Emmerson PLC (EML.L) Strategic Investment of up to US$46.75m

Emmerson Plc Announces Strategic Investment of up to US$46.75 million1,2 for the Development
of the Khemisset Potash Project

General Meeting on 6 December 2021 to approve terms of Convertible Loan Notes

Emmerson, the Moroccan focused potash development company, is pleased to announce it has secured a strategic investment of up to US$46.75 million1,2 from a group of investors to support the development of the Khemisset Potash Project (“Khemisset” or “the Project”). The primary investor is Global Sustainable Minerals Pte Ltd, a Singapore domiciled investment vehicle backed by a significant south-east Asian investor. Defined terms used in this Announcement are set out at the end of this Announcement.

Highlights

· Strategic investment of up to US$46.75m123 structured in two tranches comprising:

o An immediate direct equity investment of US$6.75m at 6 pence per share1, an 8% premium to the 30-day VWAP, under the Company’s existing authority to issue shares.

o Subscription for up to US$40m of convertible loan notes, principal and interest with a conversion price of 8.2 pence per share13 a 48% premium to the 30-day VWAP, (“Convertible Loan Notes” or “CLN”). The Convertible Loan Notes are designed to contribute directly to the construction funding for Khemisset and are accessible by the Company once the overall funding package for the Project is in place.

o Grant of 82,391,714 warrants pro rata to CLN subscribers, each warrant with a 12-month term and an exercise of 8.2 pence per share. Exercise of all warrants could secure additional c. US$9.3 million investment in the Company12.

· On conversion of the CLN, the Strategic Investors, including GSM, will own up to a maximum of 29.9% of Emmerson Plc

· The US$6.75m1 equity investment allows Emmerson to accelerate pre-construction activities at Khemisset:

o 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

o Immediately commence basic design and engineering for the project to prepare to commence full construction during 2022

· The Convertible Loan Notes allow Emmerson to further discussions with other providers of funding including project finance banks, sovereign wealth funds and royalty and streaming providers as the Company seeks the optimal overall funding solution for the Project

· Emmerson is well-positioned to take advantage of the strongest fertiliser market in more than a decade and Morocco’s emerging position as the gateway to Africa

· General Meeting of shareholders on 6 December 2021 to approve terms of Convertible Loan Note and issue of conversion shares and warrants

1 Using a USD:GBP exchange rate of 1.375

2 Assumes further issue of ordinary shares to maintain the Strategic Investors holding at 29.9%

3 Subject to shareholder approval and various conditions precedent including closing the remaining finance to construct the Khemisset Potash Project

4 Based on the Feasibility Study financial model assumptions per announcement on 1 June 2020 with current Brazil spot prices

Graham Clarke, CEO of Emmerson commented:

“A major investment, at a premium to our current valuation, and long-term strategic commitment by an investment group of this 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. We look forward to working closely with them to achieve our shared vision.

“The whole Emmerson team and I have worked tirelessly, through an extremely rigorous due diligence process, over several months, to secure this strategic investment for the Company. It is a transformational investment for Emmerson, and it is a major step to unlocking the full potential value of the world class Khemisset Potash Project.

“The Project will be important for Morocco and will bring substantial social and economic benefits to the region of Khemisset. Our Moroccan stakeholders continue to be incredibly supportive of us as we move the Project into the execution phase and develop it for the benefit of all of our stakeholders. Emmerson expects to invest well over US$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.

“Potash markets have strengthened considerably since we released our Feasibility Study, with prices in Brazil now over US$800/tonne, effectively double the base case assumptions from our previous studies. The strength in potash clearly improves its already outstanding economics and, using current spot price assumptions, it would push our post-tax NPV8 from a very respectable US$1.4 billion to US$3.9 billion4 and IRR of over 85.4%, while average life of mine post tax cashflow increases to US$558 million per annum for an initial 19-year life of mine.

“Our attention now moves quickly to the task at hand, which is to get the project into production as quickly as possible. Our advisors 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 EPCM partners. We have already made substantial progress in pre-qualifying the groups who will eventually partner with us in building Khemisset.

“We would like to thank our shareholders for their ongoing support through this process.”

Mark Zhou, Director of GSM commented:

“The Khemisset Potash Project is clearly a standout in the development MOP space and we are excited to be partnering in its development with Emmerson Plc.

“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.

“We look forward to being a part of the development of what will be the only producing MOP potash asset in Africa, in the dynamic Kingdom of Morocco, a global leader in fertiliser that is playing a growing role in the development of African agriculture. We believe this strategic location with developed infrastructure within close proximity makes the asset all the more valuable as Africa’s importance for food production, and global food security, continues to grow in the coming decades.”

