Emmerson – Moving Quickly Towards Feasibility Stage – stock remains cheap

February 21, 2019 | Posted by


By Dr. Michael Green

There was a lot more to Emmerson’s latest announcement than meets the eye. It is indeed good news that Don Larmour of Global Potash Solutions has been appointed to advise the company on metallurgy and processing.  Mr Larmour is one of the most experienced potash processing experts on a global basis, and he will be acting as a consultant for the Khemisset Potash project Feasibility Study which is due to begin in H1 2019. He will be providing advice on all aspects of the upcoming metallurgical work programme and giving Emmerson the benefit of his extensive experience in crystallisation plant design and operations.

Mr Larmour P.Eng is a chemical engineer from Saskatchewan, Canada. Mining in Saskatchewan focuses on two commodities – potash and uranium. In all he has more than 38 years’ experience of working in the potash industry, which covers pilot plant and laboratory work all the way through to being the Mill General Superintendent at the PCS Cory potash mine. Mr Larmour has an in-depth knowledge of the potash industry and potash processing. After 28 years working in various process positions at Nutrien (PCS), he left to set up Global Potash Solutions which are experts in potash processing.

As part of the appointment process, Mr Larmour conducted a detailed review of the Scoping Study work that was completed by the processing consultant Ercosplan.  There were four key results from his review. Firstly, the reinforcement of the general processing philosophy and methodology that had been chosen by Ercosplan. Secondly, the identification of opportunities to both simplify and optimise the design which have the potential to reduce capital and operating costs by employing fewer crystallisation stages as well as lower steam energy consumption.

Thirdly, there are also potential changes to the brine management strategy to ensure brine ponds are appropriately sized and thereby reducing environmental waste production on site. Last but by no means least, a number of areas have been identified where attention will be focused next as the work moves into a more detailed, design phase to further de-risk the project.

We know that Khemisset has the potential to be among the lowest capital cost, highest margin potash projects in the world. This was confirmed following the publication of the Scoping Study in late-2018 when investors learnt that Khemisset had forecast EBITDA margins of more than 60% and a post-tax NPV10 in excess of US$1.1 billion based on industry expert price forecasts. Reading between the lines from this latest announcement, it looks as though there could be decent improvement in this NPV figure over the coming months.

The review of the process design identified areas of significant improvement which will likely lower capital and operating costs for processing. Our attention was immediately attracted to the potential saving on steam energy consumption. Truth is that steam energy makes up something like 30-40% of the total operating costs and so any decent saving here has scope to very significantly reduce the operating costs and therefore have a significant effect on the NPV.

It has to be pointed out that all this is happening at a time when potash prices seem to be firming up quite nicely, with the prices for the crop nutrient rallying after a long slump. Two of the world’s leading potash producers, Nutrien and Mosaic, have both suggested that 2019 could be a record year for potash demand. Once again, this year, Mosaic is talking a 500,000t supply deficit which last year was enough to push potash prices 20% higher. So it seems like Khemisset could come into production with exquisite timing.

After a bumper period of announcements in H2 2018, investors should be reassured that there is plenty more news flow to come this year from the considerable work programme as the company moves at full speed into feasibility studies. Investors may be concerned over funding. However, based on the current work programme, Emmerson is fully funded until Q1 2020.

Looking further ahead, there are probably four or five different ways of financing the project into production. Importantly, Emmerson has a board which are not strangers to raising such finance. In all, management has raised more than US$600 million for junior mining companies, of which more than US$400 million has been raised for potash projects.

Besides traditional solutions, Khemisset could attract strategic interest when the project has been fully designed. There is a potential strategic buyer for Emmerson called OCP which is based in northern Morocco. OCP has firm supplies of N and P to blend to create NPK fertilisers but does not have control over the K (potassium/potash) which it currently imports from Russia and the Dead Sea (Arab Potash in Jordan and Israel Chemicals). The more you look at this situation, the more obvious it becomes that the Khemisset Potash Project could prove to be the missing piece in the jigsaw.

We are positive that that Khemisset is shaping up to be a highly profitable project, which the Scoping Study well and truly demonstrated. We updated coverage on Emmerson in late-November 2019 when the shares were standing at 3.45p, confirming our Conviction Buy stance and an increased target price of 13.48p.


Emmerson is a research client of Align Research.

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