A view of the North York Moors National Park driving from Whitby, Potash Mining story with journalist Andrew Bounds, Financial Times Weekend Magazine, December 2016, Whitby, North Yorkshire, England
The North Yorkshire moors

You have to admire the grit of Chris Fraser, ex-bouncer, banker, and now chief executive of Sirius Minerals, who last week announced the miner was moving from Aim to the main market to find new backers.

The Australian has faced down many obstacles to his plan to extract 20m tonnes a year of white polyhalite pellets of fertiliser from under the Yorkshire moors.

First Mr Fraser had to gain support from the moors’ guardians; second he has had to win financial backing for a technically-challenging project that involves building a 23-mile underground conveyor belt to take polyhalite to the sea and is costing $3bn in capital.

So far Sirius has raised $1.2bn to sink shafts and start taking polyhalite out of the ground in 2021. Sirius must borrow another $1.7bn to construct the conveyor belt. If all goes to plan (which is rare in mining) the group will be spewing out 10m tonnes of polyhalite by 2024.

But the miner still must persuade farmers in Asia and the Americas that Sirius’ crop food is as good if not better than potash rivals found close by. There is a potash glut at the moment.

Mr Fraser insists polyhalite is a premium product, particularly compared with the bulk of potassium fertilisers that contain chloride. It also contains other minerals and does more to boost crop yields than bog-standard potash, he says. He reckons polyhalite could trade at a premium: that is, $200 a tonne. Perhaps, even in time, it might trade at nearer to the price, on a relative basis, of more concentrate potash sulphate. 

In his dreams.

Until the market in polyhalite has been established, it will sell at a discount to cheaper potash at about $145 a tonne — the price at which customers have agreed to take 8.1m tonnes a year.

True, at $145 a tonne, Sirius’ revenues will be a good whack above production costs of $30 a tonne. But would-be backers will have to take Mr Fraser’s word for it that the conveyor belt will keep going, costs will not rise and prices will not fall.

Accsys to new funding

Last week Paul Clegg, brother of the more famous politician Nick and chief executive of Accsys, illustrated how long it takes — but how important it is — for pioneers of new technologies to develop markets for their products.

Accsys has known how to harden soft wood for a decade. It has been manufacturing accoya, wood pickled in acetic anhydride, in Arnhem in the Netherlands for nearly as long. The toughened timber does not rot and will not crack but it does not sell itself.

Mr Clegg has been working hard to build demand for accoya, selling the idea of modified wood to joinery and wood businesses across the world. Accoya now lines canals and clads a velodrome in Tbilisi. More importantly, says Mr Clegg, about a 10th of the UK’s suppliers of window and door frames now use accoya. The Arnhem plant is barely profitable but it is working at full capacity, turning over €60m a year. That has allowed Accsys to move to the next phase.

Last week the Business Growth Fund — set up by UK banks to fund small businesses — invested €12m in loan notes and warrants so that Accsys can expand Arnhem and start building a new facility in Hull. 

The new plant in Hull will produce tricoya, treated wood chips for use in hardened MDF that will last 10 times longer than standard fibreboard. It is a joint venture with BP, and Medite, the Irish maker of MDF which will take 40 per cent of tricoya chips produced. 

Arnhem’s capacity will double to generate €120m in revenues and €30m in earnings before interest, tax and other nasties within five years. The Hull plant is forecast to make another €40m a year. 

Securing the financing from BGF will “transform us,” says Mr Clegg. “The market now accepts modified wood and we can re-finance. Any technology is all about [securing] repeat financing, particularly for capital intensive companies.”

Up to now, Accsys has financed itself by issuing shares.

“For the first time, we are refinancing with debt,” says Mr Clegg. And now Accsys can borrow on reasonable terms, it can improve returns on equity. 

The thing that got Accsys to this point was “market demand,” says Mr Clegg. “It is like crossing the valley of death.”

kate.burgess@ft.com

This article has been amended since original publication to clarify Sirius’s view of future polyhalite prices​.

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