Emmerson (LSE:EML) — Emmerson Shareholder Call

0:01 Afternoon, ladies and gentlemen. Welcome to the EMMERSON PLC investor presentation. Press send. The The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. These will be available via your InvestoMe company dashboard, and you'll be notified once they're ready for your review. I'd also like to remind you this presentation is being recorded. Before we begin, we'd like to submit the following poll, and then I'd to hand you over to Graham Clark, CEO, Head and Lot director and Charles Wall, corporate development director. Good afternoon. Good afternoon, and hello, everybody, on the call.

0:47 Just before we go into the to the presentation and go through the slides, just like to play the video that we've had with drone footage showing the site and and areas of Morocco where the project will be. So we'll just put that up first. It's a minute and a half, but well worth the

1:03 watch. Okay.

2:35 Let's move on now and go through the slides. We just got, eight to nine slides, and really the the prompt for this, presentation today was the fact that we put our results for 2020 out. I'm not gonna really not gonna focus on the results as such, but really just have a look at, you know, what 2020 brought to the project, which was demonstrating through the feasibility study, the outstanding economics of the project, and also a lot of the other work that we've done, which have brought us to the position now getting towards the middle of 2021, where the focus is on getting the funding in place, so we can actually get the target of starting early construction works before the end of the year. And, you know, 2020 was has been a really sort of fundamental year in terms of of the project and taking the project forward.

3:22 So just I've been through this slide before, and and a lot of you listening will no doubt have heard me do it, but but it is really just it is worth just reminding ourselves of the the fundamentals of the project. It's based on the need for increasing need for fertilizers, increasing need for potash, therefore, is one of the key nutrients that all plants need. The market is gonna continue to demand more more product, and there's obviously then the opportunity for well located sources of supply, new ones such as ourselves to come into the market. And we are particularly well well located where we are in Northern Morocco, the ability to feed the Moroccan market, which is growing, but also the whole of Africa. There's no potash produced in Africa, but there will be a huge and growing market on that continent.

4:08 As I mentioned, the feasibility study last year demonstrated the outstanding project economics. I'll go through that just, you know, what what feeds into that on a on a slide a bit later on. And we have a team in place. I joined the team in the middle of last year to to bring operational experience and also construction experience to the team, and we'll continue to add to that team. And and we believe we'll we'll go along the lines as we've we've done so far, which is to keep the team small, but that is a team of very capable, motivated people. And and the the intent of the team, the only intent of the team is to get funding in in place so that we can actually go into construction, and ultimately into operations. So just a little bit more detail, population growth is is the thing that that drives the demand for fertilizer, so we need to to grow more food.

4:59 By 2050, 60% more food than we're growing today from a reducing area of agricultural land available, the only way to do that is to apply fertilizers to increase yields. And the application of fertilizers has increased over the last fifteen to twenty years, but Africa is a classic example where the the application rates are probably still less than around 20% of of what is actually required to maximize yields from the from the arable land. So Africa will be a a huge increasing demand for for fertilizer products generally, and obviously potash in particular.

5:41 Where we are in Morocco, it's a great location, but Morocco relies on agriculture. It's a large part of their economy. They put a lot of money the Moroccan government put a lot of money into developing agriculture. So the demand for for potash in the country has increased dramatically over the last ten years. A lot of that is driven by OCP, the world's largest phosphate producer, who have moved into the production of of blended fertilizers, NPKs, nitrogen, phosphorus, and potassium, and they're actually importing the very product that we we're going to produce into the country. We're looking now 800,000 per million tons per annum of potash imported into Morocco. So obviously, our projects, all of the product could stay in country and and feed that demand.

6:29 Morocco, as a country, it's a great jurisdiction, very stable, very welcoming of of foreign investment, and also understanding the mining sector. As I've said, you know, OCP, the largest phosphate miner in the world, obviously means that that mining and the benefits of mining to the economy is is very much in their minds. So there is a very favorable royalty structure in place, and they are supportive of of investment. So the, you know, the tax breaks once we get into operations. And I think the the the understanding of the authorities and the support has has come through with the granting of the the mining license and ongoing very positive engagements with with all areas of of government in country as we take the project forward. One of the key things we've been looking at is the use of renewable energy, and and in Morocco, there's there's a huge huge amount of both solar and wind energy produced, and, you know, we are engaged with with one producer already, and there are others that we we are in in conversation with. So we're very confident that once we get into construction and ultimately into operations, we will be able to power the project 100% from renewable energy sources.

