Fertiliser firm Emmerson (LSE:EML) inched up 1.7pc to 4.5p on Monday morning after signing an initial agreement with Morocco’s leading gas distributor for its Khemisset potash project in the country.

The business has signed a memorandum of understanding with Afriquia Gaz to work towards a long-term supply agreement for gas to the project. As part of this, the firms have agreed to look at the best method of supplying gas to Khemisset and the most appropriate source of gas. This will involve looking at existing infrastructure, producing, and proposed gas fields in Morocco as well as pipeline or regular truck delivery.

Emmerson believes a deal with Afriquia, which currently delivers significant quantities of Liquified Petroleum gas to numerous major industrial consumers across Morocco, can help to enhance Khemisset’s economics. In particular, the organisation said it would look at whether it could act as a cornerstone Afriquia customer as the latter continues to expand its pipeline distribution business. Emmerson believes this could allow for a cheaper long-term gas price with an equally low-cost capital solution.

A recent scoping study for the project 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 has recently been identifying numerous ways of improving project economics before the project enters the feasibility stage. This has seen it determine new mine-to-port logistics, complete an environmental baseline study, and begin metallurgical testing. Most recently, it signed heads of agreement with an as-yet-unnamed global fertiliser for the offtake of 100pc of the production from Khemisset. The initial deal, which exceeded even Emmerson’s expectations, prompted a spike in the company’s share price.

On Monday, the business’s chief executive Hayden Locke said energy is a ‘major operating cost’ for Khemisset, meaning that even a slight improvement can enhance project economics significantly.

‘We believe that our energy needs will be supplied via low capital cost solutions at competitive long-term operational prices, further supporting Emmerson's potential to become one of the World's lowest cost and highest margin potash producer,’ he added. ‘Strong in-country partners will be fundamental to underpinning the capital and operating costs of our upcoming Feasibility Study, and this MoU demonstrates the willingness of leading companies in Morocco to work with Emmerson. The comprehensive metallurgical test work programme is progressing well in addition to ongoing discussions with potential strategic partners.  I look forward to continuing to update shareholders with details of our progress as we advance towards the publication of the Feasibility Study.’

Author: Daniel Flynn

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