LSE-listed mining developer Emmerson Plc is ticking all the right boxes as it rapidly moves to develop its 100% owned Khemisset potash project in northern Morocco. Not only is its path to production (as a best case scenario) unusually quick, but the criteria required to develop one of the world’s highest margin mines makes the company a smart investment choice.
On the back of a smart strategy introduced from day one, it would seem Emmerson has positioned itself to succeed from the onset.
Established just two years ago, with a little over £1 million in the bank as a special purpose acquisition vehicle to acquire a mining project with a valuation north of US$100 million in any commodity, the company settled on a highly attractive asset with massive market demand in one of Africa’s friendliest jurisdictions - Morocco.
This article first appeared in Mining Review Africa Issue 9 2018.
Having spent four years in Morocco, executive director Rob Wrixon evaluated the project area, which included lapsed permits returned to the government, picked it up and brought in CEO Hayden Locke to guide the project through the necessary technical studies and determine the best strategy for development of the project.
His appointment was a smart one – prior to joining Emmerson Locke had spent the last three and a half years working for Spanish potash development company Highfield Resources which he says owns one of the best undeveloped potash projects globally. Such experience is critical considering it is well known that potash is one of the more difficult markets to enter into and succeed in.
A closer look at the project
To date, Khemisset is already known to have a large resource of 311.4 Mt within a 500 km² licence area (that sits within a potash basin of about 1 200 km² that likely contains well over 1 Bnt of potash).
Emmerson has furthermore defined a significant JORC-compliant exploration target covering an area of approximately 87 km² that sits within its recently granted research permit area, which ranges from 264 - 616 Mt and indicates the significant upside within the project area.
This announcement followed shortly after the company received confirmation from the Moroccan mining authorities have granted 15 additional research permits adjoining its potash project.
Looking forward, in addition to the start of a scoping study or preliminary economic assessment, the company aims to conduct further drilling from September to upgrade the resource from the inferred category to the measured and indicated category which in addition to this will provide sufficient samples to conduct a comprehensive and detailed metallurgical test work programme which is scheduled to commence in early 2019.
“We are hitting the ground running and have fairly compressed timeframes. We expect the results of our scoping study to be completed in Q1, 2019,” says Locke.
From this point, assuming everything has moved forward according to plan, Emmerson will move to deliver a definitive feasibility study in 2020 and first potash in 2022 (as a best case scenario).
Based on its +300 Mt resource, Locke is aiming to deliver a scoping study with production estimated to be just shy of 1 Mtpa of muriate of potash (MOP), which equates roughly to a 20-year lifespan. “This is a small production aspiration but even so, we expect that, given our location, will deliver high margins at this rate.”
Discussing the quality of the Khemisset project, Locke notes that at an average 10.2% K2O, it’s not at the top or the bottom end of the grade scale, but sitting somewhere in the middle – “but this is less relevant because of the very low logistics costs associated with our project when compared to incumbent producers, which means our delivered cost to customer is likely to be very competitive.”
He does add that the ore body is relatively flat lying, which should make it easier to mine. “The intention at this point is to use the conventional underground room and pillar mining method - similar to coal mining operations in South Africa. Solution mining is an alternative, but this is better suited to ultra-thick, very high grade deposits.
The reasons behind Khemisset’s low capex and opex requirements
Although a preliminary assessment is not yet complete, Emmerson believes, based on its experience at Highfield, that the project should cost considerably less than typical potash developments in Canada, Russia and other parts of Africa.
“Based on our experience, we believe our project has the potential to be low capex when compared with our peers who typically have astronomically high capital costs because potash projects are generally located deep underground (below 1 000 m) and they often lie below fresh water aquifers and, as a consequence, generally have difficulty accessing their mineralisation,” Locke reveals.
Sinking shafts and contending with this challenge requires ground freezing in order to freeze the column of water around the area required to dig the shaft after which is lined. Then the aquifer must be ‘unfrozen’.
The Khemisset ore body is situated about 400 m below surface and importantly does not have to contend with an aquifer, based on Emmerson’s current geological data. “We can build a simple decline or shaft without the need for ground freezing which will deliver enormous capital expenditure cost savings.”
And because potash is a bulk commodity like coal or iron ore, project location and access to end markets is key in determining operational costs. “Again, most large-scale potash projects are located in remote or undeveloped areas.
This means they require significant investment in transport and logistics infrastructure, in many cases including rail, which can be extremely expensive. Our project is less than 100 km from a port, so we don’t have a necessity to get our product onto rail.
In addition, due to the outstanding infrastructure in Morocco, we have virtually no roadways to upgrade. This should equate to significant savings relative to Emmerson’s ‘best’ peers.”
The CEO confirms that Morocco has world-class infrastructure, with roads especially good and equivalent to many European countries. It also has three operating ports, with excess export capacity, all within 150 km of the Khemisset site.
The cherry on the cake
Unlike many African countries, Morocco offers vast benefits to the mining investment market. The country is for example a beneficiary of the king’s push to upgrade all infrastructure over the last decade which has seen him bequeath significant amounts of his own money into achieving this.
One of the results of this cash has seen the nation’s percentage of electrification increase from 75% about 15 years ago to over 90% today. Emmerson will also benefit from this infrastructure – where grid electricity will be sourced from very close to the project’s location.
Northern Morocco also offers no water challenges. The area’s geology is not the typical desert terrain associated with the country and there is in fact an abundance of water resource from surface, lakes and ground water which the company can access to fulfil its process plant water needs.
Legislation also poses no difficulties. There is a clear pathway for pegging ground and a working digital cadastre for permitting packages. The country introduced a new Mining Code about two years ago, based on industry best practice which Locke says is fairly well thought out and transparent.
“Morocco definitely has one of the better mining codes I’ve experienced working in Africa.”
The fiscal regime, also spearheaded by the king, promotes direct foreign investment. The company will further benefit from five-year tax holidays, minimal royalties and a 50% discount on corporate tax for the life of the project if it exports.
And while there is no free government carry requirement from government, as a sign of good faith, Emmerson will focus on building a Moroccan business. “Moroccans are well educated and have a long history of mining phosphate, so we will employ from the region as we progress,” he concludes.