7:47 So this slide really you know, this just summarizes what the, you know, the feasibility study identified. The project is low risk, low CapEx, and high margins, and it is, you know, it's very it's very simple and what drives that. And here we just compare the Chemisat project in Morocco to a typical Canadian potash project. But what drives the the low CapEx is the fact that the deposit is only 500 meters below surface. There's no aquifers between the surface and and the potash seams, so we can actually access the deposit mining to three and a half kilometer long drifts of decline roadways from surface down into the deposit, No high cost support required.

8:32 We've got an estimated cost of that for around $35,000,000. Typical potash mines going through aquifers, deep shafts, you're looking at a billion dollars just to access the the resource. So low cost, and very low risk, which is also important as we move forward. Morocco, as I said, it's a it's a well established infrastructure in the country. We're very close to the main power distribution network and close to a highway, and you saw that on the video. You know, the area where we showed we'd be mining runs along the main highway, which goes down to the coast to a well established port, Port Of Casablanca. So we have very low cost to in in terms of infrastructure during the development, and then easy access to a port for the product to to go wherever it has to go. What we show on here is we use the example just so we can compare to the to the large incumbent producers what it would cost for us to ship to one of the main potash markets in Brazil.

9:31 Because of our closeness to the port, the low royalties, nominal royalties that are in place, we can ship our product from the mine site to Brazil for $24 a ton. If you look at the the equivalent in in Canada, the royalties alone to the government of Saskatchewan is is $25 a ton and then 1,700 kilometers to a port, so high cost to actually get to the port and then and then shipping costs. So we have an $80 a ton advantage over the Canadian producers should we wish to ship to Brazil. But as I've already commented, that's highly unlikely because of the demand in Morocco itself and also the growing demand on the continent of Africa, which we would obviously have ready access to. Just looking back and, you know, reflect a little bit more on on 2020 and what was achieved last year.

10:23 I think the project, you know, from from the very start has has moved rapidly, has been a small team, but very focused on making, fast progress and delivering to the to the milestones that we identify. So last year, I suppose the highlight was was all the work that fed into the feasibility study, which was completed in June. I joined the company in in July, and we've continued to move forward with the socioeconomic study, additional technical work to, you know, to sit alongside the feasibility study.

10:56 And then, obviously, February of this year, getting the the mining license, which obviously a very key step. And the aim with the we get the environmental permission shortly to to follow that. So actually, it looks like the slides dropped off there. So in terms of where we are now, environmental approval is is the next big step, and funding is obviously the the key thing that we're working on. And the the main target is to bring in a a strategic partner, and there's there's a lot of very positive conversations ongoing with regard to that. And then around that, we will build the the debt and the remaining equity that are required to to get the project funded.

11:42 And the target is that we get to that position q '3, q four this year so that we're able to commence construction. So there's a lot of work going on commencing now. We've started work on-site with some further site investigations to provide us the detailed data that will feed into the into the design, and that puts us in a position then to start to talk to potential construction partners and get all of that lined up ready for having the funding in place by the end of the year and and commence early construction works. So just before I finish talking and and hand over for for questions, just this last slide and, you know, here, put up our our values and really what you know, the way we are going about what we do, it's a very simple sentence, always do the right thing and and always do it in the right way. And I think that is really important and whether that's how we treat our people, respect for the environment.

12:41 You know, whatever we do, it's very simple. We we set out to do that in the right way, and that's, I think, is is fundamental to to the way forwards, for the project and and the company. So happy now. There's myself here, obviously. Hayden's also here and and Charles, to answer any questions that, anybody wishes to put forward. Great. Thank you very much indeed for the presentation. And ladies and gentlemen, do please continue to submit your questions using the q and

13:11 a tab situated on the corner of your screen. Just want the company to take a few moments to review those questions submitted already. I'd like to remind you that the recording of the presentation, along with a copy of the slides and the published Q and A, can be accessed via our investor dashboard on the Investor Meet company platform. I'd also like to remind you that your feedback is important to the company. Immediately after the presentation has ended, you will be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Graham, Hayden, Charles, perhaps before we go into some of the live q and a, we had a number of presubmission questions. And and perhaps if I could just read some of these out for you, that would be great just to start off the q and a session. The first one reads as follows. Can you confirm if any of the company directors have spent any time on-site in Morocco in the last twelve months?

