Emmerson - Update

Development of a low capex, high margin potash project in an outstanding location to provide fertiliser to help feed the world

Emmerson first listed on the LSE in February 2017 as an investment company. In June 2018, the company was re-admitted following the RTO of Moroccan Salts Ltd which is developing the Khemisset Potash Project near Rabat in northern Morocco, a country where fertiliser giant OCP requires significant potash feedstock. Khemisset has a large JORC resource of Muriate of Potash (MOP), which is the most widely used and cheapest source of potassium.

  • Big agriculture investment drivers pushing up the MOP price

    The UN believes that the world will need to produce 70% more food by 2050, not just to meet the needs of its fast-growing population but also for a burgeoning middle class that is seeking a higher protein diet. Fertilisers led by MOP are seen to be vital in improving the efficiency of farming.

  • Large JORC resource potash project + significant exploration potential

    Progress at Khemisset is being accelerated. The recently announced Scoping Study outlined a project with a post-tax NPV(10) of US$795 million and a IRR of 29.8% over a 20 year mine life based on MOP at a flat US$360/t. Using Argus Media forecast prices would see this NPV(10) rise to US$1.14 billion. More than 80,000m of historic drilling exists allowing feasibility study costs and timelines to be substantially reduced. Metallurgical tests could now allow the project to go straight into the BFS, with production beginning as early as 2022.

  • Management targeting a low capex development – rare in potash

    Management has extensive potash development experience, previously with ASX listed Highfield Resources, and believes Khemisset has the potential to be a low capital cost development which is very rare in potash and should allow the economics to work regardless of potash price.

  • Risked conservative NPV suggests potential upside of 290%

    Our conservative valuation illustrates the clear potential. We update our coverage with an increased target price of 13.48p and Conviction buy stance.

  • RISK WARNING & DISCLAIMER

    Emmerson (EML) is a research client of Align Research. For full disclaimer information please refer to the last page of the full document. This investment may not be suitable for your personal circumstances. If you are in any doubt as to its suitability you should seek professional advice. This note does not constitute advice and your capital is at risk. This is a marketing communication and cannot be considered independent research.

Table: financial overview
Year to Dec 2017A* 2017A** 2018E 2019E
Revenue (£'000) - - - -
Pre-tax (£'000) (200) (207) (2,000) (2,400)
EPS (p) (1.21) (0.43) (0.53) (0.38)
Source: Company accounts & Align Research. *13 months ended 31 March 2017 **9 months ended 31 December 2017

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