Overview of the Strategic Investment

The Company has raised US$6.75 million before expenses by way of a subscription for 81,818,182 new Ordinary Shares at a price of 6 pence per share by various investors (the “Equity Subscription”). Global Sustainable Minerals Pte Ltd (“GSM”) has subscribed for 48,484,848 new Ordinary Shares and Gold Quay Capital Pte Ltd (“GQC”) has subscribed for 21,818,182 new Ordinary Shares, in aggregate investing US$5.8 million in the Company. The Subscription Shares shall be admitted to trading on AIM on 24 November 2021.

Having acquired this initial stake, GSM and GQC have committed to acquire a further strategic stake in the Company via a subscription for conditional convertible loan notes (the “Convertible Loan Notes”). The subscription for Convertible Loan Notes is subject to approval of Shareholders at a general meeting of shareholders to be held on 6 December 2021, further details of which are set out below. Draw-down of funds in respect of the Convertible Loan Notes is subject to satisfaction of the CLN Subscription Conditions (as defined below), subject to which GSM shall invest up to US$36 million and GQC shall invest up to US$4 million for a total of up to US$40 million. The proceeds of the Convertible Loan Notes shall be utilised at such point that the Company has all necessary project funding in place for the construction of the Khemisset Project and satisfied all other conditions precedent as described further below.

The Convertible Loan Notes shall have a two-year term from their issuance date. They will have a conversion price of 8.2 pence per share (the “Conversion Price”) (at the Exchange Rate) and will accrue interest at a rate of 9% payable annually in arrears on the principal amount of funds drawn down, such interest to be converted into new Ordinary Shares of the Company to be issued to each holder of Convertible Loan Notes at 8.2 pence per share within 30 days after each 12-month interest period (“Interest Shares”). The aggregate amount outstanding under the Convertible Loan Notes including, for the avoidance of doubt, all Standard Interest (as defined below), will be satisfied by the issue of new Ordinary Shares at 8.2 pence per share. In addition, upon subscription for the Convertible Loan Notes commencing from the date on which the Resolutions are approved by shareholders, GSM and GQC will also be granted 12 month warrants to subscribe for in aggregate of up to 82,391,714 new Ordinary Shares representing a ratio of approximately 1 warrant for every US$0.485 committed under the CLN Instrument), each warrant with an exercise price of 8.2 pence per share (the “Warrants”). Each subscriber has the right, but not the obligation, to convert Convertible Loan Notes and all Standard Interest accrued thereunder into Ordinary Shares, at the Conversion Price, in the event of a change of control of the Company (or analogous transaction or occurrence in respect of the Khemisset Project).

The Warrants can be exercised within the 12-month period from the approval of the Resolutions and, if exercised during this period, would result in GSM and GQC (together the “Strategic Investors”) (together with their respective affiliates) being interested in 153,694,744 Ordinary Shares representing 15.41% of the Company’s issued shares.

The CLN Subscription Conditions have until 30 September 2022 to be satisfied (unless extended). On satisfaction of the CLN Subscription Conditions the Company shall draw down the maximum nominal amount of Convertible Loan Notes such that the Strategic Investors (together with their respective affiliates) will be interested in up to 29.9% of the Company’s issued shares. The maximum number of shares that could be issued to the Strategic Investors is 572,320,021 Ordinary Shares, but the interest of the Strategic Investors shall always be restricted (either under the terms of the Warrant Instrument or the CLN Subscription Letter such that the shareholding of the Strategic Investors (and their affiliates) cannot exceed 29.9%.

The Conversion Price (and the exercise price for the Warrants represents a 48% premium to the volume weighted average trading price of the Company’s Ordinary Shares traded on AIM over the 30-day period immediately before the date of the CLN Subscription. The Conversion Price represents a premium of approximately 45% to the closing middle market price for the Company’s Ordinary Shares on 9 November 2021 (being the last practicable date prior to publication of this announcement).

Global Sustainable Minerals is a Singapore based investment vehicle managed by Mr. Mark Zhou You Chuan. Mr. Zhou is an executive director and the Chief Investment Officer of Golden Energy and Resources Limited a company listed on the Singapore Stock Exchange. GSM is funded by way of a fully committed secured financing facility (by way of a secured note) provided by Asia Star Fund Ltd, a fund controlled by Mr. Indra Widjaja.

Concurrent with the CLN Subscription, GSM will enter into a relationship agreement with the Company and Shore Capital, the Nomad, on the terms set out below.

Gold Quay Capital is an investment company based in Singapore and managed by Mr Barry Dick and Mr Martin Otway. Both have over 30 years of experience in the capital markets with much of that time spent in Asia.

GSM (and its affiliated persons) and GQC (and its affiliated persons) note that they are acting together in their investment into the Company and would therefore be deemed as acting in concert by the Panel on Takeovers and Mergers. As a result they and the Company have sought to limit their maximum collective holding in Ordinary Shares to 29.9% of the Company’s issue share capital at any one time.

