Is Sirius Minerals PLC Looking More And More Like A Buy?

Despite its York Potash Project sitting in the middle of a national park, the planning process has gone swimmingly well for Sirius Minerals (LSE: SXX), helped in part by support from local people looking forward to the jobs it will create.

And now that process has taken another important step forward, as the firm has received final decisions notices granting planning permission for four out of five applications it has submitted — and the fifth is going according to plan.

Permission granted

Permission has been given by the Redcar and Cleveland Borough Council for Sirius to go ahead with its mine and transport system, though it still needs permission from the North York Moors National Park Authority (NYMNPA), too — that’s the fifth application, with a decision due before the end of September, and I’d be very surprised if that was knocked back at this stage.

Redcar and Cleveland has also approved plans for the company’s materials handling facility, Scarborough Borough Council has given the nod for temporary accommodation and a park and ride facility, and the NYMNPA has also said yes to the park and ride thing.

According to CEO Chris Fraser, this represents “the majority of the pieces of the planning jigsaw coming together“, so are we looking at a nearly done deal? These approvals were largely expected, as evidenced by the share price which only gained a third of a percent to 16.3p in early trading, but things do seem to be coming together.

Customers lined up

Only last week, Sirius announced an upgrade to its polyhalite potash offtake agreement with a “Fortune 500 US-based agri-business customer“. The customer had originally agreed to take 500,000 tonnes of polyhalite per annum for five years, with a possible further five years after that. That has now been raised to 1.5 million tonnes per year, the original five years has been extended to seven, and possible options for a further two five year periods have been added.

That brings an offtake agreement total of 3.1m tonnes per year, with Sirius reporting a further 4.8m tonnes via other commitments. The demand for this super fertilizer stuff is clearly there and the planning is going well, so what could go wrong?

The big risk at this stage of a growth opportunity is the unknowns. Sirius will need to go through a fund-raising stage, and we don’t yet know how much cash will be needed, where it’s going to come from, and what any final deal will look like — in short, we have no idea how much of the company will still be in the hands of existing shareholders once the capitalisation is complete.

Should we invest?

We also don’t know how events might conspire to delay the development of the project and those all-important first shipments, meaning we don’t know whether further funding will be needed above the initial round. My experience of startup growth companies is that it usually does cost more to get to first profit than originally anticipated, and that would mean more dilution.

Still, if you’re prepared to take the risk (and I think there can be room for a little of it in most portfolios), I reckon Sirius is a promising-looking prospect.

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.