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Sirius Minerals and other London-listed fertiliser groups have big year ahead

Fundamentals underlying the global fertiliser business remain robust

River Tees
Sirius is building a a 23-mile tunnel to an export terminal on the River Tees

The world needs fertiliser and it will need more of the stuff as the population continues to rise. Perhaps that explains why there is a string of potash developers now listed in London.

But which is most attractive?

UK-based Sirius Minerals PLC (LON:SXX), which is developing the hugely ambitious Woodsmith polyhalite mine near Whitby in Yorkshire is the most visible, but it’s not the only choice.

The London-listed majors Rio Tinto (LON:RIO) and BHP Billiton also have significant production, although their shares tend to trade more in line with base metals and iron ore prices.

WATCH: Mining Capita l's Alastair Ford on the risk and rewards at Sirius Minerals

Then further down the scale, where the upside is greater but so are the rewards, there are the likes of Salt Lake Potash (LON:SO4), Danakali (ASX:DNK)(LON:DNK) and Kore Potash (LON:KP2).

Danakali’s project at Colluli in Eritrea would be one favourite for investors to swap out Sirius for since it at least has a scale that’s some way towards being comparable to Woodsmith.

With a 1.1bn tonne reserve of the higher quality sulphate of potash, this is a project that will make a mark on the global scale, and it too has off-take agreements in place.

Kore Potash

Kore Potash meanwhile, is also developing a project of some scale, the 508mln tonne Kola sylvanite project in the Republic of Congo, and might also make an attractive alternative.

That’s partly because it’s now in the final stages of completing a definitive feasibility study for Kola, and partly because when the nearby Dougou deposits are taken into account the total amount of potash ore available to Kore rises to well over 1bn tonnes.

Salt Lake Potash

Salt Lake Potash is somewhat smaller, as it’s currently working up the Lake Way project in Western Australia, where it plans a 50,000 tonnes per year sulphate-of-potash demonstration plant. In time this could be scaled up too, though, so the upside could be that much greater.

Sirius Minerals meanwhile is approaching a key point in its development.

Polyhalite a new option

At York Potash, Sirius will mine polyhalite a fertiliser that’s not widely used currently

Sirius hopes to change all that and argues correctly that the market for the constituent components of Poly4, the name under which polyhalite will be marketed, runs into the hundreds of billions of dollars and could reach as much as US$245bn by 2020.

But the market for the constituent components might not be the same as the market for the actual product.

Testing in local conditions is often an essential precursor to securing supply deals.

And that’s where there’s already some understanding of the types of fertiliser that are on offer, be they sulphate or muriate of potash or some blend or variant of the two.

Because not all fertilisers are created equal, and neither are all soils.

This makes marrying up supply with customers an interesting exercise of some subtlety that won’t necessarily happen quickly.

Influential friends

Still, a major tick in that box as far as Sirius is concerned is the participation of Fortune 500 company Archer Daniels Midland (NYSE:ADM).

It plans to take a sizeable slug of the Woodsmith polyhalite output and sell it into the North American market, including Mexico, where it expects to find willing customers.

ADM is no slouch in this market, so any investors jittery about the real potential of polyhalite should take heart.

And once Sirius sorts out the financing for the £2.6bn cost of the construction phase of the project, some of the jitters that have affected the share price recently should ease.

Company

Share price (21/12)

Market value (£mln)

NPV

Sirius Minerals

21p

995

US$14.9bn

Salt Lake Potash

26p

46

na*

Danakali

42p

111

US$902mln

Kore Potash

7.9p

67

na**

*Scoping study based on 50K tonnes pa production published in July, **DFS received by company

Fundamentals strong

Underpinning Sirius’s and all of the other projects is that fact that the fundamentals underlying the fertiliser business remain robust, and global demand is set to increase still further as general wealth levels increase and more people are able to afford better food.

With all these companies, investors will want to weigh up the balancing factors of jurisdiction, product type and financial risk.

All are moving towards production, all still face significant financing hurdles, and all could end up selling into a strong market.

Investors who make the right choices here could be sitting on handsome returns.

Quick facts: Sirius Minerals PLC

Price: 3.55 GBX

LSE:SXX
Market: LSE
Market Cap: £249.22 m
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