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Emmerson set to save further $75m on Khemisset power costs (EML)

Fertiliser firm Emmerson (LSE:EML) dipped to 4.5p this morning despite telling investors it expects the cost of electrical infrastructure at its flagship Khemisset potash project to be 93pc cheaper than rival developments.

The business said the total cost for constructing a connection to existing electrical infrastructure at the Morocco-based project will be c.$5.7m, including a 30pc contingency- around $75m cheaper than peers. The site is located just5.5km from an expected connection point to 60kV electricity lines, and 7km from the nearest electrical station.

It added that discussions with Morocco’s largest gas provider have confirmed its expectations that an onsite gas storage facility can be built entirely at the supplier’s expense.

The preliminary cost estimates for electricity and gas supply at Khemisset were carried out by independent consultant Golder Associates as part of a forthcoming Scoping Study for the project, expected in early Q1 2019. Emmerson has already carried out cost estimates for Khemisset’s mine access and logistics package, where it plans to save a total of $1.1bn compared to benchmark projects.

In today’s update, chief executive Hayden Locke added: ‘The Khemisset Project benefits from access to outstanding infrastructure and this manifests itself in significant capital cost savings for the Project. Morocco has invested heavily in electrical generation and transmission capacity throughout the country. As a result, the Project is within close proximity of numerous sites to connect to the electrical grid.

‘Our discussions with one of the largest gas suppliers in Morocco confirm that it is willing to design, build and maintain the gas storage infrastructure required for the mine and processing. This saves us considerable capex which would otherwise be required to construct either a pipeline or onsite storage, at our own expense.

‘The design and cost estimates for the access to mineralisation and connection to logistics highlighted significant cost savings already available to the Khemisset Project. This announcement further enhances our belief that the Scoping Study for Khemisset will present a low capital cost, high margin proposition which should result in compelling economic metrics.’

Khemisset houses a relatively shallow deposit containing a JORC resource of 311.4Mt at 10.2pc K20, likely giving it a 20-plus year life of mine, with plenty of exploration potential on the horizon. The upside was evidenced by the recent publication of an exploration target, covering an area of approximately 87km2that sits within the recently-granted research permit area. With a range of 264-616MMts, this target could house more than double the current JORC Resource.

Author: Daniel Flynn

Disclosure: The author does not own shares in the company mentioned above

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