash margins of nearly 40%
· Additional post tax NPV10 increases to US$266 million assuming 2Mtpa of salt sales
· Strongly value accretive to Khemisset's already outstanding post tax NPV10 of US$1.14 billion assuming industry expert potash price forecasts
· Partnership discussions ongoing with suitable groups with deep salt market expertise to unlock value from this additional potential revenue stream
· Next steps include further detailed market studies, product specification reviews and integration to Khemisset Project process design
· The Company continues to make rapid progress on its outstanding Khemisset Potash Project and is on track to deliver the Feasibility Study in H1 2020
Emmerson Plc ("Emmerson" or "the Company"), the Moroccan focused potash development company, is pleased to announce the results of an internal Preliminary Economic Assessment ("PEA") completed on the potential sales of de-icing salt by-product ("salt") from its 100% owned Khemisset Potash Project ("Khemisset").
The internal study showed the potential for salt to be marketed in the East Coast US de-icing market competitively, delivering attractive margins, due to the salt being a waste by-product of potash production, the Project's locational advantages and the outstanding infrastructure in Morocco. To view this announcement, please use the following link: http://www.rns-pdf.londonstockexchange.com/rns/8637E_1-2019-7-8.pdf
Hayden Locke, CEO of Emmerson, commented: "The PEA shows strong potential for a viable by-product business selling salt from Khemisset into the large US de-icing salt market. Based on historical received prices for incumbent producers, we see the potential for an additional US$25 million of post-tax cash flow, on average, during steady state operations assuming sales of 1Mtpa of salt per annum - less than 25% of the total by-product produced.
"The East Coast US de-icing salt market is currently supplied predominantly from Chile, Mexico and Morocco and our analysis shows we have a strong transport and logistics advantage which will allow our salt sales to be competitive into this large market.
"The Company continues to rapidly advance the outstanding Khemisset Potash and we will continue to look at other value adding opportunities as we move towards construction and production."
Further Information
The Company is developing the low capital cost, high margin, Khemisset Potash Project, located in northern Morocco. Khemisset is forecast to produce c.800,000 metric tonnes of K60 MOP per annum over a minimum mine life of 20 years, in addition to producing more than 4.6 million tonnes of waste salt per year of operation.
Based on preliminary studies, the Khemisset plant will produce a relatively fine salt by-product with purity in excess of 95% NaCl. This purity is saleable into the US de-icing market without requiring any further product upgrading or processing, positively impacting operating costs and margins. Compaction is expected to be required due to the fine nature of the salt waste produced and the strict sizing requirements for sales in the US market.
Salt is handled and shipped using the same infrastructure as potash, so synergies are expected to be available and captured by handling two bulk products. In addition, Morocco already exports approximately 1 million tonnes of rock salt to the US de-icing salt market per annum shipped out of both the Port of Mohammedia and the Port of Casablanca. The Company will benefit from existing storage and expertise in handling in these ports. The in-land logistics model comprises of trucking to closest railway siding in Meknes then loading into trains to take the product to Casablanca port which is connected via railway. Casablanca is a significant port with capability for large, deep draft, vessels which reduces overall delivery cost to the US market.
Figure 1: Morocco Logistics and Infrastructure Solution
As a by-product, the salt is available with a very low operating cost, with the only real additional cost being those associated with compaction to meet the US de-icing market specifications and the freight and logistics to get it to the US market.
Figure 2: Locational advantage of Khemisset Project to the US Eastern-Coast de-icing market
The US de-icing salt market is the largest in the world with approximately 27 million metric tonnes of demand per annum. Emmerson will focus its strategy on supplying the east coast US de-icing salt market due to Morocco's proximity to the market, the lack of local supply and the supply gap created due to the closure of the New Brunswick Potash Mine by Potash Corporation of Saskatchewan in November 2018. The East Coast de-icing salt market is estimated to be approximately 10 million tonnes of demand per annum, of which approximately 75% is supplied via imports from Chile, Mexico, Morocco and Canada.
Sensitivity Analysis
The estimated capital cost to monetise the salt by-product is very low and, as a result, the post-tax NPV10 is least sensitive to capital cost and most sensitive to changes in assumed salt price and operating cost.
A summary of various sensitivities can be seen below including sale prices, operating costs, sales volume and discount rates.
NPV Sensitivity - Sales Price and Operating Cost | ||||
Sales Price - US$/metric tonne | ||||
Change in Operating Cost |
| $50 | $55 | $60 |
-10% | 100,804,059 | 127,412,196 | 154,020,334 | |
0.0% | 82,712,900 | 109,321,038 | 135,929,175 | |
10.0% | 64,621,742 | 91,229,880 | 117,838,017 | |
NPV Sensitivity - Sales Price and Discount Rate | ||||
Sales Price - US$/metric tonne | ||||
Discount Rate |
| $50 | $55 | $60 |
8% | 103,562,197 | 136,606,755 | 169,651,312 | |
10% | 82,712,900 | 109,321, 038 | 135,929,175 | |
12% | 66,885,964 | 88,591,119 | 110,296,274 | |
NPV Sensitivity - Sales Price and Volumes | ||||
Sales Price - US$/metric tonne | ||||
Sales Tonnes |
| $50 | $55 | $60 |
1,000,000 | 82,712,900 | 109,321,038 | 135,929,175 | |
1,500,000 | 123,746,775 | 163,658,981 | 203,571,188 | |
2,000,000 | 164,780,650 | 217,996,925 | 271,213,200 | |
The sensitivity analysis at a variety of received prices, which are below the price per metric tonne received by incumbents from 2016 to 2018, shows a project with strong margins, significant excess cash flow and NPV generation at a variety of prices.
The Company is in discussions with a variety of potential partners with whom it could partner to develop and unlock the potential of this ancillary revenue and profit stream.
**ENDS**
For further information, please visit www.emmersonplc.com, follow us on Twitter (@emmerson_plc), or contact:
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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.
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.
[1] Based on historical de-icing salt prices of between US$59 and US$61 per metric tonne from 2016 to 2018 as per Compass Minerals 2018 Annual Report. Price and cost escalation of 1.5% per annum.