Sirius Minerals Gains in London on China Potash Sale Accord

Sirius Minerals Plc, planning a $1.9 billion potash mine in the U.K., advanced in London trading after signing a sales agreement with a Chinese buyer.

The shares climbed 1 percent to close at 26.25 pence after earlier jumping as much as 7.7 percent. Today’s gain values the London-based company at 353.8 million pounds ($539 million).

Sirius, which is seeking to start building the U.K.’s second operating potash mine next quarter in the North York Moors National Park, still requires financing and government approvals. The company intends to tap rising demand for the fertilizer ingredient in the global $20 billion export market.

China’s Yunnan TC Yong-Zhe Co. has agreed to buy 1 million metric tons of Sirius’s polyhalite product annually for 10 years from 2017, Sirius said today in a statement. The signing was attended by government officials from Yunnan province as well as senior executives from Industrial & Commercial Bank of China, the country’s largest lender by assets, the U.K. company said.

“The deal is further validation of the commerciality of polyhalite,” Ash Lazenby, an analyst at Liberum Capital Ltd., wrote in a note to clients today. “ICBC’s endorsement of the agreement is also a significant positive, which will add weight to future negotiations with other potential off-take partners.”

The sale price for the first three years will be fixed and wasn’t disclosed by Sirius. Liberum estimated a price of about $150 a ton, which compares to the company’s cost estimate of $37 a ton. The sales accord is conditional on testing and results from crop trials in Yunnan as well as Chinese government approvals, Sirius said.

Largest Resource

The project, called York Potash, hosts the world’s largest estimated resource of polyhalite, with 2.7 billion tons of the potash material. The U.K.’s only potash mine, Boulby, is immediately north of York. Potash is a form of potassium used to strengthen plant roots and protect against drought.

“This is a major milestone for the company that further demonstrates the market for polyhalite, supports the economics behind the project and will ultimately help to give confidence in the financing for construction,” Chief Executive Officer Chris Fraser, the biggest shareholder in the company with 8.5 percent, said in the statement.

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