EMMERSON PLC — Earnings Release 2019

Sep 10, 2019

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RNS Number : 7378L

Emmerson PLC

10 September 2019

Emmerson Plc / Ticker: EML / Index: LSE / Sector: Mining

10 September 2019

Interim Results for the six-month period to 30 June 2019

Emmerson Plc, the Moroccan focused potash development company, is pleased to announce its interim results for the six-month period ended 30 June 2019. 

Highlights During And Immediately Post Period End

·    Maintained strategy of rapidly advancing the Khemisset potash Project ('Khemisset' 'the Project') towards development

·    Scoping Study confirmed that Khemisset has the potential to be amongst the lowest capital cost potash projects in the world, and to deliver EBITDA margins in excess of 60% over a minimum mine life of 20 years with outstanding project economics including an NPV10, using industry expert Argus FMB's price forecasts, of more than US$1.1billion  

·    Opportunities to potentially further improve project economics identified in the period including:

o  Potential capex saving of US$7.5m compared to the Scoping Study by utilising existing storage and loading facilities in Port of Casablanca as opposed to the Port of Mohammedia

o  Simplification and optimisation of the process flow design, which have the potential to reduce capital and operating costs, as identified by world renowned potash processing expert Don Lamour, who was appointed during the period

o  Memorandum of Understanding signed with Afriquia Gaz to establish a sustainable partnership including the identification of options for the economical supply of gas to Khemisset resulting in potential cost savings

·    Positive early engagement on offtake and financing including:

o  Heads of Agreement signed with a global fertiliser group covering offtake for 100% of production for an initial five year period

o  Indication of project finance debt of up to US$230m from a major international bank

·    Comprehensive Environmental and Social Impact Assessment baseline study completed, identifying no areas of concern that could impact the scale, location, cost, or profitability of the Project

·    Commenced Feasibility Study and appointed Golder Associates, a global, independent engineering firm with deep experience in the delivery of feasibility studies for complex mining projects

o  Barr Engineering Co. ("Barr") appointed as Process Design Engineers responsible for the process plant components of Feasibility Study

·    Commenced and completed a comprehensive metallurgical test work programme as a key input to the Feasibility Study

o  Confirmed the technical viability of the proposed processing flowsheet used in the Scoping Study

o  Identified areas for potential simplification and optimisation from an operating cost and capex perspective

o  Validated the recovery rate assumptions used in the Scoping Study

·    Completed a permitting road map for the development of the Project confirming that construction of Khemisset can begin shortly after completion of engineering and financing workstreams

·    Preliminary Economic Assessment for the sale of by-product de-icing salt into the East Coast US market highlighted potential to deliver additional nominal post tax NPV10 of up to US$133 million based on historical US de-icing salt prices

·    Raised £2.25 million (before expenses) through an oversubscribed share placement enabling the continued rapid development of Khemisset and discussions with potential strategic partners

·    Appointed Shard Capital Partners to act as joint broker to the Company

Hayden Locke, CEO of Emmerson, commented: 

"Following the validation of the Project's outstanding potential in the Scoping Study, delivered ahead of schedule in 2018, we have continued to progress apace, delivering key milestones and strategic agreements that serve to advance and de-risk the development of Khemisset.  In particular, the completion of metallurgical testing, which confirmed the technical viability of the processing methods proposed for Khemisset, is a significant de-risking milestone for the Company. In addition, the early indication of considerable debt financing availability and the signing of an MOU for the sales of 100% of product produced at Khemisset, are outstanding achievements at such an early stage and are a testament to the Project's potential.  I look forward to continuing to update shareholders with our progress as we deliver a robust Feasibility Study in the upcoming months."  

