Potash developer Emmerson has secured a strategic investment of up to $46.75-million from a group of investors to support the development of the Khemisset potash project, in Morocco.
The primary investor is Global Sustainable Minerals (GSM) – a Singapore-based investment vehicle backed by a significant south-east Asian investor.
The investment is structured in two tranches, comprising an immediate direct equity investment of $6.75-million in exchange for 81.82-million Emmerson shares at 6p apiece – an 8% premium to the 30-day volume-weighted average price (VWAP), under Emmerson’s existing authority to issue shares.
It will also include a subscription for up to $40-million of convertible loan notes, principal and interest, with a conversion price of 8.2p apiece – a 48% premium to the 30-day VWAP.
The convertible loan notes are designed to contribute directly to the construction funding for Khemisset and are accessible by Emmerson once the overall funding package for the project is in place.
The transaction also includes the granting of 82.39-million warrants pro rata to convertible loan note subscribers, each warrant with a 12-month term and an exercise price of 8.2p apiece.
On conversion of the convertible loan notes, the strategic investors, including GSM, will own up to a maximum of 29.9% of Emmerson.
The $6.75-million equity investment enables Emmerson to accelerate pre-construction activities at Khemisset.
In turn, this enables Emmerson to move into the execution phase on project financing discussions for debt to support project development with the aim to close in the middle of 2022, and immediately commence basic design and engineering for the project to prepare to commence full construction during 2022.
The convertible loan notes also enable Emmerson to advance discussions with other providers of funding, including project finance banks, sovereign wealth funds, and royalty and streaming providers, as it seeks the best overall funding solution for the project.
Emmerson CEO Graham Clarke says a major investment, at a premium to Emmerson’s current valuation, and long-term strategic commitment by an investment group of GSM’s calibre, is a major endorsement of the Khemisset project.
“We have already formed a strong partnership with the investors, who share our vision of creating a new, independent and highly profitable and environmentally sustainable potash company.
“The whole Emmerson team and I have worked tirelessly, through an extremely rigorous due diligence process, over several months, to secure this strategic investment. It is a transformational investment for Emmerson, and it is a major step to unlocking the full potential value of Khemisset,” he says.
Further, Clarke says the Khemisset project will be important for Morocco and will bring substantial social and economic benefits to the region of Khemisset.
GSM director Mark Zhou says the Khemisset project is clearly a standout in the development potash space.
“We have been very impressed with the technical work completed by Graham and his team to date and the detailed execution plan they have presented to us, which is the basis for this significant investment.”
Clarke adds that Emmerson expects to invest well over $500-million over the project's initial 19-year life-of-mine, creating over 2 000 direct and indirect jobs and establishing a long-term beneficial partnership with Morocco.
Meanwhile, he notes that potash markets have strengthened considerably since Emmerson released its feasibility study, with prices in Brazil currently at over $800/t, which he says is effectively double the base case assumptions from Emmerson’s previous studies.
“The strength in potash clearly improves its already outstanding economics and, using current spot price assumptions, it would push our post-tax net present value from a very respectable $1.4-billion to $3.9-billion, [the] internal rate of return to over 85.4%, [and the] average life-of-mine post tax cash flow [would] increase to $558-million a year for an initial 19-year life of mine,” says Clarke.
Going forward, he says Emmerson is focusing its attention on getting the project into production as quickly as possible. “Our advisers are well advanced in their engagement with numerous potential banking partners, and we will move to mandating banks as quickly as possible.
“We have also engaged with our established engineering partners and will commence the basic design of the key components of the project while, in parallel, preparing work packages for eventual tender with our engineering, procurement and construction management partners. We have already made substantial progress in pre-qualifying the groups who will eventually partner with us in building Khemisset,” Clarke concludes.