Emmerson’s (LON: EML) latest shareholder letter, published Thursday, spelled out not just the company’s achievements so far but also the huge potential of Khemisset in the rising potash market. As prices for the fertilizer climb higher and higher, the project’s latent value looks more attractive than ever.

Chief executive Graham Clarke noted stellar results from Emmerson’s feasibility study, which highlighted Khemisset’s“outstanding attributes”. These include a 19-year initial mine life, based on only half the project’s total resource base.

Not only that, but the study also praised the Moroccan project’s “industry-leading capital and operating costs”.

Adding to this promising news is the possibility presented by Khemisset’s mining licence, which covers the full resource base and would allow for a future “simple expansion” of operations with no need to re-permit.

The feasibility study found a $1.4 billion post-tax net present value, using a discount rate of 8%, and an initial run rate of 38.5% to produce around 810,000 tonnes of potash per annum over it initial mine life.

With its large JORC resource estimate of 537 million tonnes at 9.24% potassium oxide, the report found that the project has the potential to become a “world class” potash mine.

Low-costs and high margins further elevate Khemisset, as this is especially rare in the world of potash. Pre-production capital cost is only $387 million, not even half its global peer average capital intensity.

On top of this, Emmerson is also exploring the opportunity for phased development and expansion projects for Khemisset. These have the potential to shrink upfront capital costs even more while, at the same time, boosting production output and capturing margin. This would improve build even further on the project’s world class status, according to Clarke.

Emmerson’s phased approach includes a focus on minimising Khemisset’s upfront capital costs and taking salt sales to 4 million tonnes per annum. The firm also hopes to incorporate sulphate of potash into its wider development schedule, raise muriate of potash production by as much as 50%, and increase mine life by including further resources not already in the mine plan.

As Clarke explained: “It is the company's ultimate intention to realise the enormous potential of Khemisset whilst reducing funding and execution risk, with the intention of minimising shareholder dilution.”

Emmerson is currently advancing Khemisset towards production in 2023.

Potash market pushes Emmerson forward

The potash market is blooming, if the pun can be excused, with Clarke highlighting the current tailwind in the market within Thursday’s update. He explained that rising demand has been “tightening up the pricing that producers can set”.

“Clearly this is a helpful situation as we look to negotiate the strategic financing options to construct our mine,” the chief executive added.

He noted that, in the last four weeks, a number of producers have reported better prices as “strengthening fundamentals from 2020” begin to pay dividends. Emmerson’s peers have pointed to combinations of lower inventories, compelling farm economics, higher commodity prices, and cyclical recovery as reasons for the uplift.

So far. the monthly price rises from mid-2020 lows predicted by leading fertilizer industry analysts at Argus have come to pass. Prices in Brazil, “where Emmerson demonstrates its logistics advantage”, have been particularly strong, surpassing early-year forecasts by 10%.

Potash is an extremely important fertiliser and absolutely vital for the agriculture industry. It provides a stable source of potassium that improves crop yields, water retention, and disease resistance. Not only does it do all that, but Potash also makes food taste better thanks to Potassium’s essential role in starch and sugar production.

As the potash market outlook brightens, it will inevitably help Emmerson in its ongoing strategic and debt financing talks.

Future potential and move to AIM

It has been an exciting year for Emmerson, full of high-impact news. In particular, February saw the company not only complete a £5.5 million fundraise for the last critical components of Khemisset’s development work but also announce its planned move to AIM.

Clarke on Thursday commented on AIM’s status as “the market for ambitious, growth companies” and its ability to attract a “strong following”. The chief executive said that AIM is a better fit for Emmerson’s size and strategy right now, and will support both the company and its shareholders though the “rapid growth phase” expected over the coming months and years.

Emmerson expects momentum to keep growing thanks to its pipeline of operational and corporate updates set for release over the coming weeks, alongside a better and better pricing environment for the potash market.

“There is significant latent value in this project and I truly believe that all of our stakeholders are unanimous in their support of delivering Khemisset to market,” Clarke said.

Author: Anna Farley

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