The Fundraising is conditional, inter alia, upon the requisite majority of Shareholders approving the Resolutions at the General Meeting that will grant the Directors the authority to allot the new Ordinary Shares and the power to disapply statutory pre-emption rights in respect of the new Ordinary Shares

Reason for the Equity Subscription, proposed issue of Conditional Convertible Loan Notes, proposed grant of Warrants, proposed issue of Interest Shares and use of proceeds of proceeds

The purpose of the Equity Subscription and the Fundraising is to provide funding for Emmerson’s Khemisset Project, located in Northern Morocco.

The Company has devoted significant time to securing cornerstone funding commitments for the Khemisset project financing package, ahead of detailed negotiations with likely debt funders and industry partners, and the Directors believe the size of the proposed investment by GSM and GQC by way of the Convertible Loan Notes, the identity of the investor group, and the structure of the investment, is strategic in nature and securing this component of the project finance package has the potential to unlock the overall funding package for the Khemisset Project.

As investors will be aware, the development of the Khemisset Project has been the Company’s primary focus since acquiring 100% control of the potash licenses in 2016. The recently completed Feasibility Study completed by Golder Associates in June 2020 has confirmed the findings from the 2018 Scoping Study by Golder Associates, which showed that Khemisset has the potential to be a world class, low capital cost, high margin potash mine, which is a very rare asset in the industry. The Feasibility Study is available on the Company’s website at www.emmersonplc.com .

The Feasibility Study supported robust economics for the Khemisset Project with a projected post-tax NPV8 of US$1.4 billion and internal rate of return of 38.5% based on production of up to 800,000 tonnes of K60 MOP per annum during steady state operations over an estimated initial 19-year mine life, using an assumed potash price of US$360/tonne. Importantly, the Feasibility Study set out an estimated pre-production capital cost of US$387 million to bring the Khemisset Project into production, less than half of its global peer average capital intensity.

The Khemisset Project is ideally located to benefit from the expected high growth in demand for NPK fertilisers in Africa. Its location, close to a number of potential export ports with easy access to European, Brazilian and US markets, means that the project is expected to receive a premium netback price relative to many of its peers. The need to feed the world’s rapidly increasing population is driving demand for potash and the Company is well placed to take full advantage of the opportunities this presents.

The Feasibility Study confirmed both the technical and economic viability of the sale of 1 million tonnes per annum (Mtpa) of salt byproduct produced from the Khemisset Project with, on average, a total of approximately 4.5Mtpa of salt by-product over the life of the mine. As a result, there is clear potential for significant increases in the tonnages of salt which could be sold into the US de-icing salt market. As the salt is a bye-product of potash production at the Khemisset Project, the operating cost associated with its production is very low and the Company expects to be a very competitive producer on a delivered cost basis to the US market.

Emmerson plans to use the net proceeds of the Equity Subscription, if exercised, the Warrants, and funds drawn-down pursuant to the Convertible Loan Notes, to:

· Fund development capital expenditure on the Khemmiset project and any growth opportunities for the Khemisset project including:

o Completion of basic design and engineering

o Completion of definition of work packages for tender from construction contractors

o Examine expansion opportunities for salt and potash production

· Achieve financial close on project finance debt and other financing streams for the development of the Khemisset project

· Build-out the owners’ development team across all key technical disciplines

Details of the Equity Subscription and Total Voting Rights

The Company has raised US$6.75 million (approximately £4.91 million) before expenses through the issuance of 81,818,182 new Ordinary Shares at an issue price of £0.06 (six pence) per Ordinary Share to GSM, GSQ and other unrelated investors. GSM has subscribed for 48,484,848 new Ordinary Shares at 6 pence per share and GQC has subscribed for 21,818,182 new Ordinary Shares at 6 pence per share.

The Equity Subscription is being undertaken under the Company’s existing authority to issue Ordinary Shares for cash and is conditional, inter alia, upon Admission becoming effective on 24 November 2021.

The Subscription Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

Application will be made to the London Stock Exchange for the admission of the Subscription Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 24 November 2021 at which time it is also expected that the Subscription Shares will be enabled for settlement in CREST.

Following Admission of the 81,818,182 Subscription Shares, the Company’s issued share capital will consist of 915,062,661 Ordinary Shares. Therefore, following Admission the total number of voting rights in Emmerson will be 915,062,661, which is the figure which should be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, Ordinary Shares under the FCA’s Disclosure and Transparency Rules.

CLN Subscription Letters

Subject to approval of Shareholders at the General Meeting the Company is proposing to raise up to US$40 million, before expenses, by the issuance of Conditional Convertible Loan Notes to GSM and GQC, pursuant to the terms of CLN Subscription Letters signed by the Company and each of GSM and GQC on 10 November 2021. The CLN Subscription Letters confirm the legal obligation of GSM and GQC to subscribe for Convertible Loan Notes subject to satisfaction of relevant CLN Subscription Conditions, including but not limited to the requisite majority of Shareholders approving the Resolutions at the General Meeting. GSM and GQC have conditionally subscribed for the Convertible Loan Notes set forth in the table below:

Read More

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

Emmerson Plc

Graham Clarke

Hayden Locke

+44 (0) 20 7236 1177


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