Sirius Minerals signs fertiliser offtake agreement with Wilmar
Sirius Minerals has signed a binding take-or-pay offtake agreement to supply expected future output of its POLY4 fertiliser to PT Chemical Indonesia - a subsidiary of Singapore's Wilmar Group - for exclusive resale into “key” southeast Asian territories including Indonesia, Malaysia, Vietnam, Thailand, Philippines and Myanmar.
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The agreement was for an initial seven years following first production, which could be extended by a further three years by Wilmar, an agribusinesses giant that is one of the largest companies listed on the Singapore Stock Exchange.
Wilmar offers what Sirius noted were “extensive” distribution channels, a “mature” logistics network and over 250,000 hectares of its own farming operations.
The FTSE 250 group said the prices to be paid under the agreement, which is the company's third-largest offtake deal to date, would be calculated using a formula linked to the market price of certain nutrients contained in potash-based POLY4, and would be “broadly in line” with the company's existing supply agreements.
Sirius said the deal had a delivery schedule of up to 750,000 tonnes per annum in the seventh year.
In addition, Wilmar had an option to increase the minimum volumes of supply up to one million tonnes per annum.
“We are delighted to be partnering with one of the largest and most established fertilizer buyers and distributors in southeast Asia,” said Sirius managing director and CEO Chris Fraser.
“Wilmar is a partner with the capacity to reach a diverse customer base through well established, trusted relationships.
“Southeast Asia is a fast-growing market which provides Sirius with an attractive opportunity to further diversify and grow our current portfolio of customers.”
POLY4 is Sirius’ trademark name for its polyhalite products, which deliver four “essential” macronutrients and a number of “vital” micronutrients in a single fertiliser product.
Shares in Sirius were up 4% to 27.39p in early trade on Thursday.
House broker Shore Capital noted that South East Asia, with a population of over 650m, is amongst the world’s fastest-growing fertiliser markets, with Indonesia already the world’s fifth-largest consumer of potash, while Wilmar is one of Asia’s largest fertiliser buyers and distributors, and amongst the largest plantation owners in Indonesia and Malaysia.
"Sirius had previously been able to name only its Chinese offtakers, with non-Chinese firms preferring to stay out of the limelight," ShoreCap analyst Yuen Low noted.
"This led some to question the ‘quality’ of Sirius’s offtakers, even though Sirius had disclosed that its largest offtaker was a Fortune 500 agribusiness. Now that Sirius is able to publicly boast of having an offtaker of Wilmar’s calibre, we expect that Sirius’s ever-thinning ranks of doubting Thomases will be winnowed further."
Low said he was hopeful that once a few more offtake agreements have been announced, Sirius will feel able to provide an updated average price; "if this proves significantly higher than before, it should be very positive for the share price" as "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".