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Four stocks to watch if you missed the boat for Sirius Minerals

Experts say Sirius Minerals has much further to go, despite reaching a £1bn valuation, nevertheless we take a closer look at the increasingly popular potash and fertiliser sector.

Sirius Minerals polyhalite fertiliser product - comprises potassium, calcium, sulphur and magnesium and is essentially a form of potash ash
New fertiliser products like Sirius’s polyhalite are gaining traction.

Investors in Sirius Minerals PLC (LON:SXX) have seen the UK mine developer’s value rise above £1bn as the price in London advanced towards 50p per share earlier this week.

It marks a truly transformational ascent from just 1.9p in around six years. Since those lowly days much has changed, not least the management and company’s basic strategy.

Sirius is on the cusp of developing a world class mine in North Yorkshire, and that has been the catalyst for investors. Indeed, the Sirius share price has increased by around 175% so far in 2017.

Naturally the AIM is as popular as ever and it has attracted a great number of followers.

In a nutshell, Sirius Minerals is a small cap company (albeit a little less so by the day) with a large, strategic asset based in the UK.

Crucially it will produce a fertiliser product that will be greatly in demand for decades to come as concerns over future food scarcity come more sharply into focus, and agricultural operations seek ways to enhance crop yields.

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, such as Mosaic (NYSE:MOS), Uralkali (LON:URALL), PotashCorp (TSE:POT) and Agrium (NYSE:AGU), already produce well-established products.

Anyone coming cold to the company’s story will have a lot to catch up on, and some may be forgiven for feeling as though they’ve missed the boat.

Here we take a closer look at London’s increasingly high profile fertiliser companies.

Harvest Minerals: With a 300% rally the AIM share is no slouch

If it wasn’t for the stellar rise of Sirius Minerals this very write-up would likely have begun with 300 words on Harvest Minerals Limited (LON:HMI).

After all its shares are up more than 300% in what would normally be a summer trading lull through July and August.

Last month, the Brazil-focused potash explorer told investors that new resource estimates at the Arupua project, following a drill programme on only 3% of the property, were sufficient for the company to green-light plans for a trial mining operation.

Harvest Minerals soon after revealed the positive findings of a scoping study which underlined the economic potential of developing Arapua.

In the words of chief executive Brian McMaster:  “The project’s where we wanted it to be.”

There are still some hurdles to be cleared, but none that McMaster thinks are insurmountable.

“We’re finalising the process for our permitting,” he says. “It’s not a complicated process and the government has just gazetted a plan to make fertiliser projects a priority. We’ve got to retain a contractor and we’ve got a quote on the desk already.”

What it adds up to is that first production from trial mining is likely to take place before the rains set in this November.

“We’ll do 100,000 tonnes in the first run under the terms of our trial mining license.”

African Potash: The trader's had a rollercoaster eighteen months

The African Potash Ltd (LON:AFPO) share price chart resembles silhouette of a roller coaster – albeit more akin to an old fashioned wooden ‘big dipper’ with some rolling peaks and troughs rather than a contemporary Oblivion-like vertical drop.

The longer-term plan is to create a vertically integrated operator that has the mining, processing and marketing skills to tap into a region that buys an estimated 10mln tonnes of fertiliser a year.

That said, much of the focus for investors has been on the trading arm and supply deals were subsequently impacted by poor weather conditions and eventually delays.

As sentiment swung from one market update to another the AFPO ticker was no stranger to either of AIM’s daily ‘top mover’ lists amid spiky volatility.

This summer the group has announced progress in moving along its pipeline, with a series of distribution deals agreed and announced within a matter weeks.

“With a number of strategic partners in place through whom we can secure off-take agreements for the purchase of our fertiliser product, and the results of this strategy already showing success, I believe African Potash is well set for continued growth," African Potash chairman Chris Cleverley said recently.

Having marked a rise of around 1,000% just over a year ago the AIM shares price has eventually levelled off again. The attention is on delivery and new business.

Salt Lake Potash: So far a pumping success in Western Australia

Salt Lake Potash Ltd (LON:SO4) is a relatively new addition, or a rebranding depending upon your perspective, risen from the remains of former AIM stock Wildhorse Energy.

This one is a bit different.

Unlike Sirius or Harvest Minerals, which will excavate nutrient-rich materials as solids, Salt Lake has been drilling into a liquid host of minerals called brine.

Specifically it is targeting deposits of Sulphate of Potash (SOP) at the Lake Wells project in Western Australia.

In a recent update, in early August, the company told investors that results of brine pumping tests had “substantially enhanced” the potential for SOP production at the Lake Wells site (where a ‘solar evaporation’ processing method is proposed).

Having sealed its ‘transformation’ with a rename and relaunch in December 2015, Salt Lake Potash has seen its shares rise some 225%.

Sirius: Experts see much more value to come

Closing the loop, we return to the initial premise: what to do if you’ve missed the Sirius Minerals boat?

Well, don’t worry because according to analysts the journey is far from over for shareholders in the Yorkshire focussed company.

Whilst you might think the current valuation is significant given the North Yorkshire Polyhalite Project is little more than a blue-print with some fairly hefty financing commitments.

However a layer of risk has been removed in that the company now knows the mine is feasible, economic and it has been given the green light to begin work (the clock for appeals is quickly running down). 

Plus, the potential of the asset is huge with mineable resource big enough to last half a century.

The recent definitive feasibility study said it has the potential to generate up to £2.3bn (US$3bn) in operating profits a year. The same report put the project’s net present value at £11.5bn.

The risk now is that Sirius fails to land the cash required to take its monster deposit into production.

“Given said project’s myriad strengths, we are more confident than ever that procuring the requisite funds should not prove overly problematic,” said Shore Capital’s Low.

Shares have almost trebled in value in the year to date as the pieces of the jigsaw have begun to fit into place – and they show few signs of flagging.

The interim results update last week, which contained little material news, has prompted an 18% rise in the share price.

According to Shore Capital’s Low, the stock, currently changing 43.4p, is worth 75p, which would propel Sirius’ market capitalisation to £1.7bn.

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