Emmerson: Audited Results YE 31 Dec 2021

31st May 2022 | Emmerson PLC

Audited Results for the year ended 31 December 2021

Emmerson, which is developing the world class Khemisset Potash Project in Morocco (‘Khemisset’ or the ‘Project’), is pleased to announce its audited results for the 12 months ended 31 December 2021. The Group’s Annual Report, which includes an unqualified audit report and audited Financial Statements for the year ended 31 December 2021, will be made available on the Company’s website at www.emmersonplc.com

HIGHLIGHTS

  • Considerable operational, corporate and commercial progress made towards delivering a “shovel ready” project, and establishing Khemisset as Africa’s first large-scale potash mine
  • Significant improvement in potash prices highlights potential upside to Feasibility Study estimates (including NPV8 of US$1.4 billion)
  • Cornerstone investment secured in November 2021 of up to US$46.8 million from strategic investor
  • Advancing negotiations with a range of international and Moroccan institutions on both the debt and equity sides, underscoring the attractive economics of the Project
  • Mining Licence granted in February 2021
  • Environmental and Social Impact Assessment completed to IFC standards, and environmental approval process continuing to progress towards the final awarding of the permit
  • Move to AIM completed in April 2021
  • Board strengthened by appointment of James Kelly as Chair, and Rupert Joy as Non-executive Director, while Jim Wynn was appointed in February 2022 as CFO
  • Operational and technical capabilities enhanced through the appointment of Josh Mitchell as Project Controller, Haitam Ennadif as Project Engineering Manager and Matt Wilmot as Technical Services Manager.

CHAIRMAN’S STATEMENT

It gives me great pleasure to present the 2021 Annual Report for Emmerson in my first full year as Chairman.

Just as the world was cautiously beginning to emerge from the restrictions related to COVID-19, the war in Ukraine has unleashed a fresh set of challenges, the full impact of which are not yet known but will most likely affect us all for a considerable period of time.

The humanitarian catastrophe that is unfolding is unquestionably the most immediate concern and we all wish for a peaceful conclusion as quickly as possible. The crisis has also brought into sharp focus the fragility of the global supply chain for some of our most basic commodities, including hydrocarbons for fuel and energy, and foodstuffs to feed a growing global population.

The importance of food security has never been clearer, and potash has a key role to play. Potassium is one of the three key plant macronutrients (along with nitrogen and phosphorous), making potash a critical raw material for fertiliser.

Around 40% of global potash production in 2021 came from Russia and Belarus, and these supplies are likely to be constrained by sanctions of various natures for some time to come. Against this backdrop, the need to bring new sources of potash on stream is of paramount importance; arguably more urgent than the widely recognised challenges around critical metals.

Emmerson’s Khemisset Potash Project is well-positioned to help meet this need. It is a high-margin and low-capex project which has a construction period of approximately two years. The Feasibility Study completed in 2020 indicated a JORC Resource of 537 million tonnes at 9.24% K2O, sufficient to supply 735k tonnes of Muriate of Potash (“MOP”) annually for a life of at least 19 years.

The project is situated in Morocco, which is a stable, mining- and investor-friendly jurisdiction with excellent infrastructure. The site is approximately 200km from the commercial port of Casablanca, and transportation is likely to be by truck, using high-quality public highways.

The geographic location of Morocco is also advantageous. Much of the global potash demand growth is likely to be in the Atlantic corridor between the Americas and Europe/Africa. Apart from the potash from Russia/Belarus, the majority of current potash supplies come from central Canada, with long haulage distances by road and sea, a logistical challenge which is exacerbated by current high shipping costs.

Morocco is an actor of growing importance in Africa, which has the world’s highest population growth, but yet uses just a small fraction of the fertiliser per hectare of cultivated land of China, North America, or Europe. Morocco is already an established phosphate exporter and fertiliser hub, but currently imports its potash. Khemisset will provide a local source which would offer security of supply with significantly reduced transport costs.

We made some significant steps towards bringing the Khemisset project into production during 2021 and have continued to make progress during 2022. In February 2021, we received our mining permit, and we have completed the work needed to obtain an environmental permit. We have also undertaken various geological and engineering works to bring us closer to being shovel-ready, and we expect to complete these by the end of 2022.

Our financing discussions have also proceeded well. A crucial step in this matter was securing a cornerstone investment of up to US$46.8 million primarily from a strategic partner, the Global Sustainable Minerals Pte Ltd group (“GSM”), a Singapore-domiciled investment vehicle backed by a significant south-east Asian investor, in November 2021. Since then, we have received considerable interest from both debt and equity investors, particularly since the Ukrainian crisis in February, from both international and Moroccan financiers.

