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Sirius Minerals advances after landing another de-risking commercial deal

“South East Asia is a fast-growing market which provides Sirius with an attractive opportunity to further diversify and grow our current portfolio of customers."
POLY4, the polyhalite product that will be made from the the new mine in North Yorkshire.
Wilmar has the option to lift the offtake volume up to 1mln tonnes per annum

Sirius Minerals PLC (LON:SXX) shares advanced around 5% on Thursday as the UK mine developer marked another milestone, with a commercial deal to underpin the North Yorkshire mine development.

An initial 7-year deal could see up to 750,000 tonnes of the POLY4 - the fertiliser product that will be made at the new mine - shipped to customers in South East Asia.

“South East Asia is a fast-growing market which provides Sirius with an attractive opportunity to further diversify and grow our current portfolio of customers," said Chris Fraser, Sirius managing director.

One of the largest, most established distributors

The deal is with Wilmar Group, a Singapore listed agribusiness firm, which will have exclusive rights for the use and resale of POLY4 in territories such as Indonesia, Malaysia, Vietnam, Thailand, Philippines and Myanmar.

Wilmar has the option to lift the offtake volume up to 1mln tonnes per annum, and it can extend the initial agreement for a further three years.

The pricing parameters of the distribution deal will be linked to prevailing market prices for certain nutrients contained within POLY4.

The Wilmar deal adds to a stockpile of existing offtake deals, which together amounted to 3.6mln tonnes per year prior to Thursday’s announcement, and cover territories in Europe, South America, China & South-East Asia.

As with the Wilmar deal the majority of pricing mechanisms are linked to underlying nutrient value and product benchmarks.

Significant offtake volumes anticipated

Offtake news had been expected before today’s announcement, as highlighted by a note earlier this week from house broker Shore Capital.

In a note on Tuesday, Shore Capital analyst Yuen Low harked back to comments made this summer by Sirius chief marketing officer J.T. Starzecki and said that the broker’s mining team was “hopeful that significant volumes will be announced at higher prices than before.”

Low added: “if so, this should be very positive for the share price (less take-or-pay volumes would be required to support the Stage 2 financing; average received prices could be expected to be higher due to the discounts required to secure take-or-pay agreements; NPV would therefore be significantly boosted.”

“If no new agreements/incremental volumes have been announced by then, we will be seeking more timing guidance.”

In this context, the Wilmar deal represents at the very least a de-risking for the mine developer’s share price.

Indeed, by midday on Thursday Sirius shares were 1.32p or 5% changing hands at 27.64p.

Shore cap bullish on the share

In Tuesday’s note Shore Capital repeated its ‘buy’ rating for Sirius Minerals and highlighted its estimate for a risked valuation range between 65p and 82.5p per share (post-Stage 2 debt commitment) which would suggest upside of 135% to 198% from Thursday’s closing price.

“While Sirius is currently at development stage and still some years from becoming a cash flow-generating company, an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production, we believe,” Low said in a note.

The analyst highlighted that Sirius last month guided that the project was “on time and on budget”, and he added that he is “hopeful that the site visit will yield insights on progress” regarding key deliverables for the December 2017 quarter.

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