Why Sirius Minerals PLC Has Surged Today

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What:  Tsiriushe share price of Sirius Minerals  (LSE: SXX)  was up as much as 11.6% earlier today, following a news release announcing a new “take or pay offtake” agreement for prospective polyhalite sales from its York Potash Project.  

So What: The five year agreement has been signed with a well-established and market-leading fertilizer distributor based in Central America, which also has operations in Colombia. The agreement is based on the supply of 150,000 tonnes per annum (tpa) in the first year, which will increase on an annual stepped basis to 250,000 tpa in the fifth year of production.

The polyhalite — a naturally occurring mineral containing four essential  plant macro-nutrients (potassium, sulphur, magnesium and calcium) — will be extracted from what will, if it goes ahead, be the first new potash mine in the UK for 40 years. Subject to planning consent Sirius intends to develop the mine  in an area between Whitby and Scarborough which extends about 16 km inland from the coast and up to 14 km off-shore.

What Now: Sirius says that it will submit planning applications for the mine, and the associated mineral transport system and materials handling facility, at the end of September, and that a decision on the applications is expected in January 2015.

Even before it has permission to develop the mine, Sirius faces competition from Cleveland Potash, which is currently the only polyhalite miner in the world.  Cleveland Potash started to market polyhalite in April this year, and has said that it could satisfy global demand for polyhalite within five years if decided to fully develop its existing Boulby mine. 

Commenting on the agreement MD and CEO of Sirius Chris Fraser said:

This agreement continues to extend the global sales reach of polyhalite and means we are now partnered with an organisation that controls a substantial proportion of the Central American crop input market.

“Our customer commitments now exceed five million tonnes per annum, with additional options for 750,000 tonnes per annum. We are having a number of ongoing discussions with customers seeking to tie down supply agreements for this important multi-nutrient mineral.

Another release this morning revealed that  two entities in which Chris Fraser has a beneficial interest — Desmo Superannuation Fund and C & J Fraser Investments Pty Limited — have acquired 342,000 shares of Sirius. Following these purchases, Mr Fraser now has an indirect beneficial interest of 122,628,314 shares, which represents 6.54% of the company’s issued share capital.

Despite this morning’s substantial rise, Sirius’s share price is still down 15% so far in 2014, and down 21.7% on this time last year.

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Jon Wallis has no position in any shares mentioned. The Motley Fool 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.