This came to mind recently, when Sirius Minerals (SIXX) announced that it was changing the terms of its debt fundraising plan for the Woodsmith polyhalite mine. This wasn’t the first time that Sirius had altered the basis of its future capital commitments, although given the scope of the North Yorkshire mining project it was unsurprising to see the capital funding requirement ratcheted up again. The estimated increase is between $400m and $600m, but the trade-off – as the stock promoters would testify – is that there is now more clarity on the operational front, with first production pencilled in for 2021, and output hitting 10m tonnes a year by 2024. Payback is looming into view (in September, Liberum reduced its NPV per share from £1.08 to £1.00 using an 8 per cent discount rate and a $125 a tonne polyhalite price).
Sirius has also garnered some political support with Brexit on the horizon, but the continued interest in the stock is also tied in with the long-term investment case for agriculture. It’s a theme that generated widespread press interest nearly 10 years ago, after Jim Rogers nailed his colours to the mast.
The co-founder of the Quantum Fund – and former business partner of George Soros – has been reiterating the investment case for agriculture ever since, but he’s been cranking up the volume of late. Mr Rogers envisages increased supply-side pressure for agricultural products in developed markets such as the US simply because there are now fewer incentives for young people in rural areas to remain on the farm. Certainly, prospects for family-owned farms could deteriorate if interest rates remain in uptrend, although global demographics still provide support for the wider investment angle.
On a global basis, on-farm investment has doubled since the turn of the millennium, with emerging economies such as China, Brazil and India leading the way. Trade in agricultural products expanded in conjunction with the rise in inward investment, with agricultural exports from emerging markets nearly tripling over the period.
The point is that, given global trends in agriculture, there seems little doubt that vibrant end markets exist for the output from the Woodsmith polyhalite mine, a large proportion of which is already earmarked for existing off-take agreements.
And there could be good news on the pricing front, with global phosphate/potash market fundamentals improving as the supply/demand balance moves back towards equilibrium. The market went out of kilter in 2013, when Russian miner Uralkali (MCX:URKA) decided to exit a marketing joint venture with Belaruskali, its Belarus-based partner. The overnight unravelling of the Belarusian Potash Company (BPC) brought an end to a cartel system that controlled 45 per cent of global potash sales. BPC, in conjunction with a cartel of North American potash producers known as Canpotex, effectively controlled the price mechanism governing a market worth around £15.5bn.
