An investment in Sirius Minerals PLC (LON:SXX) should enjoy a significant uplift in value as the AIM group’s mine development project in Yorkshire is progressively derisked, says Shore Capital analyst Yuen Low.
Low, who rates Sirius as a ‘buy’, did also note that Sirius is currently at development stage and still some years from becoming a cash flow-generating company.
With a newly upgraded 75p per share risked valuation the analyst currently sees around 90% upside to the AIM share’s current price of 39.25p.
In a note the analyst put the spotlight on polyhalite, the fertiliser product that will be made from the mine’s mineral resources, and highlighted its potential to be a premium product.
Polyhalite, according to Low, provides significant amounts of all three secondary macronutrients (sulphur, magnesium and calcium) and seven valuable micronutrients. He added that Sirius has presented mounting evidence from crop trials that show improved yields.
“In our experience, polyhalite is often dismissed offhand as ‘low-grade potash’, typically with little or no attempt made to understand its nature and potential,” Low said in a note.
“We stress that polyhalite would in fact be more appropriately characterised as a superior potash-based multinutrient feedstock for NPK (nitrogen, phosphate and potassium) fertiliser blends/compounds.”
Breaking down the company’s position as it advances towards construction and ultimately production, Low added: “Sirius ended June 2016 with £16.7m of cash, which should be more than sufficient to take the company through Stage 1 of its two-stage construction financing plan.
“If all goes to plan, there would be no further need to raise equity after Stage 1. Dilution would cease to be a concern, and we believe the resulting improved clarity on potential equity returns could trigger a significant re-rating.
“In the interim, we expect the window during which legal challenges can be mounted against the recently granted harbour permit to close uneventfully at the end of August.”
Sirius expects the underground fertiliser mine to produce its first polyhalite by 2021.
By 2023 it is expected to churn out at least 10mln tonnes a year, with the capacity to double output.
The project is an ambitious one, tapping into a world-class global resource deposit, and one that is very much in demand.
Experts have hailed it as the biggest, thickest and highest grade polyhalite deposit in the world.