Emmerson (LSE:EML) — Investor Presentation

0:03 Good afternoon, ladies and gentlemen, and welcome to the EMMERSON PLC Investor Presentation. Throughout this presentation, investors will in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type the question and press send. 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 investor.me company dashboard. I'd also like to remind you that this presentation is being recorded. Before

0:34 we begin, we'd like to submit the following poll. I'd now like to hand you over to Graham Clark, CEO and Hayden Locke, Executive Director of EMMERSON PLC. Good afternoon. Good afternoon, everybody. It's Graham speaking. I'm going to start the presentation, and then I'll hand over to Hayden for the second part, and then we will answer as many questions as we can. So I'd just like to start with this first slide really just well, it's a reminder of the the highlights of what is a truly exceptional project. It is without doubt the standout, project in the potash development space, and I you know, the company's been saying that for some time. I completely, you know, support that view, and and that's based on my experience, both of running a potash mine, one of the most difficult potash mines, previously when I was at the Cleveland potash working for ICL, and then also my experience of developing a project, taking it from a vision through to to a construction, and, you know, all of my experience aligns to this this project being truly outstanding.

1:42 So the the 1,100,000,000 post tax NPV, that's based on a potash price of $360 a ton, and Hayden will cover off some aspects of the of the market, which would really get us believing that, you know, the price is going to go substantially higher than that going forward, so that's a reasonably conservative price assumption. We're gonna produce 700,000 tons of MOP, and I'll come on in the in the next couple of slides and talk about the potential to actually build on that and turn this into a multi nutrient fertilizer business and and really put us out there as the only, sort of smallish independent producer to be able to to to get into that space. Morocco, first rate jurisdiction for development of a project, and the geography is excellent, and and those are the two of the features that that feed into the to the economics of this project standing out as they do.

2:34 The government, the authorities in Morocco encouraging foreign direct investment, supporting projects, offering the tax breaks and and very low royalties, and the geography is is really what gives us the low cost operation once we once we get get into operations, and that's that's basically the logistical advantage of going from the Port Of Casablanca to any of the main markets around the world, and the difference that we have between the likes of the Canadian producers and the Russian producers who have very high costs just to get to a port. We're very cheap and we're we're something in the region of 70 to $80 a ton less, just on the logistics costs of of the main producers that are already out there. And the CapEx, only 411,000,000 to get into into operations, and it's it's a low number in comparison to other projects, but I think the one of the key aspects of this, and the reason it is low is that we we are accessing the deposit via two declines, but it's not only low cost because of that, it's also low risk. We don't have the high risk of sinking deep shafts, there's no aquifers to deal with, the jolly geology is very favorable, and that means that we can get into operations with a low CapEx cost, and then with the logistical benefits because of the location, we have very low operating costs, which put us right down at the bottom of the cost curve.

3:58 Just now to talk about a couple of the potential add ons, the upside to this project, upside, SOP production, we have done a scoping study on SOP based on that being produced at the Port Of Johor Flas Farr in Northern Morocco. That really is the ideal site for SOP production.

4:18 It's got the world Africa's largest sulfuric acid plant located at the port, so sulfuric acid is a a requisite to actually convert MOP into SOP, and also there is an out an outlet for the the hydrochloric acid which results from the process, and that's often the one of the issues with the conversion of MOP to SOP is actually getting rid of the byproducts created in in that process. So standalone, the SOP project would add a 100,000,000 to the NPV, and that actually puts us then in a position where we have even greater strategic advantage. We become a multi nutrient fertilizer producer.

5:04 One of the other potential, expansions of the projects we have assumed in the feasibility study, as I'm sure you're aware, that we will sell a million tons of salt, deicing quality salt to the Northeastern Seaboard Of The United States. But we have the opportunity, we have the potential to produce around 4,000,000 tons of of deicing quality salt. And this is something that we're looking at is expanding on the million ton base case. The there's a very large market in the Northeast Seaboard, around eight to 10,000,000 tons per year used for for de icing purposes, a lot of that is imported currently, and with our low cost, and again, the Port Of Casablanca, we can ship very cheaply to to the Northeast Of America and sell two to 3,000,000 tons potentially into that market. And if we can do that, obviously, those byproduct credits go straight to the bottom line and would put us right down at the very bottom of the of the potash cost curve.

