Following completion of concept studies,
Maiden production at the York Potash project is now expected a year earlier, during the fourth quarter of 2016, before it ramps up to a targeted annualised rate of 5m tonnes of ore by 2018. Future expansion is achievable given that the planned project infrastructure should support an additional 7m tonnes in annual output. Sirius confirmed that this option - along with the possible production of SOP - will be explored once York Potash begins to generate positive cash flow, currently expected during 2017.
The studies confirm the viability of plans by Sirius to establish production at its Teesside site for multi-nutrient NPK fertilisers containing nitrogen, potassium and phosphorus. Polyhalite is a suitable feedstock for NPK products, which are currently the fastest-growing segment of the fertiliser market. The concept study also pointed to possible cost benefits in the Sirius NPK model over traditional forms of production, although a more detailed picture will emerge on the release of the definitive feasibility study during the first half of next year.
But some analysts have started to question existing projections for the expected increase in worldwide potash demand. And near-term caution with regards to potash pricing is probably warranted given that a number of existing producers - most notably, the Mosaic Company - are in the process of expanding capacity, but the global imperative to feed an additional 3bn mouths by 2050 will surely underpin long-term growth in the fertiliser sector.
Sirius has opted for a simpler, lower-risk route through to monetisation. Expected operating costs come in at $36.90 per tonne, while the base case for capital development (ex debt costs) gives a net present value of $2.56bn, assuming a long-term polyhalite price of $150 per tonne. The decision to sell granulated polyhalite has substantially reduced the group's capital requirements at a time when external financing options are no longer quite so straightforward. Sirius has been in discussions with sovereign wealth funds, and has not ruled out an offtake agreement as a means of securing capital. Still a speculative buy at 21.87p.
Last IC view: Buy, 22.5p, 22 Nov 2012