Emmerson - Update
Development of a low capex, high margin potash project in an outstanding location to provide fertiliser to help feed the world
Emmerson first listed on the LSE in February 2017 as an investment company. In June 2018, the company was re-admitted following the RTO of Moroccan Salts Ltd which is developing 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 Muriate of Potash (MOP), which is the most widely used and cheapest source of potassium.
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Big agriculture investment drivers pushing up the MOP price
The UN 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 in improving the efficiency of farming.
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Large JORC resource potash project + significant exploration potential
Progress at Khemisset is being accelerated. The recently announced Scoping Study outlined a project with a post-tax NPV(10) of US$795 million and a IRR of 29.8% over a 20 year mine life based on MOP at a flat US$360/t. Using Argus Media forecast prices would see this NPV(10) rise to US$1.14 billion. More than 80,000m of historic drilling exists allowing feasibility study costs and timelines to be substantially reduced. Metallurgical tests could now allow the project to go straight into the BFS, with production beginning as early as 2022.
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Management targeting a low capex development – rare in potash
Management has extensive potash development experience, previously with ASX listed Highfield Resources, and believes Khemisset has the potential to be a low capital cost development which is very rare in potash and should allow the economics to work regardless of potash price.
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Risked conservative NPV suggests potential upside of 290%
Our conservative valuation illustrates the clear potential. We update our coverage with an increased target price of 13.48p and Conviction buy stance.
Emmerson does not have any operations or principal activities. Co. was formed to acquire a target company or business.
Align Research is a commissioned research company founded in November 2015 in order to provide the under-served smaller company space with high quality analysis. We have an initial focus on the natural resources sector, in which we see significant opportunities given the current once in a generation bear market, however all undervalued small caps (sub £100m) are considered by our team. Align was founded by industry professionals with decades of experience in the stock markets, headed up by highly qualified individuals from both fund management and analytical backgrounds.
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