Emmerson PLC looks to get funding for Khemisset in place by the end of the first half of the year, w

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Shares in Emmerson PLC (LON:EML) are currently trading just a few fractions of a penny off their all-time highs, and it’s not hard to see why.

The company has just been granted a mining licence for its Khemisset potash project in Morocco, following the completion in 2020 of a feasibility study that demonstrated the economics of what could potentially become a huge project.

That study put the net present value of Khemisset at US$1.4bn, and showed that over a 19 year mine life the internal rate of return was likely to run at over 38%.

The numbers assume steady state production of 735,000 tonnes of muriate of potash per year, plus a million tonnes of by-product de-icing salt.

But there’s always been room for further refinement and, with the mining licence in place and fundraising efforts now getting underway in earnest, Emmerson is beginning to explore wider options.

Quite possibly – and against the usual trend of companies at the financing stage – the project could actually be made bigger.

It’s an option in part because the mine life was predicated on only around half of the known resource at Khemisset. Bringing the rest into the plan at this stage will likely push up overall production rates, and push the mine life out even further too.

So, it’s now mooted that muriate of potash production (MOP) might be boosted by 50%, that planned sulphate of potash production could be brought forward, and that by-product salt sales could be increased to 4mln tonnes per year.

No wonder the support in the market is strong, and the price is holding up well.

But there’s still plenty of work to be done, as chief executive Graham Clarke explains.

“Now that the mining licence is in place, the next significant permit is the environmental licence,” he says.

“That’s now in due process with the authorities. We’ve had a series of meetings with that will hopefully result in our environmental permit coming shortly.”

After that, the key hurdle is the funding.

“We’re working with a number of potential strategic partners,” says Clarke.

“Two or three have them have gone through due diligence and we’re optimistic we’ll bring some on board. And we continue to talk to other parties. The target is to have the funding package in place for the beginning of the third quarter.”

The structure of the funding will be fairly standard: some combination of debt and equity, with the reassurance of off-take agreements to guarantee sales.

The recent statements about flexibility in regard to the parameters of the feasibility study ought to make an impact too. Precisely what parameters eventually get used in constructing Khemisset will probably depend on the outcome of discussions between Emmerson and its funding partners.

But whatever the decision on scale, Clarke expects construction to be getting underway by the end of this year.

In the meantime, there’s always the possibility, of course, that a larger company may come out of leftfield and make a bid, secure in the knowledge that the project works and can get funding. But Clarke is making no assumptions on that.

The plan is to take the project all the way into production, and keep on working it from there.

And he’s enthusiastic about that possibility.

“There’s so many synergies involved in building a potash mine in Morocco,” he says.

That’s because the world’s largest phosphate producer is in-country, but has to import all the MOP it needs for its production processes. Having a new source of MOP will be a no-brainer if the mine comes on stream. No deals have been done yet, but it’s easy to see where discussions on off-take might lead.

Then there’s the mine itself. Clarke likes the location, and he likes the geology. It’s just 15 kilometres away from a major power source, and pretty close to the coast too, if Emmerson does end up exporting to a market like Brazil. The resource itself is shallower than your average Canadian potash project, and thus much less expensive to mine.

“It’s a straightforward low-risk, low-capital project, with the product going into a market with demand forecast to increase 2-3% per year,” says Clarke.

“It isn’t complicated.”

And he should know. He’s experienced in the management of potash mines, having worked his way up in the industry in the UK, and managed the well-known Boulby mine for a time. That mine was, at times, a challenge. But the experience of working through those challenges, he says is good to bring to Khemisset

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