6:03 Just talking a little bit now about 2021 and then the key objectives, kept it fairly simple here, there's a lot more work than these than these four bullet points to to achieve to get us to where we want to be, but these are really the key the key elements of of where we want we need to get to by the end of this year. We need to get the main permits in place, which is the mining license and the environmental permit. Both of those are well underway, and and we've been saying that we'll get those in the first half of this year. We we genuinely believe it will be early in the first half of of this year, and then that will put us in the position where we're permitted, we've got the main permits in place, and we're able to proceed. We've been spending a lot of time talking to potential strategic partners and cornerstone investors, and we need to to pull one, maybe two into play, and that will be an important part of of funding and getting us through so that we're funded to get into construction.

6:59 There's some very positive conversations being going on with regard to the strategic partners. We need to have the debt finance in place. Our adviser, Adrian Sender, has been working very hard on that, and, again, that process is moving along very well, very positively, and we're very confident that we, you know, we will get that all tied together and pull in the debt and the the equity alongside that so that we have that in place beginning of q three of this year. And the aim then is that we're able to start construction, early construction works prior to the end of the year. I think that is quite an aggressive target, but but we've you know, we're confident the team are working very hard to make sure that we're in a position to achieve that before the end of this year.

7:44 I'll hand over now to Hayden, who will go through the next few slides. Thanks, Graham. So I want to talk a little bit about the equity valuation that we're currently receiving for EMMERSON because I think I echo Graeme's remarks about this project being one of the standout mining projects that I've I've been associated with and seen in my career in terms of its economic metrics. It really is an absolutely outstanding project and our valuation to date, as I'm sure many of our investors would be aware, has not reflected anywhere near the quality of this asset. This slide is just showing a a little bit of a universe of a variety of different companies operating in different commodities and seeing the range in valuations as a as a percentage of their NPV.

8:30 As a general rule, it's it's accepted that a feasibility study stage company approaching construction of a mine would be trading reasonably in the twenty twenty to 25% range of NAV. Best in class projects will often trade at significant premiums to that. But in any which way you look at it, EMMERSON is trading at a significant discount. Now the question is why is that? Well, some of that could be attributed to not having our permits. Some of it could be attributed to not having funding in place. But 2021 is going to be a year where we seek to address virtually all of those aspects of of any potential discount. And so then, really, we come to the potash market itself. Potash, like many other commodities, has been under pressure for several years, and that looks like it's starting to change.

9:22 But in order to give some context on that, I'd like to take a step back and and and learn a few lessons from what happened to Potash in 2008. Late two thousand and seven, there was a small private company, latter to be called Intrepid Potash, preparing to list on the New York Stock Exchange in early April two thousand and eight with a forecast production of approximately 800,000 tons of potash and an EBITDA of 48,000,000. It listed with a valuation of $2,300,000,000 equivalent to 40 times EV EBITDA. At the end of its first day of trade, it closed at $3,700,000,000. Now, obviously, that's a very interesting price point for us and an interesting marker for us because our project is very comparable to that in terms of scale, but obviously significantly better than that in terms of forecast EBITDA.

10:12 Fast forward two years and you get to BHP, one of the world's largest mining companies, bidding a hostile takeover bid for potash courses of Saskatchewan, valuing the company at $40,000,000,000. Now the big question is why was was there so much interest in potash during these two year this two year period? And there were several other transactions that were occur that occurred during this period. And the big answer is that the crop prices driving potash consumption, predominantly grains, corn, soybeans, and wheat, had gone through one of the biggest bull runs of their history.

10:51 In late two thousand and seven, early two thousand and eight, those prices jumped significantly. And with that, there was a commensurate increase in demand and interest in MOP. And what this slide is showing is the is the bull market run of MOP prices in late two thousand and seven and early two thousand and eight up to a peak of nearly $900 a ton in the Brazilian market before coming back and settling for a nearly ten year average of about $550 a tonne. So what are the impacts of these higher potash prices for a project like Chemiset? Well, we've obviously run our NPVs at $1,100,000,000 at a at a assumed potash price of $360 a ton. If we assume we get back to anywhere near that ten year average and the last time that we had a a bull run-in the potash market, then our NPV increases substantially up to $2,200,000,000 with a EBITDA of over $400,000,000 per annum.

11:48 I think there's another step to take in this is that potash companies are typically valued on a forward EV EBITDA multiple of 10 times, significantly higher than your traditional mining company, which would put a valuation at a $600 a ton potash price at at nearly 5,000,000,000 US dollars. So a significant impact on our valuation to the upside if we return to that that pricing scenario that we saw in 2008 to 2015. So what's happening right now in the market?

