Emmerson – Positive operations update

September 15, 2020 | Posted by

By Dr. Michael Green

A good and clear announcement from Emmerson this morning outlined the exciting progress being made towards potash production. It was a confident statement which reads well on many levels and ought to attract the spotlight back on to this out and out growth stock. Emmerson is being positioned to become one of the lowest cost producers of Muriate of Potash (MOP) into the massive Brazilian market.

The big news coming out of the latest project update seemed to us to be three-fold. Firstly, debt discussions, strategic discussions, investor discussions etc are underway and progressing well. Secondly, permitting is well underway and the company is targeting to submit its application before the end of the year with main permits expected to be place in H1 2021. Thirdly, staged development has potential to significantly reduce upfront capex, making it easier to finance.

At the time, Graham Clarke, CEO was quick to point out that “This is now a pivotal time for Emmerson as we continue to make excellent progress with the delivery of the Khemisset Project and move closer to construction.  The team continue to add value and the ongoing workstreams shall enhance what is already a world class project.”

Making the project easier to finance by significantly reducing upfront capex – this really got our interest.  We have always been drawn to the compelling low capex development opportunity which Khemisset provides – which is rare in potash projects. There is no doubt that 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 with scope for impressive economics even at modest potash prices. Now it looks as though it could be be staged, which makes it all much more affordable and easier to get funded.

Such a phased approach to mine development should be welcomed as this is a proven business model for risk reduction. The strategy of building a mining project in phases serves to speed up timelines and reduces upfront investment spend. Success at each stage makes for the responsible de-risking of the project and demonstrates economic viability which justifies further investment which can be gained at a more advantageous rate.

Importantly, on this issue, the company mentioned that the valuable product off-take has not yet been allocated. The potash market is dominated by a handful of majors, so Emmerson’s independence of supply must be a really major attraction to various potential partners.

Emmerson is in the midst of developing a world class mining asset in an outstanding location to provide fertiliser to help feed the planet. The company is developing its 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 MOP, which is the most widely used and cheapest source of potassium.

Big agriculture investment drivers are 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.

With all that going on, we have to mention that the Feasibility Study (FS) announced in June 2020 highlighted a dramatic share price disconnect. Khemisset came through the FS with flying colours demonstrating potential to be a world class, low capex, high margin potash mine. The post-tax NPV(8) came out at US$1.4 billion, with a 38.5% IRR plus robust cash generation. With the FS in place and the new lower up-front capex, financing discussions can now be finalised and there is a clear pathway to allow production to start as early as 2022. These might look like ambitious plans, but the Emmerson management team has always been ambitious and has not disappointed us yet.

We remain positive that that Khemisset has the potential to become a highly profitable project. With the shares currently standing at 4.25p. we are happy to confirm our Conviction Buy stance.


Emmerson is a research client of Align Research.

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