The extensive potash mine that Sirius Minerals is developing
in the UK is to come $1bn cheaper after the group decided to sell ore in raw
form, rather than processing it as traditional operators do.
Sirius Minerals cut to $1.7bn, from $2.7bn, the development cost
of its York potash project in the north of England by saying it will sell the
ore it produces as unrefined polyhalite, rather than as the sulphate of potash
it had initially intended.
While potassium is more typically delivered as sulphate of
potash, or muriate of potash, the polyhalite that the mine produces can be sold
as a direct application fertilizer - containing additional nutrients calcium
and magnesium, as well as sulphur –besides being a raw material for other
"This simplified development approach delivers a
significantly lower capital cost to achieve first production and materially
reduces our initial financing requirements," Chris Fraser, the Sirius chief
It would also enable launch of production a year earlier, in
The group, although saying it would consider further
processing into sulphate of potash in the future, said that its initial
strategy was to sell polyhalite in granular form "on a large scale".
The combined world market for fertilizers containing similar
nutrients to polyhalite, which is itself "currently sold as a specialty fertilizer
in small volumes in Europe", was 20m tonnes a year, and expected to grow to 27
tonnes a year by 2010.
Polyhalite was also suitable as an ingredient of multi-nutrient
fertilizers, known as NPK, containing nitrogen and phosphorus as well as
potassium, Sirius said.
The group is also considering its own NPK plant, which would
take some 1m tonnes of polyhalite, allowing for production of up to 5m tonnes a
year of the compound fertilizer.
However, the start-up bill has been lowered here too by
relaying initially on truck delivery of the other NPK ingredients, rather than
building dedicated shipping infrastructure, if at the price of raising annual
operating costs by some $23 a tonne of fertilizer produced.
The importance of cutting costs in fertilizer projects, especially
on greenfield sites for which start-up bills are typically higher than for site
expansions, has been given extra significance by the large amount of potash capacity
is due to come onstream, questioning the viability of some projects.
Credit Suisse last month questioned whether forecasts of
3-5% growth in potash demand "are too optimistic" given a "disconcerting"
lack of expansion in the market since 2007.
"To see negative growth in a period of strong, albeit
volatile, grain prices suggest to us that… there is lack of understanding of
the merits of using potash in some developing markets, where the growth is
supposed to come from," the bank said.
Jefferies analyst Seth Rosenfeld said on Monday: "In light
of the significant challenges Sirius may face financing a project of this
scale, any efforts to reduce capital expenditure are a key positive."
Nonetheless, Sirius Minerals shares closed unchanged at