12:17 Well, grain prices are booming, and that is being reflected through into all of the fertilizer space. So wheat is up significantly. Corn and soybeans both approaching prices that we haven't seen since 2007, 2008, an incredibly bullish signal for the market. And the the grain prices that we're looking at here tend to be a really solid lead indicator for what's about to happen in the potash market and the broader food space. Potash demand is remains incredibly stay stable on the downside, and it's forecast to continue to grow between 23% over the next ten to fifteen years. It's generally considered a boring market, but every now and then you have these moments where significant price movement can occur. And we're already starting to see that movement occurring in the broader fert space, and potash is benefiting significantly from that.

13:13 So what does that mean for an asset like Chemeset when you consider the supply's perspectives of the potash market? Potash is an incredibly tightly controlled market. There are seven large producing companies that dominate the market for potash. And what that means is any new supply of potash coming into the potash market while prices are going through through this sort of a boom are going to be incredibly strategically valuable. And we expect to see a significant uptick in interest from from groups as we get closer to delivering this project and becoming the only mid tier, potash producer in the market. I'll hand back to Graham.

13:59 Okay. Thanks, Hayden. And I think it's very clear in in and it's quite it's quite simple, the the the potash market. It is driven by wheat and grain and and crop prices. And what we all have to bear in mind is, you know, this is the sort of fundamentals behind this project. The world's population is growing. It's going to grow to the extent that by 2050, the world has to grow 60% more food than it's growing now. The only way to do that from reducing arable land available is to apply more fertilizer and to apply it in in the right proportions, adding the nutrients back to the soil so that we can actually maximize yields to address, you know, the world's biggest issue, which is is food security. So fundamentally, you know, there is always going to be a need for potash, there's going to be an increasing need for potash, and the opportunity for an independent producer with the sort of strategic advantage of having having, you know, the the product available outside of the very well controlled cartel like producers, and I and I say the word cartel, you know, having worked in that world previously, and that's what it is. It is very well controlled, So we have a massive strategic potential value by being an independent producer. And and, hopefully, Hayden, going through the sort of fundamentals behind that is, you know, makes the the potential increase in value clear to everybody.

15:26 So there is outstanding NPV and equity upside on this project.

15:31 The location, you know, I can't sort of reiterate that enough. It gives us a huge advantage strategically placed. We can access the Brazilian market for a $100 a ton less than the Canadians, but there's the African market, the growing African market, and there's a market, ready market in in Morocco. Morocco is importing 800,000 to a million tons of of MOP a year into the country, largely coming going to OCP for them to make multi nutrient fertilizers. So a producer in country, there's obvious opportunities for our product not not to have to go very far at all from from the site, from the production site. With the potential add on of SOP as well as the salt as a byproduct, we we actually set ourselves there as a very rare, very highly valuable company,

16:20 multi nutrient fertilizer, fertilizer producer independent of of the the large producers. And our the availability of our our offtake, and I know there's a few questions probably on the on the offtake. But at the moment, that is of huge value to us because it gives us the opportunity to talk to potential strategic partners about them securing an offtake for product rather than having to go to the to the big producers who are often their competitors in the fertilizer world. The targets all of the activities this year is aimed at us being able to start early construction works by the end of this year, and that, you know, that is our target. It's a very aggressive target, but if we can get everything in place, ready to do that, then we we really will be turning the significant potential of of this project into massive value going forward.

17:14 So I think that's that's it really for the presentation. So, we're happy now to to hand hand back, and and we'll answer some questions. Fantastic. Graham, Hayden, thank you very much indeed. And ladies and gentlemen, do you please continue to submit your questions using the Q and A tab situated in the top right hand corner of the screen. I just want the company to take a few moments to review those investor questions submitted today. I'd like to remind you that recording this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Dashboard on the Investor Lead Company platform. Lastly, before I hand back to Graham and Hoeghler, I'd like to remind you your feedback is important to the company. Immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order the company can better understand your views and expectations.

