Sirius Minerals celebrates OK for potash mine

It was a closely fought battle right to the end, but Sirius Minerals has finally been given the go-ahead to build its potash mine and mineral transport system near Whitby in North Yorkshire. The North York Moors National Park Authority (NYMNPA) wants to make a few changes to the plans, but investors celebrated a narrow victory by chasing Sirius shares - suspended Tuesday while the committee deliberated - to a two-year high.

Subject to finalising conditions and the Section 106 Agreement, eight independent members of the special planning committee voted in favour of the controversial project and seven against. Four excused themselves as they could be perceived as being biased.

"This is really just the beginning for the company," managing director and chief executive Chris Fraser cheered after the win. "We have made a major step forward and now have a pathway to reaching production and unlocking ever more value for our shareholders."

"The case for the project has always been compelling because it will not only generate so many jobs and economic benefits, but also because it is accompanied by such extensive mitigations, safeguards and environmentally sensitive design. We now look forward to delivering it."

Paul Smith at house broker WH Ireland applauded the decision and talked up the project's potential. "We place our target price under review as we consider the implications of permitting approval but with clear upside implications from our previous 37p price target."

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It's unclear what further restrictions the authority may impose, but reducing spoil with modifications to the mine seems likely, reckons Roger Bade, an analyst at Whitman Howard. Sirius has already promised £175 million in contributions, including £20 million during the construction phase and millions on tree planting, promotion of tourism and highway improvements.

Within ten minutes of the market open Wednesday, the number of Sirius shares traded almost equalled the daily average. By lunchtime, it was almost 100 million shares, more than at any time since the £55 million placing in January 2012.

And Sirius shares almost doubled in quick time to 29p. But while many investors were keen to snap up stock, others were eager to trouser profits, especially those who bought in recently for as little as 7p. That probably explains the slip back to 22p before a resumption of buying mid-morning.

Whitman Howard's Bade reckons a £757 million market capitalisation at 35p is correct when considering how much Sirius will have to raise to build the mine. Investec Securities puts the total cost at $3 billion and suggests "perhaps worth taking profits". However, at full capacity the mine should generate over $1 billion of cash.

"There remains a debate as to how quickly they raise the cash and in what form it takes, but they should probably do so as quickly as possible," says Bade. And while some clearly oppose the project, there's little to stand in its way.

"The Campaign for National Parks has already indicated that they will press for judicial review, but this may be an empty threat as they have no money," writes Bade, "while the Junior Transport Minister, who is a local Member of Parliament and wrote a letter in support, should pull his finger out and rush through the last outstanding planning permission, namely that for their port on Teesside."

The York Potash project, which will be based at Dove's Nest Farm, should create 1,000 long-term skilled jobs in the local North York Moors area, generate £1.2 billion in annual exports and £233 million in tax receipts. The mined potash fertiliser will be transported along the underground mineral transport system to a materials handling facility in Teesside, where it will be treated for global export.

As the largest and highest grade polyhalite resource in the world, the project has a JORC resource of 2.66 billion metric tonnes from just 7% of its project area. The global market for blended fertiliser is estimated at over 150 million tonnes each year - Sirius has already secured six million tonnes per annum (mtpa) in global sales.

Winning approval is certainly worth celebrating, but there are potential banana skins to consider, which may cap share price upside. Not only does Sirius have to raise a colossal sum of money to bankroll the project, but it has to build the thing. That includes a 36.5km tunnel and two mine shafts each one mile deep. There's also a three-year wait for first revenue and five years before the mine is running at full production. It's all very achievable, but will not be priced in until there's evidence of progress.

A detailed update and timeline will be released next week.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.