Emmerson (LSE:EML) jumped 11.3pc to 4.3p on Monday after announcing an offtake agreement for 100pc of the potash produced at its flagship Khemisset project. The firm revealed that it has signed a heads of agreement for up to 800,000 metric tonnes of K60 muriate of potash a year over an initial five years.
Although it has not named the party with whom the deal has been made, Emmerson said the business is a leading global fertiliser trading, distribution and marketing company. In particular, it noted the partner has a significant footprint in the Brazilian market, as well as a presence in Africa and North Western Europe. These are areas where Khemisset has a strong transport and logistics advantage thanks to being based in Morocco.
The two organisations have agreed a binding exclusivity period until 30 September to negotiate commercial terms for a binding supply and off-take agreement.
Emmerson added that the deal underpins Khemisset’s ‘forecast industry-leading operating margins’ and reinforced its ‘status as a world-class potash project’ ahead of talks with potential debt-financing partners. A scoping study at Khemisset forecast 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 added that Monday’s announcement represented an ‘important step’ for the business:
‘We believe potash produced in Morocco will be in significant demand for a number of important consuming markets, and this Heads of Agreement reinforces that belief. Our partner's footprint in the fast growing Brazilian and more mature North West European markets makes them an ideal partner for Emmerson as we focus on those markets where we would have a strong transport and logistics advantage.
‘The benefit of location has been clearly demonstrated in our Scoping Study and we continue to expect Khemisset to be among the highest margin potash projects in the world, generating outstanding returns for our shareholders. Strong sales and marketing partners will be fundamental to supporting our eventual discussions with financing partners and we believe our sales partner will provide significant confidence to all potential lending syndicates for the Project.’
Author: Daniel Flynn
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