Emmerson (LSE:EML) soared 16.1pc to 3.6p on Monday morning after announcing that it could significantly cut the capex requirements of its Khemisset potash project by using a different port.
The business said it could save $7.5m on the capex costs previously announced in a scoping study for its Morocco-based asset by using storage and loading facilities at the Port of Casablanca. It has previously been looking at using the Port of Mohammedia for the export of potash created at Khemisset.
The change in port would result in a slight increase in transport distance for the product, given the potential use of rail rather than trucks for the majority of the journey. Transport can often be a particularly expensive stage in the creation and delivery of potash due to the produc’s bulk and heaviness.
However, in Monday’s update, Emmerson said indicative mine-to-port logistics cost quotes from the Moroccan National Rail Company show no change in operating costs from Khemisset’s scoping study.
The business added that using Casablanca, a significantly larger port with a more significant draft capacity, would allow the loading of a broader range of vessel sizes. This has the potential to reduce overall bulk shipping costs to target markets like Brazil, it added.
Elsewhere, the company said it remains in discussions with numerous Moroccan entities, included the port authorities. It is looking at further opportunities to improve Khemisset’s economics ahead of upcoming feasibility studies.
The scoping study for Khemisset confirmed that it has the potential to be among the lowest capital cost, highest margin potash projects in the world. Forecast economics include EBITDA margins of more than 60pc and a post-tax NPV10 of over US$1.1bn based on industry expert price forecasts.
Emmerson’s chief executive Hayden Locke said it was ‘pleasing’ to see progress in the firm’s efforts to cut costs at Khemisset.
‘The Port of Casablanca is one of the largest and most modern in Africa and, consequently, it has outstanding infrastructure already in place. Discussions with the Port Authority suggest that we may be able to benefit from this; potentially reducing our capital costs further and having a net positive impact on our overall transport and logistics costs delivered to our target markets, including Brazil.
‘This is a positive development and it will form a key part of our analysis for the Feasibility Study. We are rapidly progressing Khemisset and look forward to keeping shareholders updated as we identify further areas of improvement for the Project during 2019."
Towards the end of last month, the firm hired Don Larmour of Global Potash Solutions to advise on metallurgy and processing at the asset as well as acting as a consultant for the feasibility study. Larmour has already conducted a detailed review of the Khemisset scoping study as part of his hiring process. Through this, he identified opportunities for the simplification and optimisation of the project’s design. Emmerson believes these have the potential to reduce capital and operating costs. He also suggested potential changes to Khemisset’s brine management strategy and identified several areas of focus for the next, more detailed design phase to further de-risk the project.
Author: Daniel Flynn
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