We have had extensive discussions with the Moroccan government and other key stakeholders, and have been impressed by the high levels of support for the Khemisset project. We are keen to reciprocate this support by using Moroccan suppliers, contractors, and financiers wherever possible, and by working with local partners to optimise the project.

Getting this right is taking a little longer than we originally anticipated, but it will be worth the time and effort, as the outcome will be a better, more profitable and more efficient project.

Global potash prices in early May 2022 were around three times the levels of 2020, when the Feasibility Study was completed which indicated a project with NPV8 of US$1.4 billion. While it is not certain whether prices will remain at current levels, demand for potash is likely to remain high and supply to be constrained for the foreseeable future.

There were some changes to the Board in the year. On 27 April 2021, following the Company’s listing on AIM, Mark Connelly retired from the Board, and I took over his responsibilities as Chairman. On 12 July 2021, Ed McDermott also stepped down from the Board. The Company owes much to the efforts of both Mark and Ed during its formative years, and we thank them and wish them the best in their new endeavours.

I was delighted that we were able to strengthen our Board by appointing Rupert Joy as a non-executive Director. Rupert is a highly experienced diplomat and former Ambassador & Head of the EU Delegation to Morocco, and has already proved invaluable in our discussions with Moroccan authorities.

In February 2021, we announced the appointment of Jim Wynn as Chief Financial Officer. Jim is an experienced finance professional and chartered accountant with significant corporate experience, particularly in the African resource sector, and is also a French-speaker.

There remains much to do in 2022 and in many regards, I expect the pace of work will only increase from this point forwards. The entire Emmerson team remains focused on the key objectives of putting in place the approvals and financing package that will allow us to start construction of the Khemisset project. The backdrop of the global food security crisis and the strength of the potash market reinforces our belief in the Khemisset project and our determination to deliver the project as soon as possible.

James Kelly

Chairman

30 May 2022

CHIEF EXECUTIVE OFFICER’S STATEMENT

There has never been a more important time to bring new sources of potash from safe, secure jurisdictions into the market, such as Emmerson’s Khemisset project in Morocco.

The Feasibility Study completed in 2020 by Golder Associates underlined the compelling economics of the project. Recent potash price increases, driven by the combined impact of the war in Ukraine on top of more long-term factors such as population growth, land scarcity, and supply security for critical minerals, suggest even those valuations are understated.

However, Khemisset’s role in meeting the potash requirements of the world should not be measured solely in financial terms. While the priority of the Emmerson team is getting the Khemisset project into production as efficiently as possible, we are determined to keep our wider social and environmental responsibilities at the forefront of our thinking: “doing the right things in the right way”.

Khemisset Project

The Company received a mining permit in January 2021, and proceeded to submit an Environmental and Social Impact Assessment (“ESIA”), which is currently awaiting final approval. The Company has addressed all of the ESIA issues raised by the relevant authorities in a timely manner.

The ESIA approval is the last remaining authorisation step required before construction can begin. In view of the importance of the project to the country, the authorities have been careful to ensure that the needs of the widest possible stakeholder group have been fully taken into consideration. The Company continues to work proactively with all the relevant parties and remains confident that the approval will be forthcoming.

In the meantime, we are progressing with a number of workstreams to move the project forward, which will ensure construction can commence as soon as approval has been given, and financing has been put in place.

Drilling & Site Exploration

In May 2021, Emmerson commenced an exploration campaign to address areas that required further de-risking as outlined in the Feasibility Study, to gain better knowledge of the Khemisset basin, and to further detail geology along the route of the decline and in the mine infrastructure area from a constructability perspective. The exploration campaign was split into a drilling program and a surface geological program.

The drilling program consists of a number of geological drill holes with additional directionally drilled daughter holes to provide data on lateral variability, geotechnical drill holes along the decline route, and a deeper hole for evaluation of the reservoir formation below with all holes logged and core samples taken for testing purposes.

The surface geological program consists of a large number of shallow holes for geotechnical characterization to feed into the design of the ancillary infrastructure and foundation and over 15km of electrical resistivity tomography surveys for definition of the near surface strata.

The results so far have provided a significant amount of data to feed into the on-going engineering and design work as well as further confidence in the project location and the geological and geotechnical conditions. The exploration campaign is envisaged to be completed within Q3 2022.

Basic Engineering

A request for proposal was issued on 7 May 2021 for basic engineering services regarding the mineral processing facility. Following a commercial and technical bid analysis process, Barr Engineering was selected. Barr Engineering, headquartered in Minneapolis, has extensive experience in potash mineral processing after providing services to North American clients since 1966.