13:57 When I I've seen any answer for myself, I haven't actually managed to get out to Morocco. I've been with the company nearly twelve months. I don't think any of the other guys have been able to either. And that that's really been influenced by the the restrictions brought about by coronavirus. There was a period where I could have traveled shortly after I joined the company, but but then, you know, the with the spread of the virus, it I I sort of made probably with hindsight the wrong decision thinking that things would improve later in the year, and it would be easier to travel with with less risk. But as it turned out, things obviously got substantially worse as as everybody is well aware. And since December, the borders have been closed in Morocco for the vast majority of that time, so no travel has been been possible.

14:44 And, obviously, it's, you know, it's part of us. And as I've just said, you know, we set out to do things in the right way, not taking risks and not putting people at risk is, you know, is important to us.

14:54 That said, we have a really capable team in Morocco who have managed to take forwards all of the the work streams that, you know, have helped us make progress. And I you know, it's very comfortable to say that we haven't had any delay or impact because we've not been able to travel to out to Morocco. The team in country have have very capably, you know, continued with the work that's needed, and we obviously communicate regularly. And it I think it's become now sort of the norm for for people to be able to communicate electronically on, you know, various various methods that you can do that. And you can you can keep well in touch with people and and make sure things are progressing as they need to. Fantastic. Thank you, Graham. The next question we've got here is, what is Morocco like as a mining jurisdiction?

15:45 Well, I think I've commented on that, you know, to some extent in the slides. It's you know, they they understand mining and the benefits of mining. You know, with with OCP, you know, it's a huge employer in country. You know? So mining, they understand. They've been very supportive of us, you know, but we play our part in that. You know, we engage with all of the authorities. They understand what we're doing. All of the sort of work that we've we've produced so far has has has been a very high standard, particularly the environmental work. So I think they are supportive. They understand the benefits. They're very welcoming of foreign investment. There's a lot of large companies invested money in in Morocco, and it is you know, it's stable. And it's it really is a great place for us to to be building this project.

16:33 That's great. Thanks, Graham. Another one we had here presubmitted, and I can see a few have come in as well during the event. We have touched on it slightly. But is there any progress being made on securing finance for the project? I guess, a little bit of color on that where you can, I suppose, please? Yes. There is progress being made. So we're we're talking to a number of parties who would potentially come in as a strategic investor or partner. So there are parties who are looking just to invest on an equity basis as a, you know, as a cornerstone investor. And there are also a number of parties who are interested in

17:15 investing within a you know, with the offtake of the product being associated with that. And we do we've made a lot of progress. We've got a lot of positive conversations going on. I can't really obviously divulge that. But I suppose that links to, you know, some of the other questions that have been asked. I I noted, and that's one that's come in, just asking about the the various sort of scenarios that we've put forward for the stage development. So maybe just sort of pick that up now. It's certainly the case without, you know, giving

17:46 too much away that some of the the potential strategics who have an interest in the product are obviously very keen for us to develop the, you know, the the projects to the to the size as identified in the feasibility study rather than starting with a with a smaller project with a with a lower production output. And and, obviously, for us, if if we have a a potential partner who's interested in the offtake and they want the you know, to maximize that, then our focus would obviously be on developing, you know, the project to the 735,000 tons a year level as as identified in feasibility study. So, you know, that's there's a lot of of conversations going on. In parallel, our debt adviser is is working with a number of large banks, export credit agencies, and they've all been in the data room looking at the all of the at the work that we've done and reviewing that and and coming back with questions. So that process is is well underway as well to to put the the debt package together, ultimately.

18:51 That's great. Thanks, thanks again, Graham. Next question we've got here reads as follows. Is the, the ESIA still on track to be released by June? We've said, you know, we've said in the first half of the year, and and that's we're still, you know, confident that that that will be the case. And there's no red flags appeared, so we, you know, we we expect that to to come through.

