TIDMEML
RNS Number : 8637E
Emmerson PLC
09 July 2019
Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining
9 July 2019
Preliminary Economic Assessment for Sale of Salt By-Product
Shows Potentially Strong Economics
Highlights
-- Internal Preliminary Economic Assessment completed for the
sale of de-icing salt into the East Coast US market
-- Khemisset Potash Project estimated to produce more than
4.6Mtpa of high-grade salt as a by-product of its potash
operations
-- PEA assumes conservative sales of 1Mtpa into the large USA de-icing salt market
o East Coast US market is estimated to be over 10Mtpa
o Upfront capital required US$12 million including 30%
contingency
-- Potential to deliver additional nominal post tax NPV(10) of
up to US$133 million based on historical US de-icing salt
prices[1]
o Strong post tax cash margins of nearly 40%
-- Additional post tax NPV(10) increases to US$266 million assuming 2Mtpa of salt sales
-- Strongly value accretive to Khemisset's already outstanding
post tax NPV(10) of US$1.14 billion assuming industry expert potash
price forecasts
-- Partnership discussions ongoing with suitable groups with
deep salt market expertise to unlock value from this additional
potential revenue stream
-- Next steps include further detailed market studies, product
specification reviews and integration to Khemisset Project process
design
-- The Company continues to make rapid progress on its
outstanding Khemisset Potash Project and is on track to deliver the
Feasibility Study in H1 2020
Emmerson Plc ("Emmerson" or "the Company"), the Moroccan focused
potash development company, is pleased to announce the results of
an internal Preliminary Economic Assessment ("PEA") completed on
the potential sales of de-icing salt by-product ("salt") from its
100% owned Khemisset Potash Project ("Khemisset").
The internal study showed the potential for salt to be marketed
in the East Coast US de-icing market competitively, delivering
attractive margins, due to the salt being a waste by-product of
potash production, the Project's locational advantages and the
outstanding infrastructure in Morocco. To view this announcement,
please use the following link:
http://www.rns-pdf.londonstockexchange.com/rns/8637E_1-2019-7-8.pdf
Hayden Locke, CEO of Emmerson, commented: "The PEA shows strong
potential for a viable by-product business selling salt from
Khemisset into the large US de-icing salt market. Based on
historical received prices for incumbent producers, we see the
potential for an additional US$25 million of post-tax cash flow, on
average, during steady state operations assuming sales of 1Mtpa of
salt per annum - less than 25% of the total by-product
produced.
"The East Coast US de-icing salt market is currently supplied
predominantly from Chile, Mexico and Morocco and our analysis shows
we have a strong transport and logistics advantage which will allow
our salt sales to be competitive into this large market.
"The Company continues to rapidly advance the outstanding
Khemisset Potash and we will continue to look at other value adding
opportunities as we move towards construction and production."
Further Information
The Company is developing the low capital cost, high margin,
Khemisset Potash Project, located in northern Morocco. Khemisset is
forecast to produce c.800,000 metric tonnes of K60 MOP per annum
over a minimum mine life of 20 years, in addition to producing more
than 4.6 million tonnes of waste salt per year of operation.
Based on preliminary studies, the Khemisset plant will produce a
relatively fine salt by-product with purity in excess of 95% NaCl.
This purity is saleable into the US de-icing market without
requiring any further product upgrading or processing, positively
impacting operating costs and margins. Compaction is expected to be
required due to the fine nature of the salt waste produced and the
strict sizing requirements for sales in the US market.
Salt is handled and shipped using the same infrastructure as
potash, so synergies are expected to be available and captured by
handling two bulk products. In addition, Morocco already exports
approximately 1 million tonnes of rock salt to the US de-icing salt
market per annum shipped out of both the Port of Mohammedia and the
Port of Casablanca. The Company will benefit from existing storage
and expertise in handling in these ports. The in-land logistics
model comprises of trucking to closest railway siding in Meknes
then loading into trains to take the product to Casablanca port
which is connected via railway. Casablanca is a significant port
with capability for large, deep draft, vessels which reduces
overall delivery cost to the US market.