For further information, please visit www.emmersonplc.com, follow us on Twitter (@emmerson_plc), or contact: 

Hayden Locke	Emmerson Plc	Tel: +44 (0) 207 236 1177
Edward McDermott
Damon Heath	Shard Capital Partners	Tel:  020 7186 9950
Isabella Pierre
Gaby Jenner Melissa Hancock	St Brides Partners Ltd Financial PR/IR	Tel: +44 (0) 20 7236 1177

Notes to Editors

Emmerson's primary focus is on developing the Khemisset Potash Project located in Northern Morocco.  The project has a large JORC Resource Estimate (2012) of 311.4Mt @ 10.2% K2O and significant exploration potential with an accelerated development pathway targeting a low capex, high margin mine.  Khemisset is perfectly located to capitalise on the expected growth of African fertiliser consumption whilst also being located on the doorstep of European markets. This unique positioning means the project will receive a premium netback price compared to existing potash producers. The need to feed the world's rapidly increasing population is driving demand for potash and Emmerson is well placed to benefit from the opportunities this presents.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014.

Management Statement

Emmerson has a clear strategic objective - the rapid advancement of the highly prospective Khemisset Potash Project ("Khemisset" or "the Project") towards production to maximize value for all stakeholders.  Since listing on the London Stock Exchange with the Khemisset project in June 2018 the Emmerson team has consistently met milestones by advancing the Project's development through the completion of key operational milestones, either on time or ahead of schedule, substantially de-risking the Project, while also progressing various corporate and strategic opportunities which will be required to take Khemisset into production.

I stated previously the rarity of having such an outstanding asset in the hands of a junior Company and this belief has strengthened as the various work streams confirm the Project's potential. One of the key milestones achieved was the completion of an initial phase of metallurgical testing which confirmed the technical viability of the processing flowsheet proposed in the Scoping Study, identified numerous areas for potential improvement, and validated the recovery assumptions used. While there is still a considerable amount of work to complete, the technical progress made to date, and the Emmerson team's broader approach to the technical work, provides me with optimism for the future development of this asset.

Another key de-risking milestone was the successful completion of the Environmental Social Impact Assessment baseline study that identified no potential adverse impacts of commercial operations at Khemisset.  It was important to the board that this work was completed according to the highest health, safety and environmental standards, by adhering to IFC and Equator Principle standards. We remain committed to maintaining excellent stakeholder relations in the region and in-country and developing Khemisset in accordance with best practices globally. 

The attention of the Company is now directed on the delivery of a robust and comprehensive Feasibility Study that further demonstrates the strategic potential value of the Khemisset project.  We are delighted to be working with Golder Associates and Barr Engineering Co, organisations that share a reputation of having a depth of technical expertise and experience required for project delivery.  We are confident that we have the team in place to deliver on our ambitious timeline of completing the study in 1H 2020, which will lead us into the mine permitting process and one step closer to commencing construction at Khemisset. 

Development is, of course, dependent on financing. During the period, we received an indicative proposal for project financing from a major European bank for up to US$230m, which represents over half of Khemisset's pre-production capital cost.   I feel that it is important to state that to have attracted such interest and levels of commitment from a major financial institution is a testament to both the quality of the work undertaken to date by the Emmerson team, and the outstanding economic fundamentals of Khemisset.  Complementing the project finance discussions, we also signed an MOU with a significant fertiliser company for the offtake of 100% of production from Khemisset for the first five years of production.

Emmerson is an attractive investment proposition underpinned by strong fundamentals in the agricultural sector.  Rapid population growth - the primary demand driver for potash - is showing no sign of abating, with the global population anticipated to reach close to 10 billion by 2050.  The need to provide food to this growing global population has become a significant issue, and it is anticipated to result in an increased demand for potash as a means of increasing yield from arable land.  This sentiment is confirmed by industry majors, including BHP, anticipating that demand will exceed supply from onstream, latent and forthcoming capacity by mid-2020, placing positive pressure on pricing dynamics.   The Scoping Study for Khemisset confirmed the potential to be one of the world's lowest cost, highest margin projects delivering EBITDA margins in excess of 60% over a minimum mine life of 20 years by virtue of its premier location in Northern Morocco, which would make it the closest producer of MOP to all of its target markets including Brazil, Africa and Europe. 