18:00 And we'll go ahead and press. Before we look at the questions submitted during the presentation today, we could turn to a few of the questions we had pre submitted by investors ahead of the meeting today. Perhaps I can start with the first one here. What are your views on debt, the reliability of conventional lenders and crowdfunding? Well, I think we we've had very, very strong interest from conventional lenders through the debt process. And, you know, we've in the last few weeks, we've had a lot of a lot of conversations arranged by our adviser with with potential lead banks to take us through that process. So and we're very encouraged and very positive about the response and the interest that we're getting from, you know, the sort of conventional approach to that.

18:47 With regard to crowdfunding, I I think I'm right in saying that Donald Trump used that fairly recently to try and fund some spurious legal claims, so I'd rather not be associated with that as a a sort of fundraising, method, at this time. Fantastic. Thank you, Graham. And the next question we have here, do you anticipate having to raise funds through any form which dilutes existing shareholders? And at what price would you consider doing this or not doing this? Well, I I think it's clear we we are going to have to raise equity to complete the funding for the projects. You know, we'll there will be a a split between equity and debt, so we will have to raise equity, and the price will be driven by various factors, and and that depends on timing often as well. But but what I would like to say is that, you know, we've been having discussions with potential strategic investors, and those discussions have been centered around, you know, them them investing at a premium to the to the share price. So that, you know, that is our drive. We will we will always try to retain as much value as we as we possibly can.

19:49 But at the end of the day, you know, this project has no value if it's not if it doesn't get built. So, you know, we have to focus on on getting to to the end game of actually realizing the full value by getting into construction, and subsequently into operations. That's all I said. Thank you, Graham. The next question we've got here has got three parts to it. Okay. So on a scale of one to five, five being high, what would you rate the following of happening in the next six months? The first one is licenses requested, issued. Second is offtake contract being signed sufficient to raise required development funding. And the third part is any deficit funding required being met by a lender at market competitive rates. Well, I I I won't split those out and and score them individually, but, you know, I we're very confident with there's a high chance of of all of those, of of achieving all of those.

20:43 You know, that is our target, and the team is really committed and working very hard to make sure that that we achieve all of those. Those, you know, those are fundamental to us getting to our target of of being able to commence construction at the end of this year. So we're confident, and, you know, I can assure you all that, you know, the team are extremely committed and and working very hard to make sure that we do achieve all of those. Fantastic. And the final presubmission question, we've got and I know you've sort of touched on this as we go through, and I can see a few questions come through as well. Is do you anticipate the offtake agreement will form a major part of our CapEx requirements? Well, I think the the off an offtake will be, you know, required to support the debt funding. That's clear.

21:29 I think I did comment during the presentation that, you know, we're holding back on going out and signing an offtake. We we know that we can do that relatively easily. We have interested parties in, you know, committing to taking our product. But at the moment, it it really is a trump card in ongoing discussions with strategic potential strategic partners and investors because if we can you know, if we get a strategic coming in who's interested in our product, then that gives us, you know, leverage and and power in those discussions. So we we're keeping it to one side at the moment until we we go through the process with potential strategics. But ultimately, you know, we will you know, in in that case, obviously, it has equity attached to it, an investment attached to it. If we need to, then we will be able to sign off takes to support the debt funding if, you know, if we don't, successfully, go into, you know, partnership with a strategic who wants the product.

22:30 Great. Thank you. That concludes the presubmission questions, and I know we haven't given you a great amount of time to look at the the questions as as we're doing the live event today. But, Hayden, perhaps if I could hand back to you, if I could ask you just to read out the questions from the question itself where where applicable to this, that'd be great. Thank you. Sure. Thank you. Thanks everyone for submitting these questions. I'll work through them. Some of them have already been answered by Graham, so I'll work through and just answer the ones that we haven't answered. First question, roughly, what proportion of CapEx do you expect to be able to raise through debt higher high IRR projects that can usually attract 80 plus percent debt? Is it achievable here? I think the the the way to answer this question is potash is not a hedgeable commodity. And so the amount of debt that we will be able to get on this project will be driven by, at least in some part, by the pricing assumptions used by the banks.

23:28 I wouldn't expect it to be as high as that, and I'm not sure that as a company about to start developing a project that we would be looking for debt of that sort of quantum just because it adds significant risk. But we certainly see this project as as able to deliver the usual two thirds, one third, or even better than that debt equity split. Next question. In relation to finance within reason, is it almost certain that finance is assured for the project? Is it just a matter of choosing the best practice? Well, nothing's assured, and you we still have a lot of work to do, but the team that we have in place is exceptional. And so I think that gives us an outstanding chance of getting this debt financing package done during the course of 2021. Next question. Is there more than one company offering finance? If there is, how many potential offers?