On 29 November 2021, a basic engineering contract was signed, and engineering works commenced shortly thereafter. These are currently approximately 40% complete at the date of this report.

Process modelling, process flow diagrams (“PFD”) and piping and instrumentation diagrams (“P&ID”) have been completed, allowing the electrical, mechanical and structural disciplines to commence their scopes. The processing facility equipment list has also been completed, allowing Barr Engineering to approach the market to gather the most up to date costing information from world leading suppliers of Potash processing equipment. The basic engineering phase is expected to be complete by September 2022.

A separate request for proposal was issued on 22 October 2021 for basic engineering services regarding the balance of the Khemisset potash project scope. Following a commercial and technical bid analysis process, Reminex was selected. Reminex, a subsidiary of Managem (a major Moroccan mining group), has extensive experience of scoping, permitting, designing, constructing and operating underground mines in Morocco and Africa.

On 9 February 2022, a basic engineering contract was signed, and engineering works started shortly thereafter (now approximately 20% complete). The scope is being executed via six concurrent packages (mine power supply, mine water supply, site access, portal and declines, tailing storage facility and mine site infrastructure). The basic engineering phase is expected to be complete by October 2022.

Land acquisition

The land acquisition process has commenced with the development of a land acquisition plan. The first phase of this plan will be to identify the areas and habitats likely to be affected by the project, to collect socio-economic data, and to develop a stakeholder engagement strategy.

Phase 2 of the land acquisition plan has also commenced, which will be completed concurrent with basic engineering, and includes final definition of the land parcels required, and their acquisition or lease.

Permits

The mining permit awarded in 2021 has a 10-year life. The Company is awaiting the final environmental permits, as mentioned, while all 20 exploration permits have been renewed. These permits cover 780km2, and will enable exploration works on the project to continue.

In-principle approvals have been provided by the forestry services for intersections of their domains with regards to the power and water supply scopes to the mine site, which are being developed as part of basic engineering.

Other Studies

In February 2022, Novec, a Moroccan engineering consultancy specialising in infrastructure, was engaged to undertake a traffic and logistics study to support the basic engineering phase on the site access package, and to satisfy future anticipated permitting requirements for construction. This scope is ongoing and progressing on schedule in collaboration with our basic engineering partner, Reminex.

In April 2022, SLR Consulting, an international environmental and mining consultancy, was engaged as a technical geological consultant to support decision-making based on the results from the 2021/22 exploration campaign from a constructability, mining method and location perspective. Working collaboratively with our geology team, the drilling contractors and our basic engineering partners, SLR has started to update the geological model and propose optimal solutions for project execution.

Financing

In November 2021, we were able to announce that we had secured a strategic investment of up to US$46.8 million from Singaporean fund GSM and Gold Quay Capital Pte Ltd (“GQC”). Of this funding, US$6.8 million was received by way of an equity subscription at a placing price of 6 pence per share, to be used to complete the basic engineering and design work, undertake additional resource and geotechnical drilling, and to build out the technical team ahead of the larger fundraise.

The remaining US$40.0 million will be allotted as part of, and subject to, the larger fundraise for the Khemisset project at a price of 8.2 pence per share. Although this funding was structured as a convertible loan, it is more akin to a commitment to provide a significant portion of the equity needed to build the mine.

Ongoing discussions with regard to the fundraising for the Khemisset project have been progressing well.

The Company has received interest from a number of local Moroccan and international banks, as well as support from Export Credit Agencies, which have submitted formal Expressions of Interest. Good progress has also been made towards securing additional strategic equity partners, and we feel confident that, subject to completing the necessary due diligence and technical work, a complete financing structure will be announced later in the year.

Corporate

In April 2021, the Company moved from the Standard segment on the Main Market of the London Stock Exchange to the AIM market of the London Stock Exchange (“AIM”), which we felt offered greater flexibility, particularly with regard to fundraising and corporate transactions. Shareholder approval for this transfer of listing was granted at a general meeting on 25 March 2021, and the Company’s shares were admitted to trading on AIM on 27 April 2021.

In his Chairman’s Statement, James mentioned the changes at Board level, but we have also been adding bench strength to our management and technical teams. During 2021, we appointed Josh Mitchell as Project Controller, and Haitam Ennadif as Project Engineering Manager based in Morocco. In 2022, we brought in Matt Wilmot as Technical Services Manager, and we have a world-class technical team with first class experience in constructing and operating underground potash mines.

Graham Clarke

Chief Executive Officer

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