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. The eagerly anticipated Feasibility Study is due to be published later in Q2 2020.
Big agriculture investment drivers pushing up the MOP price
The United Nations 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 to improve the efficiency of farming.
Forthcoming Feasibility Study expected to highlight share price disconnect
There is a clear plan to further de-risk the Khemisset with its large JORC Resource Estimate of 537Mt @ 9.24% K2O (in-stu value US$30 billion) which is being rapidly driven towards production. In November 2019, the board pointed out that the post-tax NPV(10) of Emmerson’s project portfolio was then in excess of US$1.8 billion, which consists of MOP project – US$1.14 billion, SOP project – US$411 million and Salt project – US$226 million. With the FS in place, there is a clear pathway to allow production to start as early as 2022.
Compelling low capex development – which is rare in potash projects
Management has extensive potash development experience, previously with ASX listed Highfield Resources, and believe Khemisset has the potential to be a low capital cost development which is very rare in potash with scope for impressive economics even at modest potash prices.
Risked conservative NPV suggests potential upside of 400%
Our conservative valuation illustrates the clear potential. We update our coverage with an increased target price of 24p and Conviction buy stance.
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