19:16 Fantastic. Thank you. Next one reads as follows. So what dates are you planning to reach the stage of actually selling mined products? I know there's a number of variables. But But if we I mean, the targets that it is very aggressive, start early early construction works by the end of the year, that obviously is completely dependent on on the funding. I mean, that is you know, funding is is the big step. We're doing all of the work. We'll start the detailed designs, so we'll be ready to start construction. But, obviously, we need the funds in the bank to do that. But given that we do start construction at end of the year, at the moment, we've got a two year construction period, which would take us down into the seam, and therefore, we'd be we'd be bringing all out towards the end of twenty twenty three, early twenty four, with a view that we would ramp up over the period of 2024 and be in full production by the end of that period. So early twenty four is, you know, the target, given that we we achieve what we have to achieve this year, which is, get the get the funding in place.

20:23 That's great. Thank you. Another question we've got here. So I keep seeing ads for EMMERSON online. What's the thought process or or justification for these? It was just, we, you know, we spent a bit of time and, you know, we've we've done quite a few investor events over the last month or six weeks. And, you know, we've done that to make sure that we're out there, we're putting the name out there. And we're to, you know, engage with a wider a wider base of potential investors, and, you know, it's simply that. We've, you know, we've been out, and we've we've talked a lot. And I've noted that, you know, there's been some sort of questions as to why we're we're out there communicating so much. But, you know, you can get caught in a you know, you either don't communicate or enough or you communicate too much. But we just want to get out you know, we believe the project is an outstanding project.

21:13 We believe that it's undervalued, you know, where it sits today, and we want as many people to be aware of of EMMERSON and have a look at the project as possible. So now that's the the rationale behind it. That's great. Makes sense. And if we could just ask you now just perhaps to move on some of the questions that have submitted during the live event there, Graham, if you could just click on that q and a tab, perhaps just start at the top and just read out where appropriate to do so those questions, and you're happy to answer that would be fantastic. Yeah. So I think I've sort of covered off the first one, and that was referenced to, you know, looking at different, you know, the the stage development and the phase development. And maybe just comment a bit more on that. So I think, you know, we are talking to potential strategics who are interested in the the product. And, therefore, you know, the the larger scale project is the is the obvious focus in support of those conversations, which, you know, that is the ideal for us to to move forward and develop this project. We got a a strategic involved who's interested in in offtake agreements.

22:13 Otherwise, we have looked at the stage development and that, you know, I think that is absolutely the right approach for us to have options and optionality. Smaller scale startup might appeal to another investor who may come in and say, you know, I'll give you all of the the capital required, but let's do it in in stages. And I think we've also identified the huge potential of the project through the expansion into SOP. We're doing the work on SOP, additional salt sales, and then ultimately, potential to actually expand the potash output. So I think in all of those things are for us to be successful and get this funded, we have to be flexible, and we have to have options out there. And that's, you know, that's our approach, and we'll continue to take that approach.

23:06 Alright. Just let me move down. That's a environmental permit question, which I think I've answered. I think the the question there about, you know, the sort of news and I think I've sort of made a comment about that just now with the fact that we've, you know, we've been out there trying to sort of reach out and and and get EMMERSON out there to a sort of a wider audience. You know, we continue to build, you know, believe there's value in that. But, you know, our main focus at the moment is is on speaking to, you know, potential strategics and and getting the the main sort of funding structure in place, you know, that delivers value for for everybody that's invested in the project.

24:01 So, you know, that is our focus. That is the the key the key task this year. And I've got Hayden Hayden stood here beside me, so maybe, you know, Hayden might just want to add a few words about, you know, where we are with the is it the funding and and the approach to that? Yeah. Thanks, Graham. Look, I think it's as Graham said, it's it's the core focus of the team right now. We're we're fully aware that to really unlock the value of this project, we need to get that financing patch package in place. It is a it is the final piece of the puzzle, and we've been doing a lot of work over the last twelve to eighteen months on that, and we're certainly edging closer to a point where we think we can start to unlock the full value of this project. And, you know, hopefully, we'll we'll deliver that in time for commencing construction by the end of the year.

