For those unaccustomed to the workings of the mining industry, it may seem bizarre that Sirius Minerals, the company behind the controversial £1bn potash project in North Yorkshire, is doing deals to flog the potash before it’s even got planning approval.
On Tuesday, it announced a deal to sell at least 500,000 tonnes of polyhalite (a fertiliser ingredient in potash) to a US company.
Sirius said this had bumped up sales commitments to 96 per cent at phase 1 of the project. The miner did not identify the buyer, but said it was a Fortune 500 agri-business.
Analysts said the deal is the company’s most significant offtake agreement to date. It would take sales commitments for phase 1 of the project to 4.8 million tonnes per year, just shy of its five-million tonne production target.
However, Sirius has yet to submit a fresh planning application, which it has promised to do by July.
A bid to create a potash mine in the national park has stalled on growing concerns over the project’s impact on the environment.
In fairness to Sirius, it has to get these deals in place before it can get the financial backing to go ahead with the mine.
But it does seem like an enormous risk to take if planning doesn’t come through. Last year the application was delayed to ensure environmental information for the entire project – including the proposed mine, pipeline, materials handling plant and port – was all available at the same time.
This week Chris Fraser, managing director and CEO of Sirius, said: “There can be no greater endorsement of the market for polyhalite or importance of the Yorkshire Coast to the world’s fertiliser industry than a multi-year take or pay-off take agreement with such a significant global agri-business.”
So, the big question is can Mr Fraser pull this off? He seems a very determined man and every obstruction and environmental concern is being dealt with meticulously. Sirius is throwing money at ensuring that all the objections can be resolved.
The market certainly thinks he can pull it off.
Liberum analyst Richard Knights said: “Sirius is our top small cap pick in the sector for 2014.” Analyst Yuen Low at Shore Capital said: “This should go a long way towards answering doubts voiced by certain parties about the market for Sirius’ product.”
If Sirius can reassure the authorities that its plans are environmentally friendly, the project could revitalise the Yorkshire coast’s economy and create more than 1,000 jobs and a further 4,000 jobs in the wider economy.
It’s a risky punt, but investors could make a killing.