Last checked at 15 Apr 2021 07:00
Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining
15 April 2021
Emmerson Plc ("Emmerson" or the "Company")
Update on Phased Development Strategy
Emmerson plc, the Moroccan focused potash development company, is pleased to provide an important update on the assessment of a conceptual, phased development plan for its 100% owned Khemisset Potash Project ("Khemisset" or "the Project"), aimed at reducing upfront capital costs and incorporating expansion options (RNS dated 17 February 2021).
Highlights
· Conceptual, phased development plan completed resulting in major value enhancing opportunities:
o Significantly reduced up-front capex of US$254.6m (pre-contingency)
o Potential for subsequent phases to be funded from internal cash flows
o Estimated NPV8 US$2.37 billion (assuming phase 4 production)
o Forecast EBITDA in first full year of phase 4 production of US$491.4m
· Demonstration of flexibility and additional potential of Khemisset
· Emmerson to continue Project development utilising outputs of this phased approach study
Overview
Building on the Feasibility Study ('FS') (refer announcement 1 June 2020), the Company has completed a concept study to examine the potential to develop Khemisset using a four-phased approach to reduce upfront capital costs and execution risk, and plan additional expansion stages to ensure that its economic value is fully developed.
The intention of the Company remains to build the full-scale project as identified in the FS, however, the report, undertaken to scoping study levels, identifies the opportunity to commence with a smaller scale start-up operation producing Muriate of Potash ("MOP"), which would be followed by a series of expansion phases to increase the level of MOP produced, and add in the production of de-icing salt in increasing quantities as well as premium potash product, Sulphate of Potash ("SOP").
The upfront capex for this strategy, including contingency, is estimated at US$287m. Subsequent phases through to full production would likely be financed from internal cash flows. In full production, the Khemisset Project could produce 800ktpa of MOP, 240ktpa of SOP and 4mtpa of de-icing salt, resulting in an annual EBITDA in the first year of full production of US$491m. This production rate is a significant increase to the existing FS, which the Company believes is justified given the scale and quality of the Khemisset orebody.
Key metrics of this phased approach are as follows:
Phase 1 | Phase 2 | Phase 3 | Phase 4 | Total | |
MOP Production (t) | 350,000 | 385,000 | - | 270,000 | 1,005,000 |
MOP consumed by SOP production (t) | - | - | (205,000) | - | (205,000) |
MOP Sold (t) | 350,000 | 385,000 | (205,000) | 270,000 | 800,000 |
SOP Production (t) | - | - | 240,000 | - | 240,000 |
De-icing salt (NaCl) Production (t) | - | 1,000,000 | 1,000,000 | 2,000,000 | 4,000,000 |
Capex (incl. contingency) | US$286.9m | US$140.0m | US$143.7m | US$130.4m | US$701.0m |
NPV8 | US$518.5m | US$1.06bn | US$1.71bn | US$2.37bn | US$2.37bn |
Annual EBITDA | US$63.9m | US$199.1m | US$334.1m | US$491.4m | US$491.4m |
Graham Clarke, CEO, commented: "This work demonstrates that the Project has the flexibility to be developed in phases, whilst further proving the world class nature of Khemisset. With significant expansion potential that adds huge value to the Project, we are now confident that we could develop Khemisset using a staged approach potentially reducing upfront capital costs and equity requirements from the market and, therefore, dilution to our existing shareholders as we grow to our full potential.
"2021 continues to be a pivotal year for Emmerson as we move forward in the development of what is to become the first large scale potash mine in Africa."
Further Detail
The aim of the study was to first identify and confirm whether there is the potential for a lower capex phase of development and then to demonstrate that additional development phases could follow which would expand the Project both in terms of product offering and overall capacity.
Four phases were identified, the construction requirements assessed, and the associated costs analysed.
The first phase focuses on a reduced MOP output stage where the development of the declines and mine would be similar to the FS base case but with a reduced capacity process plant which would result in lower upfront capex. The savings generated are not proportional to the reduction in output as the benefits of scale are not completely captured and the general infrastructure costs remain the same.
The second phase expands MOP production to the same level as in the FS with the addition of 1mpta of de-icing salt produced, as in the FS. The additional capex required facilitates the expansion of the process plant capacity along with the salt production plant and additional costs in mine development.
Phase three brings in an SOP production facility, expected to be located at the port of Jorf Lasfar, in addition to an increase of de-icing salt production to the level of 2mtpa. The additional capex required is for the construction of the SOP facility and the expansion of the salt production plant.
The final phase includes the development of the south-west (SW) area of the resource via two new declines with the ore being transported to the existing process plant which is expanded to increase the capacity to a total of over 1mtpa of MOP a portion of which provides feed into the SOP facility. In addition, this phase sees the further expansion of de-icing salt production to a total of 4mtpa. The additional capex required for this phase covers the establishment of the access and infrastructure for the SW mine and also the expansion of the salt plant to double the capacity to 4mtpa.
**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 project ("Khemisset" or the "Project") located in Northern Morocco. The Project has a large JORC Resource Estimate (2012) of 537Mt @ 9.24% 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 Feasibility Study released in June 2020 indicated Khemisset 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 NPV10 of approximately US$1.4 billion using industry expert, Argus', price forecasts.