24:50 Thanks, Hayden. So a question there's quite a lot of questions here, actually. There's one here that's sort of quoting from Wikipedia. Somebody's obviously got some time to to have a look online at different things. A question here maybe about, you know, the whether there's a risk that the Moroccan government could privatize the project, the operation. You know, we don't see you know, the nobody can ever rule that out, but, you know, we see from, you know, all of our experience in the country and our advisers in the country and the way that they've behaved historically and continue to behave that, you know, that's we don't see that as a as a risk.

25:36 As I've said, there's a lot of very large companies, car companies and others with substantial investments in Morocco, and they're attracted there because it is it is stable, you know, and a and a very good place to to invest and and and get projects up and running. So, you know, it's not something we can a 100% a 100% rule out, but there's a lot of, you know, lot of confidence that we'll be able to get up into into construction then in operations and, you know, operate, you know, very well in in Morocco. Question here about COVID restrictions. So I've commented, you know, we've really I don't think we've had any delays because of coronavirus up to press.

26:26 We've just started some site work using local contractors. This is to do sort of shallow site investigations to give us the information to feed into design for foundations and, you know, the start of the of the decline. So we're able to use companies based in Morocco. We're gonna do some deeper drilling. But, again, we believe that there will be no delays in the contracts getting their equipment to site. You know? So we continue to make actual real physical progress as well as a more paperwork driven part of the project development. And, you know, we're we're managing to do that. The team in country are more than capable of, you know, of of looking after that work.

27:12 And as soon as we can travel out there and, you know, we will be in a we're sort of hopeful that June will you know, the some of the restrictions were left, and we'll be be free to to move around and and get out there. Yeah. There's a question here about have we engaged in comprehensive roadshow around the banks and analysts to drive share price performance? We're we're constantly in in communication and and through our brokers. And, yes, the company is, we believe, you know, undervalued. You know, we'll continue you know, we we do what we can to to drive that and and communicate with people and try and convince people of the the compelling story behind the project. But I think the best way for us to actually guarantee that we fully realize the value is for us to continue to make progress, get the environmental approval, work on the funding, you know, and ultimately, we we take off those milestones, then, you know, the value of the of the company will start to to come out.

28:31 Okay. A few questions here that have already covered off. I think looking through, Graham, you have covered off pretty much all of those Yeah. And themes that we have there from from investors. And just to remind investors as well that any further questions submitted, the company will be able to review post of them, and we'll publish those responses, where appropriate to do so on the investor meet company platform. Greg, perhaps on that, basis, I could just ask you just for a few final words before we redirect investors to give you some feedback. Yes. I mean, we I've been with the with the company now. It's getting on for a year, which seems to have flown flown by, even though I've not really flown anyway. Joined that area.

29:19 Well, you know, it's a very exciting project. It is, you know, it it is very simple. You know, I'm a I'm a mining guy. I've got that experience and also construction experience. And the projects, you know, very simply talk about it. It is low risk, low CapEx for very good reason, and then low operating costs for a very good reason. You know, it is it is a great project. Very important to me is the team that we have working on it. Small team, very committed, very capable people, and completely focused. And, you know, there are you know, we are questioned about buying shares and and other things and, you know, our commitment and but, you know, this team is totally committed to developing this project and getting it into construction and then ultimately into operations, and, you know, that is our complete focus.

30:09 And we're very confident that 2021, which is a, you know, is a crucial year to, you know, to keep the project moving, We are confident we'll get the funding in place, and we'll we'll commence construction, and, you know, that is our complete focus. We've had a a couple of people join the project recently who've come very experienced people who've come from a very stable employment. Have joined EMMERSON because they completely believe in this project, and, you know, we'll continue to drive it forwards and and get it delivered. So thank you. Thank you all for listening. Hopefully, we've answered some, if not all your questions. And just keep yeah. Thank you for your support. Keep supporting us, and we'll you know, we believe 2021 is gonna be a really good year for us. Graham, that's fantastic. Graham, Hayden, Charles, thank you very much indeed for updating investors today. Can I please ask investors not to close the session as you'll be automatically redirected to the opportunity to provide your feedback in order that the management can better understand your views and expectations?

31:07 This will only take a few moments to complete and will be greatly and is greatly valued by the company. On behalf of the management team of EMMERSON PLC, we'd like to thank you for attending today's presentation. That now concludes today's session. Thank you very much, and good afternoon.