London-based investors always like a local mining story, particularly as there are so few of them. In Scotland, there’s Scotgold (LON:SGZ). In the West of England, there’s Wolf Minerals (LON:WLFE), mining for tungsten.
Still, while Sirius has been well followed locally, it’s in the global context that its share price strength really needs to be set.
Most analysts start from the basic premise that the market for fertilisers can only grow as the world population continues to increase. More productivity needs to be wrung from a finite amount of land in order to keep the people fed.
That’s why new fertiliser products like Sirius’s polyhalite have been able to gain traction in a space where several established players, like Mosaic (NYSE:MOS), Uralkali (LON:URALL), PotashCorp (TSE:POT) and Agrium (NYSE:AGU), already produce well-established products.
Standard potassium-containing fertiliser, known as potash, comes in two shapes and forms, MOP and SOP, otherwise known as muriate of potash and sulphate of potash.
Both have their advocates, but SOP is generally recognised as being more appropriate for high value crops like fruits, vegetables, coffee beans, nuts, potato and tobacco. It thus commands a certain premium over MOP, which can also add toxicity if high levels of chloride are already present in the soil or irrigation water being used.
Polyhalite also contains potassium, although in lower concentration than either MOP or SOP, and Sirius isn’t the only company in the world with a polyhalite project.
Sirius, by contrast, is planning to ship the polyhalite straight to market.
It’s already found buyers and has overcome considerable initial scepticism about potential levels of demand, not least from hard-bitten consultants at AMEC.
It’s in that context that other new configurations of the standard minerals are now beginning to appear on the market too, although the question of pricing remains moot.
Most recently, Harvest Minerals Limted’s (LON:HMI) unique blend of potassium, phosphate and calcium at the Arapua project in Brazil has caught the attention of investors. Recent news there was particularly positive in terms of the solubility of Harvest’s product, which chairman Brian McMaster argued was “better than any similar product currently in the market.”
But solubility alone isn’t what’s driving investor interest.
A scoping study that examined the economic potential of Arapua was constrained to use pricing assumptions of US$15 and US$120 a tonne, which is quite some range.
But the study also said that Harvest’s costs are likely to run in at around US$7.00, so profitability is not in doubt here.
The question is: what kind of margin will be on offer? - it could, potentially be very big indeed.
When Harvest manages to answer that question it could tell us quite a lot about wider trends in the fertiliser market
It’s true that for the London-based investor, Arapua doesn’t exactly qualify as a local asset.
But the interest stimulated by Sirius is clearly there. Harvest’s shares have hit all-time highs in recent days. The valuation isn’t a patch on Sirius’s yet. But this is clearly a market that’s generating considerable interest.
Other fertiliser companies take note.