2019 has been, and continues to be, a transformative year for the Company and we have been thrilled with the support received from all stakeholders in the period, including a recent increase in holding from significant shareholder Dame Ann Gloag, and the oversubscribed £2.25 million capital raise.  The period ahead promises to be a period of delivery and de-risking of the Project, and the Company looks forward to updating investors regularly.   I would like to take this opportunity to thank the board of Directors, our CEO Hayden Locke, and Emmerson's management and its advisors for their hard work and commitment during the period. 

Statement of Directors' Responsibilities

The Directors confirm that this condensed interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

·    an indication of important events that have occurred during the first six months and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

·    material related-party transactions in the first six months and any material changes in the related-party transactions described in the last Annual Report.

Principal risks and uncertainties

The principal risks and uncertainties as at the date of this report are the same as those disclosed by the Company in its consolidated financial statements for the financial year to 31 December 2018.

Future developments

The board of Directors looks forward to keeping shareholders informed of further developments in what we believe is a very exciting period of transition from potash explorer to project developer. 

Mark Connelly

Non-executive Chairman

9 September 2019

Condensed Consolidated Statement of Comprehensive Income for the six month period ended 30 June 2019

		6 months ended 30 Jun 2019	6 months ended 30 Jun 2018	12 months ended 31 Dec 2018
		(Unaudited)	(Unaudited)	(Audited)
	Notes	£'000	£'000	£'000
Administrative expenses	3	(524)	(723)	(1,131)
Net foreign exchange (loss)/gain		(12)	137	196
Reverse acquisition cost		-	(698)	(698)
Operating loss		(536)	(1,284)	(1,633)
Finance income		9	-	7
Finance cost		-	(157)	(158)
Loss before tax		9	(157)	(151)
Income tax		-	-	-
Loss for the period attributable to equity owners		(527)	(1,441)	(1,784)
Other comprehensive income
Items that may be subsequently reclassified to profit or loss:
Exchange (loss)/gain on translating foreign operations		(6)	29	81
Total comprehensive income attributable to equity owners		(533)	(1,412)	(1,703)
Loss per share (pence)	4	(0.08)	(0.44)	(0.49)

Condensed Consolidated Statement of Financial Position

as at 30 June 2019

		30 June 2019	31 Dec 2018	30 June 2018
		(Unaudited)	(Audited)	(Unaudited)
	Notes	£'000	£'000	£'000
Non-current assets
Intangible assets	5	4,993	3,699	2,601
Property, plant and equipment		49	40	2
Total non-current assets		5,042	3,739	2,603
Current assets
Trade and other receivables		206	352	67
Cash and cash equivalents		1,636	3,351	4,891
Total current assets		1,842	3,703	4,958
Total assets		6,884	7,442	7,561
Current liabilities
Trade and other payables		337	440	346
Total current liabilities		337	440	346
Net assets		6,547	7,002	7,215
Shareholders equity attributable to equity owners
Share capital		8,265	8,265	8,265
Share reserves		307	229	151
Reverse acquisition reserve		1,651	1,651	1,651
Translation reserve		(62)	(56)	(108)
Retained earnings		(3,614)	(3,087)	(2,744)
Total equity		6,547	7,002	7,215

These financial statements were approved by the Board on 9 September 2019 and signed on their behalf by

Mark Connelly                                                              Robert Wrixon

Chairman                                                                     Director

