Emmerson Plc – which is focused on developing the low cost, high margin Khemisset potash project – has received a formal indication of significant debt financing for Khemisset from a major European commercial bank. The indicative sizing shows debt capacity of up to US$230 million would be feasible assuming standard project finance terms and conditions. It is expected the syndicate will comprise of commercial banks and Export Credit Agencies.
Hayden Locke, CEO of Emmerson, commented: “To be approached by a major commercial bank with an early indication of debt financing capacity of such significant size, despite using very low potash price assumptions, is a huge endorsement of the economic strength of the project.
“The scoping study, which was delivered in November 2018, highlighted Khemisset’s industry-leading capital intensity, but also showed that, even in the downside price scenarios, the project exhibited very robust cash flow generation. The board and management believed this would underpin a significant debt financing package from credible institutions, a view that has been strongly endorsed by this indicative proposal.
“We continue to engage in early stage discussions with a number of significant strategic and financing partners with the capacity to provide both debt and equity for Khemisset project, and the indication of significant debt support will enhance these discussions.
“We will continue to update our investors on the various operational and corporate activities we have underway as Emmerson continues to scale up the development of this exceptional project.”
Emmerson is assessing multiple options for financing the required capital expenditure of the Khemisset potash project. The company will continue to assess all financing options as project development progresses, in order to ultimately allow an optimal decision to be made regarding the final financing structure. Traditional project finance is considered one of the most attractive financing solutions for new mining projects but is often not available for a variety of reasons. To have received an indication of significant debt capacity from a major financial institution, following initial technical and financial due diligence, is a significant positive for the company and an endorsement of the quality of the Khemisset project. The key terms of the detailed indicative debt financing include:
- Debt sizing of up to US$230 million, representing more than 50% of estimated CAPEX.
- Debt sizing is strongly influenced by the assumed potash price. Initial potash prices used are flat US$235/t CFR Brazil.
- Potential to increase size of financing package if favourable conditions can be negotiated, primarily in offtake discussions.
- Expected syndicate of 3 - 4 major commercial banks alongside ECAs would be required.
- 10 year term including 3 year grace period prior to first repayments, assuming involvement of ECAs.
- Standard terms including equity investment before debt drawdown, cost overrun facilities, standard covenants, cash sweep and security packages.
- Interest rates calculated at a margin of up to 5% above an agreed base rate, such as Euribor or Libor.
- Initial technical due diligence and financial modelling has been completed.
- Indication is subject to standard conditions precedent including satisfactory technical, legal and environmental due diligence, finalisation of security packages and offtake agreements.
The company looks forward to updating shareholders as progress is made on various workstreams underway within the company.
Read the article online at: https://www.globalminingreview.com/finance-business/10062019/indication-of-debt-financing-capacity-to-support-development-of-khemisset-potash-project/