Sirius Minerals to supply 500,000 tonnes of fertilizer a year to Chinese firm

Sirius Minerals to supply 500,000 tonnes of fertilizer a year to Chinese firm

Aerial image from north of York potash mine site. (Courtesy of Sirius Minerals)

London-listed Sirius Minerals (LON:SXX), the company building a potash mine beneath a U.K. national park, has secured an offtake deal with Huaken International, one of China’s major fertilizer importers.

The agreement, said the company without disclosing pricing details, guarantees that the Chinese company will annually purchase as much as 500,000 tonnes of polyhalite, a form of potash that is used in plant fertilizers. The deal will run for seven years once the York Potash mine is up and running.

The mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate around an initial 10 million tonnes per year of polyhalite – a form of potash that is used in plant fertilizers –, before it enters a second phase that will double that production to 20 million tonnes a year.

In October, Sirius received final permits to begin building the $3.15 billion mine and an underground transport system. This marked a big win for the company, which faced several challenges since it first unveiled the project in January 2011. This was mostly due to the fact that its application to extract billions of tonnes of minerals from a national park was the biggest ever received by the country’s authorities.

Now the company is planning on outlining its financing plans and to start first phase development at the project in the first quarter of 2016.

York Potash mine is expected to create about 1,800 jobs during construction and 1,000 permanent positions once opened.

Sirius had originally expected to begin production in late 2016, with initial output of 5 million tonnes per year and had signed a few future supply agreements. The current development schedule, however, points at 2018 as the most likely time for production to begin.

Sirius Minerals to supply 500,000 tonnes of fertilizer a year to Chinese firm

This is how Sirius plans to extract polyhalite. (Courtesy of Sirius Minerals)

Oversupply

Current potash market conditions don’t seem optimal for new players. The already oversupplied sector has seen several other major developments, the biggest being BHP Billiton’s (ASX:BHP) Jansen mine with its 5.3bn tonnes of measured resources and 1.3bn tonnes of inferred potash, going back to the drawing board.

While not as sharp as oil’s plunge, prices for the fertilizer ingredient have fallen $15 per tonne to around $282 per tonne from $297 since March. Producers such as BHP need prices as close as $500 per tonne as possible, so they can cover construction costs.

However, some of the major players such as Canada’s Potash Corp (TSX, NYSE:POT) —the world's largest fertilizer company by capacity — expect demand to continue to rise from about 50 million tonnes per year in 2015 to about 70 million tonnes by 2020, as the world population and food demand continues to increase.