Condensed Consolidated Statement of Changes in Equity

	Share Capital £'000	Share reserve £'000	Reverse Acquisition reserve £'000	Retained earnings £'000	Translation reserve £'000	Total equity £'000
Balance as at 1 January 2018	1,391	1,227	-	(1,303)	(137)	1,178
Loss for the period	-	-	-	(1,441)	-	(1,441)
Other comprehensive income:
Exchange gain on translating foreign operations	-	-	-	-	29	29
Total comprehensive income	-	-	-	(1,441)	29	(1,412)
Issue of shares held in share reserve	1,227	(1,227)	-	-	-	-
Transfer to reverse acquisition reserve	(2,618)	-	2,618	-	-	-
Recognition of Emmerson Plc equity at reverse acquisition	967	-	117	-	-	1,084
Issue of shares for acquisition of subsidiary	1,084	-	(1,084)	-	-	-
Issue of shares for cash	7,338	-	-	-	-	7,338
Share issue costs	(1,124)	-	-	-	-	(1,124)
Issue of share options and warrants	-	151	-	-	-	151
Total contributions by and distributions to equity owners recognised directly in equity	6,874	(1,076)	1,651	-	-	7,449
Balance as at 30 June 2018	8,265	151	1,651	(2,744)	(108)	7,215
Loss for the period	-	-	-	(343)	-	(343)
Issue of share options and warrants	-	78	-	-	-	78
Exchange gain on translating foreign operations	-	-	-	-	52	52
Balance as at 31 December 2018	8,265	229	1,651	(3,087)	(56)	7,002
Loss for the period	-	-	-	(527)	-	(527)
Issue of share options and warrants	-	78	-	-	-	78
Exchange loss on translating foreign operations	-	-	-	-	(6)	(6)
Balance as at 30 June 2019	8,265	307	1,651	(3,614)	(62)	6,547

Condensed Consolidated Statement of Cash Flows

for the six month period ended 30 June 2019

		6 months ended 30 June 2019	6 months ended 30 June 2018	12 months ended 31 Dec 2018
		(Unaudited)	(Unaudited)	(Audited)
		£'000	£'000	£'000
Cash flows from operating activities
Loss before tax		(527)	(1,441)	(1,784)
Finance cost		-	157	158
Share based payment		78	151	229
Reverse acquisition expense		-	698	698
Changes in working capital
Decrease/(increase) in trade and other receivables		146	(59)	(139)
(Decrease)/increase in trade and other payables		(103)	(421)	(327)
Net cash flows used in operating activities		(406)	(915)	(1,165)
Cash flows from investing activities
Exploration expenditure		(1,294)	(103)	(1,258)
Cash acquired on acquisition		-	181	181
Property, plant and equipment purchase		(9)	-	-
Net cash flow (used in)/generated from investing activities		(1,303)	78	(1,077)
Cash flows from financing activities
Shares issued (net of issue costs)		-	5,254	5,254
Net cash flow generated from financing activities		-	5,254	5,254
(Decrease)/increase in cash and cash equivalents		(1,709)	4,417	3,012
Cash and cash equivalents at beginning of period		3,351	417	417
Foreign exchange on cash and cash equivalent		(6)	57	(78)
Cash and cash equivalents at end of period		1,636	4,891	3,351

Notes to the Condensed Consolidated Financial Statements for the six month period ended 30 June 2019 

1.   General information

Emmerson Plc (the "Company") is a company incorporated and domiciled in the Isle of Man, whose shares were admitted to the Standard Listing segment of the Main market of the London Stock Exchange on 15 February 2017.

The principal activity of the Group is the exploration, development and exploitation of a potash development project in Morocco.

2.   Basis of preparation

2.1     General

The Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.  The Condensed Consolidated Financial Statements for the six months ended 30 June 2019 are unaudited and have not been reviewed by the Group's auditor, and do not include all of the information required for full annual financial statements.

They should be read in conjunction with the Company's annual financial statements for the year ended 31 December 2018.  The principal accounting policies applied in the preparation of the Condensed Consolidated Financial Statements are unchanged from those disclosed in those statements. These policies have been consistently applied to each of the periods presented.

The financial information of the Group is presented in UK Sterling, which is also the functional currency of the Company and has been prepared under the historical cost convention. The individual financial statements of each of the Company's wholly owned subsidiaries are prepared in the currency of the primary economic environment in which it operates (its functional currency).

2.2     Basis of consolidation

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss which are measured at fair value in the statement of financial position.

All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

The subsidiaries' financial statements have been translated in to Pound Sterling in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates. This standard requires that assets and liabilities be translated using the exchange rate at period end, and income, expenses and cash flow items are translated using the rate that approximates the exchange rates at the dates of the transactions (i.e. the average rate for the period). The foreign exchange differences on translation are recognised in other comprehensive income.

2.3     Going concern

The Directors have reviewed the Group's ongoing activities and have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the Interim Financial Statements.

