The study confirms that York Potash is viable both commercially and from a technical perspective. The DSS sets out a phased development that includes an initial three-year construction period, with first production targeted for 2017. It is envisaged that Phase I capital costs will amount to $2.7bn (£1.68bn) and would allow Sirius to extract and process 5m tonnes of polyhalite ore, which, in turn, would produce 1.4m tonnes of sulphate of potash (SOP). The next stage of development would ramp up annual production of SOP to 4.1m tonnes by 2024, and is expected to cost an additional $3.3bn. Sirius maintains that this Phase II development will be financed entirely through internal cash-flows.
The DSS has helped to flesh out some of the capital costs associated with the project. After taking into consideration revenues from project by-products such as gypsum and epsomite, Liberum Capital has arrived at a capital intensity estimate for York Potash of $1,536/tonne for SOP, placing it "amongst the best-in-class for a project of this scale". Macquarie Equities has re-assessed its valuation of the project in light of the DSS, including separate estimates for the phased development, which indicate that the current share price of Sirius only reflects Phase I, thereby giving investors a free option on the Phase II ramp-up that accounts for the bulk of the net value of the project.
Admittedly, investors will need a degree of patience with the York Potash project, but the DSS numbers are impressive. Long-term market fundamentals are positive for fertilisers in general, and SOP in particular, and Sirius offers one of the best ways for investors to gain early exposure to the expected growth in agricultural markets. We upgrade to a 'buy'.
Last IC view: Fairly priced, 23p, 15 Nov 2011