The attractiveness of polyhalite - essentially, a British variant of ‘potash’ - has apparently been given a major boost from Cleveland Potash, the UK’s only potash operation (for now).
ICL Fertilizers, the mine’s operator, has decided to stop producing MOP (Muriate of Potash, aka potassium chloride) from 2018 and it will focus the operation solely on polyhalite which is seen as a high mark-up alternative.
Indeed, that one of the major fertilizers groups has made the switch vindicates the AIM quoted groups strategy which was scrutinised in the past because polyhalite was previously a largely unknown product commercially, says broker Liberum Securities.
According to Liberum analyst Richard Knight ICL’s polyhalite forecasts imply a cash margin of 50-63% at current sales prices.
Knight highlights that such a margin would be in the first quartile for any mine producing any commodity, and nonetheless says the economics of Sirius’s York project should be superior.
Moreover the analyst describes the ICL decision as “the clearest endorsement yet” for the production of polyhalite, which is also known as polysulphate, and he points to ICL’s successful penetration of Brazilian fertiliser markets with existing sales of the product from Cleveland.
“One of Sirius' biggest challenges is convincing debt and equity holders that the market for polyhalite exists in a size than can absorb its proposed production levels (>6mtpa) at a price sufficient to generate an acceptable return on investment,” Knight explained in a note.
He added: “From Sirius' perspective, ICL's penetration into Brazil is a positive sign, as a significant opportunity exists given sulphur deficient soils mean the value in use of polyhalite there is high.
“Sirius is yet to ink any offtake contracts in Brazil.”
As a quick explainer, MOP has stronger potassium content whereas polyhalite is both richer in sulphur and contains much lower amounts of chloride (which certain crops are particularly sensitive to).
Whilst it has yet to agree off-take into Brazil, the company has conducted a number of success trials for certain crops.
In May, a trial in Brazil found that tomato yield improved by 6% with polyhalite applied as a ‘straight’ fertiliser, while there was a 15% improvement if applied as part of a blended fertiliser.
Other studies have had positive results for other crops such as potatoes, corn, chilli pepper, and cabbages.
Sirius Minerals secured planning permission for York Potash, which is to be located underground beneath the North Yorkshire Moors National Park, and the company is currently in the process of finalising the bankable feasibility study for the project – ahead of the start of construction in 2016.
The group’s AIM quoted shares are up about 160% in the past six months and today stand at around 17.5p each, valuing Sirius at about £400mln, and amid planning approval in July the shares reached a 52 week high of around 24p.