“There was so much demand that we raised £6mln.”
That’s testament to the quality of the Khemisset potash project in Morocco that’s now become Emmerson’s flagship project.
The deal was sealed at an annual general meeting held on June 1 this year, at which shareholders approved the proposed issuing of just over 333mln shares to secure the asset, as well as a further 200mln shares to provide the cash to get to work on the ground.
But to what does Locke attribute that late surge in demand?
“The valuation is very compelling,” he says. “It’s a development stage potash asset with a resource already in place, and that resource will support a 20 year mine life.”
Potash projects as a rule mine ore that is deep and expensive to extract. But at Khemisset the ore is relatively shallow, at just 400 metres.
Most potash mines cost multiple billions to bring into production. In this case, not least because Morocco already has first class infrastructure in place, the Locke expects the capex to be significantly lower than this.
Given its location, he also expects it to be competitive on a delivered cost basis. This means that in the unlikely event major producers boost supply, and prices fall, the project will be able to hold its own financially.
With the new money in, the plan now is to initiate what Locke calls “high-level technical studies.”
The question that will be asked, he says, is “can we see enough ore there?”
But as a seasoned potash professional, who’s recently moved over from running the Highfield Resources potash project in Spain, Locke has a pretty good idea of what the answer will be already.
“We’re pretty confident,” he says.
The work planned will involve drilling to upgrade the resource and get material for a metallurgical testing program, a scoping study and a bulk metallurgical test work programme, and the company will also spend time getting familiar with the available infrastructure.
The plan is to complete the scoping study by the first quarter of next year.
“At that stage we’ll have finished drilling,” says Locke, “and we’ll kick off the metallurgical test work programme. And in parallel to that we’ll also kick of a pre-feasibility or a definitive feasibility study. The £6mln will take us all the way to the end of next year.”
A fair amount about Khemisset is already known, because the project was extensively drilled in the past by the Moroccan arm of the French Geological Survey.
“The work they did was very good,” says Locke.
“But we will benefit from some further drilling to give more information on the mineralogy of the project and to provide material for met testing.”
At this stage it seems likely the ore will be mined by conventional room and pillar method and that product will either be sold locally in Morocco or straight into European markets just across the Mediterranean.
What’s more, these markets are showing significant signs of life.
“Last year was a record in terms of global demand,” says Locke.
“It hit 64mln tonnes. This year the forecasts from most of the incumbent producers is for demand to be between 64mln and 66.5mln tonnes, another record year. That equates to very significant growth for potash. But Canadian production is very high cost on a delivered basis. The key is to be lower cost than the majority of your peers. If you are located in a potash-consuming region or near an export port then you have a competitive advantage.”
And there’s a market right at Emmerson’s front door that’s running way ahead of the global trend.
“There is growing demand in Morocco,” says Locke. “It’s currently growing about 15 times faster than global potash demand.”