24:19 Well, we we we can't really talk about specifics, but needless to say, we're talking to multiple different parties on both debt and equity. And so we have plenty of options available to us. And and we will be trying our hardest to get the best possible outcome for our shareholders. Next question. What do you view as the greatest risk to your strategy moving forward? I might answer this from my perspective, and then I'll ask Graham to comment. At this stage, the the biggest risk that I see is is financing risk, and we are very focused on that as a company in terms of addressing that financing risk this year. We've got a great team, as I said, in place, and we have had some very good engagement both on the debt and the equity side. So it's a risk that we're focused on reducing over the course of this year.

25:05 I think just just to add to that, mean, I would agree the the financing, obviously, until we have it in place, there's risk we won't we are very confident that we will do that. I think in terms of the taking the project forward otherwise, permitting, we will secure the permitting in the first part of this year, there's no doubt about that. You know, I I think I commented earlier on that from a construction point of view, you know, accessing a mine via two declines, three kilometer long declines, largely driven through salt using conventional methodology, no aquifers to go through, you know, that is low risk in comparison to developing a mine with with shafts, deeper shafts and and aquifers to deal with. Typically You that would cost a billion dollars.

25:53 Our declines will cost 30,000,000 to $40,000,000 to drive. So it isn't without risk, obviously. No mining development is ever without risk and you can't remove all risk, but it is very low risk in comparison to a lot of other projects. You know, and I see our our relationships with the authorities in in Morocco are excellent. You know, so I see that we get the funding in place then, you know, we're we just we've just got to deliver it. And that's a matter of having the right people on the ground to drive the construction and get into operations. Thanks, Graham. I think we have one time for one last question, and I apologize that there's a lot of questions that we won't have a chance to answer.

26:38 I've just worked down the list in order. So the last question is, are you concerned that by the very large amount of potash that will come on to the market when the BHP Jansen project comes online? It's an interesting question. I think it's something of a red herring considering I've been in the potash industry now for seven seven or eight years. And every year, BHP's Jansen project was due to come into construction and production the following year or within two years of that date. So, yes, BHP's Jansen project will potentially be built at some point, probably not for the next decade. BHP is a very slow moving beast. And so will it impact us as a company in the next two to four years when we're in the in our period of getting into production?

27:27 We don't think it's likely. And by the time they do get into production, the the the world's market will have grown enough to accept that new supply. So not really an issue for us. It's more of market noise that we think confuses investors about the underlying potash story. And we'll we'll questions. To take And possible, please. I And will do. And and I'll I'll just try and answer two or three more of the questions I've just been skimming down as in my answer. You know, we we've continued to make excellent progress on this project.

28:15 We are doing that in the midst of the pandemic. It hasn't slowed us down specifically. It has stopped me getting out to Morocco, unfortunately. As soon as the the ban on UK travel is lifted, I'll be out there, you know, as will other members of the team. So, you know, we're confident we can continue in the face of that. It's just it's just another challenge to meet and drive this project forward. And, you know, hopefully, you know, going through the the market that that really is the the driver behind the ultimate value of of the project, you know, and the fundamentals, it it really is a a standout project. There's a great team working on this. I've had the, like, you know, the pleasure of joining Hayden and and the rest of the team in the middle of last year. It's a breath of fresh air for me to be with a group of people who are committed and and have all of the right intentions and the right approach. There's no arrogance about anybody involved in this project. It's a great team who wants to deliver the project in the right way and generate, you know, the maximum value that we can for all of the stakeholders involved.

29:24 So I hope I hope you've enjoyed the the presentation, and and and apologies if we've not managed to answer all the questions. We will we will put post answers to those subsequently. And I just ask for your continued interest in the project and support and confidence in the team to to deliver these projects as as we've said we will. Thank you very much. That's great. Thank you, Graham. Thank you, Hayden, for updating investors today. Current investors not to close the session should be automatically redirected for the opportunity to provide your feedback. If you've accessed this meeting from our website, the feedback page will appear in front of you. And if you've accessed it via the link sent in the email, you'll be asked to log in to submit your feedback, which we do kindly ask you to do. On behalf of EMMERSON PLC, we'd like to thank you for attending today's presentation, and Thank you indeed, and that concludes the session.

30:14 Good evening.