Sirius Minerals signs fertiliser offtake agreements with two Chinese firms

Sirius Minerals has signed binding take-or-pay supply agreements supply its POLY4 fertiliser to two Chinese companies on Friday.

The FTSE 250 firm said it had entered into the agreements with Guangzhou Eiliseng Biotech Company and Yantai Service Agricultural Science and Technology Company in China for the resale of POLY4 into certain southern and northern provinces of China.

Both agreements had 10-year terms, which would run from first production, and pricing mechanisms linked to relevant product benchmarks that were consistent with Sirius’ existing portfolio of agreements.

It said that in China, government enforced changes in agricultural practices and planned farm consolidation would support the drive to restore soil efficiencies through the adoption of more balanced and environmentally sustainable fertilisation practices.

The board said the announcement built on the company's “strong position” in Asia, having signed multiple deals across the region with distributors including leading agri-business Wilmar Group - one of the largest and most established fertiliser buyers and distributors in South East Asia.

Taking the minimum volumes under the new Chinese agreements into account, the company's aggregate peak contracted take-or-pay sales volumes had increased to 5.7 Mtpa from 4.7 Mtpa, as the company targets 6-7Mtpa to support its planned debt financing process.

Earlier this month, Sirius reported that its North Yorkshire polyhalite project remains on track to deliver first fertiliser in 2021. The company intends to release an updated “fully procured and financed” capital estimate once binding financing commitment letters have been executed, which management currently anticipates occurring around September or October.

“China is a key market for POLY4 and we are very pleased to have signed agreements with new customers who both have established fertiliser distribution networks and expertise relevant to their respective regions,” said Sirius managing director and chief executive officer Chris Fraser.

“We look forward to working with Eiliseng and YSA to establish POLY4 as a long term sustainable fertiliser for use in both of their important agricultural regions in China.”

Shares in Sirius rose 2% to 34.09p on Friday morning.

With both contracts have pricing mechanisms that are linked to undisclosed relevant product benchmarks, house broker Shore Capital said it remained hopeful that at some point, Sirius will be able to unveil a higher average price than the US$145/t disclosed in late 2016.

"If this proves the case, it should be very positive for the share price (less in the way of contracted volumes would be required to support the Stage 2 financing; average received prices could be expected to be higher due to the steep discounts required to secure take-or-pay agreements; NPV would therefore be significantly boosted)."