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Is Sirius Minerals PLC Poised To Deliver Big Gains?

siriusAre the stars about to align for Sirius Minerals (LSE: SXX)?

The potash miner’s shares have risen by 26% over the last 12 months.

What’s more, after several planning setbacks, Sirius is about to submit its final planning applications for both the mine and the port facilities, both of which have strong local support.

Construction imminent

Sirius now expects to be able to begin construction early in 2015, subject to the necessary planning approvals, with production subsequently expected to start in 2018.

As someone who lives close to the proposed mine site, I’ve been impressed by the broadly positive local press coverage York Potash has received, and by widespread public support for the project, which bodes well for next year’s planning decisions.

Great product

The York Potash project has two fundamental attractions: it has the potential to become one of the world’s top five potash producers, and the product itself is superior to conventional alternatives.

Sirius updated the market yesterday with newsof  another crop study demonstrating the superiority of its POLY4 fertiliser over conventional MOP potash feed. The numbers from this and previous trials are impressive: POLY4 has been shown to boost tomato yields by 73%, soybean yields by 13%, and corn yields by 30%.

What about financing?

Sirius is a £240m company with no revenue and just £48m cash. However, the firm does own the world’s largest, highest-grade polyhalite resource, measured at a JORC-compliant 2.66bn tonnes of 85.7% polyhalite.

Sirius also has signed agreements with a number of potential customers, which the firm says have committed to purchase more than 5 million tonnes per year, once production starts.

Based on the company’s low estimate free on board [sale] price of $110/tonne, plus its anticipated 65% cash margin, these sales deals could equate to gross earnings of around $357m per year, with more customers likely to come on board once production starts to ramp up.

Funding is unlikely to be finalised until planning approval is given, but the firm is confident that some combination of investors and debt financing will be available to back the project.

A clear buy?

If the York Potash project goes to plan, Sirius shares could be worth a multiple of their current value in a few years’ time.

The next major milestone will be the planning decisions due in the New Year — followed by the start of construction. Although risks remain, my view is that the shares are a buy at today’s price.

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Roland does not own shares in Sirius Minerals.