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Sirius sweats on resource re-classification

Sirius Minerals has announced a 70 per cent increase in the inferred resource at its York Potash project in North Yorkshire.
November 22, 2012

Sirius Minerals (SXX) has announced a 70 per cent increase in the inferred resource at its York Potash project in North Yorkshire, following on from May's encouraging scoping study . The JORC compliant resource now stands at 2.2bn tonnes of polyhalite at an average grade of 82.4 per cent, although the upgrade was made from just 5 per cent of the existing project area. Polyhalite is a source of sulphate of potash, magnesium sulphate and gypsum - key agricultural and construction inputs.

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The news was positive on the face of it, but Sirius was unable to re-classify the resource as 'indicated'. This change is important because it would allow the company to initiate a pre-feasibility study; a prerequisite for the next stage of development funding. Shareholders will now have to wait until the first quarter of next year, when a borehole is to be drilled that will provide additional data required for the re-classification to take place. Next month, Sirius will publish capital and operating cost estimates as part of a Project Study Update for the initial production of large-scale granulated polyhalite, in addition to a Concept Study for the production of fertilisers utilising nitrogen, phosphorus and potassium.

But Sirius will have to develop the York Potash project against the backdrop of a faltering market environment, according to the latest assessment from Credit Suisse. The bank estimates that this year’s global potash deliveries will fall by around 9 per cent to 49m-50m tonnes, partly as a result of a refusal by India and China to sign new contracts - a tactic designed to secure lower prices. While Credit Suisse is more positive on prospects for producers of potash over other forms of fertilisers, it predicts that prices across the fertiliser complex will fall next year due to excess supply. More worryingly, the bank also identified a possible structural flaw in the market: "Negative growth in a period of strong, albeit volatile, grain prices suggest to us that... there is lack of understanding of the merits of using potash in some developing markets, where the growth is supposed to come from."