INSIGHT: Sirius business

11 December 2017 14:00 Source:ICIS News


LONDON (ICIS)--Metal teeth chattering, the immense vertical chainsaw of the diaphragm walling machine cuts into the Yorkshire soil, throwing clods of earth high into the air, to the applause of distant onlookers.

Breaking ground on any project is a moment of note - but for Sirius Minerals, the sinking of its first mine shaft earlier in 2017 was the culmination of more than six years’ work building profile in an industry slow to change.

Indeed, it’s not the technological, physical, or geological demands that will be the hardest obstacle to Sirius’ success - but the established mindset of its potential customers.

SPREADING THE WORD
The Yorkshire, UK-headquartered start-up is hedging its bets on finding a market niche for its key product: a polyhalite-based chemical fertilizer, which Sirius will bring to market under the brand name ‘Poly4’.

Polyhalite is a multi-nutrient fertilizer found more than 1,200m below the Earth’s surface, under the North Sea along England’s northeast coast - a seam of nutrient-rich rock Sirius intends to extract from its Woodsmith mine site near Whitby.

The fertilizer includes 14% potassium, 19.5% sulphur, 6% magnesium, and 17% calcium, and Sirius’ executives are firm in the belief that their product will find a home in the market - but not, as marketing tsar JT Starzecki puts it, “as a ‘MOP killer’”.

Starzecki refers to its main competition: muriate of potash - a potassium-based chemical fertilizer largely producer-controlled, and centred in just a few key producing nations, including Russia, Canada, Belarus, and Germany.

“How you market MOP is very different to our approach with Poly4,” Starzecki said recently. “We’re targeting technical sales - demonstrating an alternative to potash in a blended fertilizer application plan.

“We’re not planning to go head-to-head with [Canadian MOP major] Canpotex, or Belarusian Potash Company.”

GROWING INTEREST
Sirius has instead invested heavily in demonstrating its product’s potential as a substitute for MOP in certain applications.

This includes Poly4 as a substitute for existing sources of potassium, sulphur, magnesium, and calcium, meeting increasing demand for low-chloride fertilizers, and entering the nitrogen phosphorus potassium (NPK) blending market.

Persuading farmers and importers to swap will not be an easy task, however - especially for a start-up marketing a product which is little-understood by end-users.

During a presentation, Starzecki also made no mention of the alleged preliminary talks between Sirius and Israel Chemicals (ICL), to acquire the Israeli major’s Boulby MOP mine in Yorkshire - just 12 miles from Woodsmith.

Sirius’ suspected interest in ICL’s Boulby operations, which trades as Cleveland Potash, is likely to stem from the Israeli firm’s decision last year to switch the facility from potash to polyhalite production.

“CREATIVE CONTROL”
As well as the extensive mine complex at Woodsmith, Sirius’ operations also call for the construction of a 37km underground mineral transport system, emerging near Redcar on Teesside.

At Redcar, a materials handling facility will process, bag, and store the finished fertilizer, before shipments are dispatched from a purpose-built dockside facility.

“We purchased the closest harbour property to the mine,” said Will Woods, Sirius Minerals’ development manager, describing the prospective dock which will bookend Sirius Minerals’ 37km material transport system.

Nearby lies the wide field chosen to host Sirius’ materials handling facility, and Woods is quick to explain the company’s work to keep “creative control” over the entire production line - including negotiating with dozens of farmers, Teesside authorities, and rail provider, Network Rail, so every stage of the operation - from mine face to dockside - requires no other company’s assistance.

Situated next to Sirius’ waterside property, Woods pointed out the Redcar Bulk Terminal - now largely defunct after the collapse of British Steel - which could also be utilised to increase port capacity.

However, when questioned on the possibility of using RBT’s facility - meaning Sirius would have no need to build its own dock - Woods firmly refuted the question, arguing instead that with the production volumes Sirius has envisioned, having its own private dock is a necessity.

Partially funded by Australian iron ore magnate Gina Rinehart, who added $300m to the company coffers, Sirius posted a net loss of £151.3m ($195.1m) for first-half (H1) 2017 – an increase from a loss of £4.1m last year.

The prospective producer also reported the deployment of some £121m over the first six months of the year towards its Woodsmith mine, and production is on course to start in Q4 2021, with a ramp up to 10m tonnes/year of polyhalite by 2023.

With its bullish outlook and disruptive marketing plan, Sirius is outwardly punching above its weight in the global chemical fertilizers market.

However, whether potential customers can be persuaded to change their ways in sufficient number remains to be seen - and with stock in the company moving lower of late; despite recent positive stories in the media - investors may need more than a polished PR presentation to retain their confidence in the company’s long-term plan.

Picture source: Andy Hemphill
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By Andy Hemphill

By Andy Hemphill