Emmerson making rapid progress on low-cost potash project


What does the company do?

Emmerson PLC (LON:EML) is developing the Khemisset potash project in northern Morocco.

The company has been led by chief executive Graham Clarke since the start of July 2020.

Clarke, who has 26 years’ experience in underground potash mining, brings a wealth of experience in building and operating teams to deliver large, complex projects in the fertiliser industry.


Details on the Khemisset potash project

The feasibility study valued the Khemisset project at US$1.4bn on a post-tax net present value basis, and estimated an internal rate of return of 38.5% over an initial 19-year mine life.

This initial mine life is based on a mine plan that so far addresses only 43% of the total mineral resource, which comprises a total of 537mln tonnes with an average grade of 9.24% K2O.

Khemisset’s pre-production capital cost for potash production only is estimated at US$387mln.

Significantly, that marks the project among the lowest-cost projects in the fertiliser space and puts it at less than half of the global peer average for capital intensity.

The future economics estimate underlying profits (EBITDA) above US$300mln per year, which suggests less than 2.6-year capital payback.

For an additional US$24mln of capital, a salt plant could be added to the project to produce de-icing salt for sale into the US east coast market.

This envisages peak production at 810,000 tonnes per year for Khemisset as a whole, producing agriculture sales grade (k60) muriate of potash (MOP) plus 1mln tonnes a year of de-icing salt. 

The average steady-state production rate is anticipated at 735,000 tonnes per year of K60 MOP and 1mln tonnes of de-icing salt.


How is it doing?

In April, the company completed a concept study to examine the potential to develop its Khemisset potash project in Morocco using a four-phased approach. The company said the phased approach will reduce upfront capital costs and execution risk.

The idea is to start with a smaller scale start-up operation producing muriate of potash (MOP), to be followed by a series of expansion phases to increase the level of MOP produced while adding in the production of de-icing salt in increasing quantities as well as premium potash product, sulphate of potash (SOP). The estimated upfront capital expenditure of the first phase is US$287mln.

Emmerson told investors that subsequent phases through to full production would likely be financed from internal cash flows.

In full production, the Khemisset Project could produce 800,000 tonnes per annum (TPA) of MOP, 240,000 TPA of SOP and 4mln TPA of de-icing salt, resulting in annual underlying earnings (EBITDA) in the first year of full production of US$491mln. This production rate is a significant increase to that envisaged in the feasibility study published in June of last year. Emmerson believes the increase is justified given the scale and quality of the Khemisset orebody.

Emmerson said in late March that James Kelly will take over as non-executive chairman, succeeding Mark Connelly when the company moves from the main market to AIM on April 26. Kelly is the founder and non-executive chairman of mining royalty and streaming firm Trident Royalties PLC (LON:TRR).

In January 2021 Emmerson PLC received a mining licence for Khemisset.

The licence provides the company with the exclusive right to develop and mine the potash deposit in the Khemisset basin, ahead of the anticipated initiation of construction by the end of 2021.

The grant of the licence follows a successful application process including the submission of a proven, JORC compliant, resource estimate and the confirmed technical and economic viability of the project, which was satisfied by the feasibility study.

This study highlighted Khemisset’s outstanding attributes, including industry-leading capital and operating costs and delivered an initial mine life of 19 years, based on less than 50% of the global resource base for the project.

Emmerson’s interim results in September showed that it made a £315,000 loss in the first half of 2020 and ended June with £793,000 of cash and equivalents in the bank. 

From the chief executive

“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,” said Graham Clarke, the chief executive officer of Emmerson, speaking about the company’s planned four-phase approach to developing Khemisset.

“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,” he added.


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