Australia’s wealthiest woman and mining tycoon, Gina Rinehart, is diversifying into potash, an industry severely affected by a global oversupply that has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.
Her company Hancock Prospecting announced last week it was investing £245 million (about US$298m) in Sirius Minerals’ (LON:SXX) project on the edge of the North York Moors national park, the UK’s biggest potash mine.
Under the deal, Rinehart will buy $50m of Sirius shares and pay $250m for a 5% royalty stream on the first 13 million tonnes of fertilizer produced by the mine every year. She’ll also pay 5% for the right to purchase up to 20,000 tonnes of product each year for use on her expanding Australian agricultural holdings.
Sirius’ York mine, expected to be one of the world’s largest in terms of the amount of resources extracted, will generate 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 terms of jobs, the operation will create about 1,800 vacancies 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.
Meanwhile, potash prices continue to tumble. They began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.
The industry’s woes have seen a pick-up in M&A and last month Canada’s Potash Corp. of Saskatchewan (TSX:POT) (NYSE: POT), the world’s largest producer of the fertilizer by capacity, and smaller rival Agrium (TSX:AGU) (NYSE: AGU) agreed to an all-share merger, creating the world’s largest crop-nutrient supplier worth about $36 billion.
Gina Rinehart is considered the 51st most powerful woman in the world by Forbes magazine. Her wealth is estimated at $11.4 billion, down from $12.2 billion last year.
Dylan E McFarlane
It won’t solve the technical challenges of shaft sinking and ore breakage, but interesting if it improves perception by other potential investors!