Sirius Minerals, Scarborough, England, reported on Sept. 17 that it has signed its largest-ever offtake agreement for its Poly4 fertilizer. It is with Brazil’s sixth largest fertilizer distributor, OFD Supply Inc. and Cibrafertil Companhia Brasileira de Fertilizantes (Cibra Group Companies), which is owned by Omimex Group, a privately-held independent fertilizer and energy group based in Fort Worth, Texas. The offtake will increase to 2.5 million mt/y in the seventh year of production.
As a result of the deal, Sirius said its take-or-pay sales volume has now increased to 8.2 million mt/y, surpassing the 6-7 million mt/y target required to underpin Stage 2 financing.
Poly4 is the trademark name for polyhalite products from Sirius’ polyhalite project in North Yorkshire, U.K. Construction of the project began in 2017 (GM March 31, 2017), with first production planned for the end of 2021. The company describes Poly4 as a naturally occurring fertilizer that contains potassium, sulfur, magnesium, and calcium in one product, available in granulated, powered, or standard form.
In addition, Sirius has simultaneously acquired 30 percent of certain Cibra Group Companies in return for 95 million ordinary shares in Sirius, providing Sirius with established infrastructure and direct access into the fertilizer distribution business. The Sirius shares issued to Cibra shareholders will be subject to a lock-up period of 12 months.
“We are delighted to have signed these supply and investment agreements with a leading player in the South American fertilizer market with a proven track record and ambitious growth plans,” said Chris Fraser, Sirius managing director and CEO. “Cibra is a perfect partner for distributing Poly4 into this key market, where trials have demonstrated how it can significantly enhance farming economics. The Cibra offtake agreement takes us beyond our targeted 7 million mt/y, and is a major step forward as we look to complete Stage 2 financing and building our global fertilizer business.”
“We are excited to be entering into this long-term partnership with Sirius to deliver Poly4 into Brazil and other key markets of South America,” said Santiago Franco, Cibra CEO. “The supply agreement provides Cibra with access to a unique multi-nutrient product that will play an important and valuable role in one of the fastest growing fertilizer markets in the world. Poly4 will change the shape of the fertilizer market in South America, and Cibra will be at the heart of driving the growth and adoption of this innovative, sustainable product across the region.”
Cibra annual revenues are reported at US$500 million. It operates one single super phosphate (SSP) plant, nine blending plants, and a distribution center, and has operations and warehouses in multiple key ports across Brazil. Cibra said it holds a market share in Brazil of approximately four percent.
The supply agreement provides for resale of Poly4 on an exclusive basis into Brazil, Bolivia, French Guaiana, Guyana, Paraguay, Surinam, Uruguay, and Venezuela, and on a non-exclusive basis into Argentina, Chile, Colombia, Ecuador, and Peru. The initial contract term of seven years may be extended for two additional five-year periods.
Minimum contracted take-or-pay volume commitments under the supply agreement increase to 2.5 million mt/y by the seventh year following commencement of commercial production. The agreement contains provisions that allow Cibra to roll forward and roll back a small proportion of take-or-pay volumes between contract years.
Pricing terms include a minimum commitment price that is linked to relevant product benchmarks, as well as a unique downstream price participation mechanism which enables Sirius to benefit from higher realized Poly4 prices for the duration of the contract. Pricing to be received by Sirius under the agreement is expected to be broadly in-line with other offtake agreements in the early years of supply, with the potential to realize higher pricing sooner than the company’s existing supply agreements.
Following completion of the acquisition of the equity in Cibra, management will remain unchanged. However, under the shareholder agreements, Sirius will have the right to appoint a director, and Chris Fraser will join the boards of each of the Cibra Group Companies.