By Dr. Michael Green

Emmerson’s Scoping Study would appear to be imminent. Well that was the language used in the latest announcement. The market had been expecting the results of the Scoping Study to be announced in early 2019, but interestingly, the company has changed its guidance. Now, management are not just talking about Q4 2018, but “imminently”.

This news accompanied the announcement regarding the potential for a very low capital cost port upgrade for the Khemisset Project. From the spate of announcements over the past month or so, investors have been placed in no doubt that Emmerson’s 100%-owned Khemisset Potash Project in Morocco has all the makings of being a low capex and high margin potash project. To us, this all suggests a really economically robust potash project and one which could be highly profitable at prevailing potash prices.

This latest news concerns the preliminary design and cost estimates for the port upgrade which will be required to allow the export of potash at the Port of Mohammedia from Khemisset. This work has been completed by independent Moroccan engineering consultants Sigma Plus and forms part of the Scoping Study, which is now expected to be published in Q4 2018. That is well ahead of the previous schedule. We believe that it could make for good reading given the series of highly positive announcements that have recently come from the company and cover most of the key facets of the Scoping Study.

The preliminary design and cost estimates for the port upgrade clearly shows potential for this to be achieved at a very low capex. That is because the total budgeted cost for construction of the port upgrade has been estimated to be US$7.5 million, which includes a 30% contingency. Already, there have been initial discussions with the local authorities which have indicated that the Port of Mohammedia has the capacity to handle the exports from Khemisset. This port lies 150 kilometres away from the proposed mine site at Khemisset, but there are additional options such as the proposed Port of Kenitra which could be a good alternative.

The port upgrade capex figures were derived for the design of a facility at the port which would be able to receive, unload and reload at least 800,000 tonnes per annum, depending on the frequency of trucks and ships. This design plan will allow trucks to unload 500 tonnes per hour, plus a 25,000 tonne capacity warehouse and loading facility allowing 1,000 tonnes per hour to be loaded from the warehouse onto ships.

So how does this port upgrade cost compare to those required by competitors? Well, the announcement highlighted the fact that there is an estimated capital cost saving of approximately 95% for the capex cost for the port upgrade, or more than US$190 million, relative to the cost of a recently constructed potash handling facility in Canada. These designs and estimates were completed according to the AusIMM guidelines for capital cost estimates.

There is no doubt that these low port upgrade costs further serve to reconfirm management’s strong belief that Khemisset has the potential to be a low capital cost development. Recent announcements have clearly demonstrated to the market that this project has low capex mine access, low capex logistic solutions together with low capex electrical and gas supply.

At the time of the latest announcement, CEO Hayden Locke was quick to point out that the: “…already completed design and cost estimates for the access to mineralisation, connection to logistics, and connection to electricity and gas supply and port facilities have highlighted the significant cost savings available to the Khemisset Project, which are estimated to amount to over US$1.2 billion compared to Canadian peers.”

The Scoping Study is now on course to be announced imminently. This study will outline the scale of the potential MOP project and importantly will come with economics wrapped around it and so will provide an NPV for a 700,000 – 800,000 tpa operation, as well as possibly a larger 1.5 Mtpa project. This will allow investors to appreciate the size of the prize.

From what we have seen so far, we wholly back management’s view that the Scoping Study for Khemisset will present a low capital cost, high margin proposition which should result in compelling economic metrics. It has to be pointed out that all this is happening against a backdrop of the potash market continuing to tighten. Market commentators have been highlighting prices at US$350-360 per tonne in Brazil.

We have little doubt that Khemisset is shaping up to be a highly profitable project which the Scoping Study looks on course to demonstrate. We initiated coverage on Emmerson in early September 2018, when the shares were standing at 2.92p, with a Conviction Buy stance and a target price of 12.05p. Now at 3.74p we retain our view.

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