Thursday, September 28th 2023

Emmerson Plc

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Can Emmerson’s unique approach to the fertiliser market make it the next big potash player?

Emmerson re-listed in June to focus on the potash market, where it plans to take advantage of changing demographics and food consumption trends in Africa and other locations globally via a project in Morocco. With shares currently sitting at 2.9p, slightly below their recent placing price, we look at whether it is worth taking a punt on Emmerson at this early stage before it potentially captures the attention of the broader market.

Sowing the seeds

Emmerson expects potash to be vital in improving crop quality as global food demand increases in line with population growth, changing tastes and an ongoing drop in the amount of arable land across the world per capita. Chief executive Hayden Locke told Total Market Solutions:

‘The potash market is a very interesting place to be right now. We are seeing very strong potash demand – in fact, this year will mark two years of record global demand in a row – against a rebalancing supply, including approximately 7m tonnes of capacity closing in the period up to 2020. This is causing a rebound in potash prices for the first time in a decade, with prices up nearly 30pc in 12 months across Emmerson’s key markets. With forecasts that, by 2050, our planet will have to feed an additional 1.8bn people, fertiliser, including potash, will be an increasingly critical ingredient in worldwide food production, which means the long-term thesis for agricultural commodities is as strong as ever.’

In particular, Emmerson focuses on Morocco, one of the fastest growing potash consumers in the world. Its operations here give it easy access to Africa, owner of 60pc of the world’s uncultivated arable land and one of the world’s lowest fertiliser application rates- an ideal dynamic for a burgeoning potash producer. On top of this, Morocco is also favourably located to Brazil and Europe, two other key potash markets. Emmerson expects this to give it a premium netback compared to existing potash producers, who often struggle to make a margin thanks to the high cost of producing and transporting potash.

The jewel in the crown

Emmerson’s flagship asset is an exploration property called the Khemisset Potash Project that contains a large potash JORC compliant resource of 311Mt at 10.2pc potassium oxide, with exploration upside. As well as having a vast supply, the site is close to a large port and surrounded by established infrastructure.

The business believes Khemisset could emerge as a highly competitive global potash mine and is targeting the production of 60pc K2O muriate of potash, the most common and saleable grade of all potassium-bearing products. It hopes to secure low capital costs and high margins to support a project that can operate even at low potash prices with a mine life of more than 20 years. Locke told us:

‘The Khemisset Potash Project, with its existing resource, already provides a compelling proposition, especially considering it only covers a small portion of the prolific Khemisset potash basin and project area. Potash projects are, in general, held back due to their tendency to have exceptionally high capex. This is mostly driven by mining access cost, as well as lack of infrastructure near the project. This is where Khemisset differentiates itself from its peers. Thanks to fantastic infrastructure in Morocco, a relatively shallow deposit with no unconstrained aquifer and the project’s proximity to numerous ports accessing four key potash markets, we believe we are in a strong position to have a significantly lower capex than the majority of peers. Due to Khemisset’s location, it will be able to deliver a premium netback price versus those same peers.’

Using the £6m it raised when it re-listed, Emmerson has hit the ground running at Khemisset, completing a seismic survey in July to delineate the site’s basin and get information on its structures and faulting. The results are currently being processed and interpreted and are expected to be received in Q3 this year. These will inform an ongoing scoping study scheduled to complete in Q1 2019, which, in turn, will be used to assess the site’s technical and economic viability. Alongside this, Emmerson hopes to finish a preliminary feasibility study and carry out necessary permitting in 2019/20.

Importantly, the firm also announced the discovery of a significant exploration target at the site this month, covering an area of c.87km2 that sits within a recently granted research permit area. The target ranges from 264-616 million tonnes and at the upper end is more than double the current Inferred Mineral Resource, and Emmerson said it is supported by historical drilling. Further drilling, targeting confirmation of potash thickness and grade is scheduled to start in H2 2019. As Locke put it to us:

‘The new exploration target covers around 87 km2 to the north-east of our existing licences and previous drilling and seismic has been used to define an exploration target of between 264-616 million tonnes at a grade of 5.0-14.0% K2O. Going by the top end figures of those estimates, the exploration target has the potential to more than double our existing resource at Khemisset and, if this is correct, we will clearly be looking at a significantly longer life of mine.  For now, our focus remains on delivering the Scoping Study in Q1 2019, which will give us an indication of the economic potential of Khemisset. Work is progressing well, and we anticipate a number of technical studies, which form a key part of the Scoping Study, to be released to the market in the coming weeks and months. These items, we hope, will continue to confirm our view of the Project’s low capex potential.’

Leading the way

It is early days for Emmerson with Khemisset still in development, and whilst the business is not yet generating revenue, there is much confidence to be had in the experience offered by the company’s senior management. Locke, who joined when the firm re-listed, is a seasoned mining executive with around 15 years of experience. Alongside corporate development head Phil Cleggett, he worked extensively on a similar potash project to Khemisset located in Spain during his time at Highfield Resources.

Likewise, in July, the business appointed industry veteran Mark Connelly as chairman of its board. Connelly has c.30 years of experience in financing, developing, constructing, and operating mining projects. He is currently non-exec chair of ASX-listed West African Resources and was previously chief executive of Papillon Resources as well as a board member at Tiger Resources and Ausdrill.

Despite its management experience and progress, Emmerson’s shares have struggled to gain traction in these early days of trading. As at the time of writing, they sit at 2.8p, below June’s 3p placing price. The market has yet to sit up and take note of the company’s narrative, but Locke indicates that this could soon change:

‘We have hit the ground running since our re-admission in June, with the scoping study already well underway, and we are looking forward to a period of high-impact newsflow over the coming months as we continue to assess the potential of the Khemisset Project. In the coming weeks and months, we will release a variety of technical studies including the seismic interpretation and capital cost estimates for various portions of the project including the mine access, electrical power and road and transport infrastructure.’

Emmerson offers some potential near-term value drivers in the form of its planned development milestones at Khemisset between now and the end of 2019. If you believe in the company’s approach to an interesting thematic, then it could be worth taking advantage of current weakness and getting in the door early.

Jeremy Naylor recently spoke to Phil Cleggett for IG Index TV
The author does not hold shares but was remunerated for this interview