Sirius seeks to mine Yorkshire moors for potash

17th Jan 2011 08:21

Potash mining group Sirius Minerals has acquired York Potash and appointed its founder, former Citigroup man Chris Fraser, as managing director and chief executive officer of Sirius.York Potash is a private UK company that has signed various agreements with major landowners in relation to extensive mineral rights covering more than 600 square kilometres onshore and offshore between the towns of Whitby and Scarborough in North Yorkshire, England.York Potash's mineral rights relate to all the evaporites including potash (sylvite), polyhalite, rock salt, and intermingled minerals beneath the agreement areas. The region also hosts the Boulby Mine, currently owned by Israel Chemicals, which has been producing potash since 1973 and is known to host extensive deposits of high grade sylvite and polyhalite."While the York Potash Project is still at the early stages of exploration and assessment, the directors believe the potential of the project is significant," the company statement said.Sirius is issuing 150m new ordinary shares to the owners of York Potash in a deal that values the private company at about £25.1m.Following the issue of the shares, the total number of Sirius shares in issue will be 876.1m.According to the latest management accounts, as at 11 January 2011, York Potash had net liabilities of around £144,000 and had incurred an operating loss of approximately £362,000 for the period to 11 January 2011. The liabilities of York Potash included a loan of £176,385 from an entity related to Chris Fraser which is to be repaid as part of the acquisition.Fraser, who takes over as managing director and chief executive officer of the company, has around 16 years finance experience in the mining industry and has previously worked for Citigroup, Rothschild and KPMG."Chris has proven entrepreneurial abilities in the resources industry and has a clear track record in raising large amounts of capital for major strategic project developments," said Sirius's chairman, Chris Catlow.Sirius's house broker, Daniel Stewart, described the acquisition as a game changer, though it is not without problems."The problem is that the onshore part of the properties is located within the North York Moors National Park. Clearly, planning and permitting will be the key issue going forward - indeed the company needs to get planning permission before it can even drill a series of holes to verify the old drilling data," notes Daniel Stewart analyst Martin Potts."Normally, a proposal to make a substantial mineral development in a National Park would be rejected out of hand. However, potash is an internationally scarce and important commodity and so its development could be justified in the National Interest - as indeed was Boulby mine 40 years ago. Modern technology, including slurry pipelines for mineral transport, could mitigate the environmental impact. If permitted, the project would be a very substantial and long term employer in a region that has seen the closure of most of its industrial base in the past few decades," Potts added."In terms of value to Sirius, the York Potash assets are potentially very valuable indeed - a comparison with similar projects in North America suggests a value of around £400m based on the polyhalite alone with maybe another £200m for the potash - in total equivalent to around 70p per share. However, the planning and permitting risk means that a substantial discount is appropriate," the broker said. Daniel Stewart has set a short term price target of 25p, while it waits for the local and political reaction to the news.