Figure 1: Morocco Logistics and Infrastructure Solution
As a by-product, the salt is available with a very low operating
cost, with the only real additional cost being those associated
with compaction to meet the US de-icing market specifications and
the freight and logistics to get it to the US market.
Figure 2: Locational advantage of Khemisset Project to the US
Eastern-Coast de-icing market
The US de-icing salt market is the largest in the world with
approximately 27 million metric tonnes of demand per annum.
Emmerson will focus its strategy on supplying the east coast US
de-icing salt market due to Morocco's proximity to the market, the
lack of local supply and the supply gap created due to the closure
of the New Brunswick Potash Mine by Potash Corporation of
Saskatchewan in November 2018. The East Coast de-icing salt market
is estimated to be approximately 10 million tonnes of demand per
annum, of which approximately 75% is supplied via imports from
Chile, Mexico, Morocco and Canada.
Sensitivity Analysis
The estimated capital cost to monetise the salt by-product is
very low and, as a result, the post-tax NPV(10) is least sensitive
to capital cost and most sensitive to changes in assumed salt price
and operating cost.
A summary of various sensitivities can be seen below including
sale prices, operating costs, sales volume and discount rates.
NPV Sensitivity - Sales Price and Operating Cost
Sales Price - US$/metric tonne
Change in
Operating
Cost $50 $55 $60
------ ------------ ------------ ------------
-10% 100,804,059 127,412,196 154,020,334
------ ------------ ------------ ------------
0.0% 82,712,900 109,321,038 135,929,175
------ ------------ ------------ ------------
10.0% 64,621,742 91,229,880 117,838,017
------ ------------ ------------ ------------
NPV Sensitivity - Sales Price and Discount Rate
Sales Price - US$/metric tonne
Discount Rate $50 $55 $60
---- ------------ ------------- ------------
8% 103,562,197 136,606,755 169,651,312
---- ------------ ------------- ------------
10% 82,712,900 109,321, 038 135,929,175
---- ------------ ------------- ------------
12% 66,885,964 88,591,119 110,296,274
---- ------------ ------------- ------------
NPV Sensitivity - Sales Price and Volumes
Sales Price - US$/metric tonne
Sales Tonnes $50 $55 $60
---------- ------------ ------------ ------------
1,000,000 82,712,900 109,321,038 135,929,175
---------- ------------ ------------ ------------
1,500,000 123,746,775 163,658,981 203,571,188
---------- ------------ ------------ ------------
2,000,000 164,780,650 217,996,925 271,213,200
---------- ------------ ------------ ------------
The sensitivity analysis at a variety of received prices, which
are below the price per metric tonne received by incumbents from
2016 to 2018, shows a project with strong margins, significant
excess cash flow and NPV generation at a variety of prices.
The Company is in discussions with a variety of potential
partners with whom it could partner to develop and unlock the
potential of this ancillary revenue and profit stream.
**S**
For further information, please visit www.emmersonplc.com, follow
us on Twitter (@emmerson_plc), or contact: Emmerson Plc Tel: +44 (0) 207 236
Hayden Locke 1177
Edward McDermott
Jeremy King Optiva Securities Limited Tel: +44 (0) 3137 1904
Broker
Gaby Jenner St Brides Partners Ltd Tel: +44 (0) 20 7236
Melissa Hancock Financial PR/IR 1177
Notes to Editors
Emmerson's primary focus is on developing the Khemisset Potash
Project located in Northern Morocco. The project has a large JORC
Resource Estimate (2012) of 311.4Mt @ 10.2% K(2) O and significant
exploration potential with an accelerated development pathway
targeting a low capex, high margin mine. Khemisset is perfectly
located to capitalise on the expected growth of African fertiliser
consumption whilst also being located on the doorstep of European
markets. This unique positioning means the project will receive a
premium netback price compared to existing potash producers. The
need to feed the world's rapidly increasing population is driving
demand for potash and Emmerson is well placed to benefit from the
opportunities this presents.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014.
[1] Based on historical de-icing salt prices of between US$59
and US$61 per metric tonne from 2016 to 2018 as per Compass
Minerals 2018 Annual Report. Price and cost escalation of 1.5% per
annum.
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END
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