2.4     Future changes in accounting policies

The directors have reviewed the IFRS standards in issue which are effective for annual accounting periods ending on or after the stated effective date. In their view, none of these standards would have a material impact on the financial reporting of the Group.

2.5     Segment reporting and cyclicality

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

The Directors are of the opinion that the Group is engaged in a single segment of business being the exploration activity of potash in one geographical area, being Morocco.

The interim results for the six months ended 30 June 2019 are not necessarily indicative of the results to be expected for the full year ending 31 December 2019. Due to the nature of the entity, the operations are not affected by seasonal variations at this stage.

3.   Administrative fee and other expenses

	6 months ended 30 Jun 2019	6 months ended 30 Jun 2018	12 months ended 31 Dec 2018
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Project costs	34	32	39
Directors' fees	66	-	284
Share based payments	78	151	229
Travel and accommodation	54	57	55
Listing fees and issue costs expensed	-	123	123
Auditors remuneration	27	-	27
Professional and consultancy fees	229	309	322
Other	36	51	52
Total	524	723	1,131

4.   Earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	6 months ended 30 Jun 2019	6 months ended 30 Jun 2018	12 months ended 31 Dec 2018
	(Unaudited)	(Unaudited)	(audited)
	£'000	£'000	£'000
Earnings
Loss from continuing operations for the period attributable to the equity holders of the Company	(527)	(1,441)	(1,784)
Number of shares
Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share
626,132,385	329,036,037	361,230,854
Basic and diluted earnings per share (pence)	(0.08)	(0.44)	(0.49)

5.   Intangible assets

The intangible assets consist of capitalised exploration and evaluation expenditure, including the cost of acquiring the one mining license and 39 research permits held by the Company's subsidiaries. The potash properties are currently unproved reserves. Once properties have been classified as proved reserves, they will be transferred from intangible assets to tangible assets, and amortised over the life of the area according to the rate of depletion of the economically recoverable costs.

	30 Jun 2019	30 Jun 2018	31 Dec 2018
	(Unaudited)	(Unaudited)	(audited)
	£'000	£'000	£'000
Cost:
At the beginning of the period	3,699	2,304	2,304
Additions	1,294	99	1,258
Exchange differences	-	198	137
As at end of period	4,993	2,601	3,699

6.   Related party transactions

The total Directors' remuneration paid during the period is given in note 3.

In addition, Hayden Locke (a Director of the Company) is a director of Benson Capital Limited and Bentley Capital Limited, which provide consulting services to the Company. During the period, Benson Capital Limited and Bentley Capital Limited received total fees of £103,000 (12 months to 31 December 2018: £134,000). The amount outstanding as at period-end is £17,200 (31 December 2018: £ nil). Subsequent to period-end, Hayden Locke received a performance incentive for the six months to 30 June 2019 of £86,250.

Robert Wrixon is a Director of the Company. Subsequent to period-end, Robert Wrixon received a performance incentive for the six months to 30 June 2019 of £15,000.

Phil Cleggett is the only key management personnel other than the Directors.  Fees of £51,000 (12 months to 31 December 2018: £137,000) were paid during the period to Bremer Consulting Pty Ltd, a company Phil Cleggett controls and the amount outstanding as at period-end is £8,500 (31 December 2018: £61,000). Subsequent to period-end, Phil Cleggett received a performance incentive for the six months to 30 June 2019 of £34,500.

There are no other related party transactions. 

7.   Events after the reporting date

On 12 July 2019, the Company raised £2.25 million (before expenses) through a placing of 60,000,000 new ordinary shares of no-par value each at a price of 3.75 pence per share. The funds raised will primarily support the Company as it continues to rapidly develop the Khemisset Potash Project through the delivery of key work streams. Following Admission, the enlarged issued share capital of the Company comprises of 686,132,385 ordinary shares of no-par value each.

In August 2019, the remuneration committee recommended a performance incentive for Hayden Locke Robert Wrixon and Phil Cleggett. The board adopted the recommendations and further details of the performance incentive are in note 6.

There were no other significant subsequent events.

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