SM1 Drilling results

• 23.3 metres (true-thickness) of 95% polyhalite (27.5% K₂SO₄) aggregated across three beds
• Main high grade bed is 11.0 metres (true-thickness) of 97.1% polyhalite (28% K₂SO₄) including two high grade zones totaling 9.6 metres of 99.5% polyhalite
• Total polyhalite zone of 49.3 metres (true-thickness) of 66% polyhalite (19.1% K₂SO₄)

SM2 Drilling results

• Two separate high grade seams of polyhalite intersected

• Shelf Seam from 1,420m below surface consists of 46.9 metres thickness containing 32.6 metres of 83.1% polyhalite (24.0% K₂SO₄) including a section of 6.6 metres of 95.8% polyhalite (27.7% K₂SO₄)
• Basin Seam from 1,535 metres below surface consists of 43.3 metres thickness containing 34.3 metres of 78.3% polyhalite (22.5% K₂SO₄) including a section of 6.8 metres at 99.2% (28.7% K₂SO₄)
• Total polyhalite zones aggregated across the Shelf and Basin Seams consist of 90.2 metres of 74.6% polyhalite (21.6% K₂SO₄)
    

Potash in the UK

The evaporite sequences in Yorkshire constitute the western extensions of deposits from the ‘Zechstein Sea’, laid in multiple cycles of evaporation during the Permian age approximately 200 million years ago. The eastern margins extend to Germany, where considerable potash mining occurs today. The present North Sea covers most of the former Zechstein Sea. The UK is currently only a relatively small producer of potash. Cleveland Potash Ltd (CPL), a business unit of ICL Fertilizers, has operated the Boulby Mine, on the coast of Yorkshire, for over 35 years, producing over 1 million tonnes per annum (“Mtpa”) of refined KCl and 0.5Mtpa salt.  CPL employs conventional underground mining and froth flotation processing. It is estimated that CPL supplies over half of the UK’s domestically consumed potash, and exports the balance of production primarily to Western Europe. The Boulby Mine is of national significance.  The British Geological Survey is quoted as saying that Boulby is the most important non-petroleum mining operation in the UK. It currently employs approximately 800 people and would be indirectly responsible for probably another 3,000 regional jobs given its economic contribution.

         Figure 1: UK Salt Basin

Historical Exploration & Development

• Potash was first discovered under North Yorkshire in 1939 during petroleum exploration but the technology for extraction was not sufficient at the time thus not pursued;
• The 1960's brought renewed investigations around Whitby and Staithes by Cleveland Potash (CPL), Whitby Potash (WPL) and Yorkshire Potash (RTZ);
• In 1968 CPL was granted planning permission, as were WPL and RTZ in 1970;
• CPL's Boulby mine went into production of Muriate of Potash in 1973.

         Figure 2: Historic UK Potash Exploration Projects 

WPL and RTZ established significant (non-JORC) resources. WPL defined a resource of 70.8 to 76.9Mt at 26.5 to 27.1% K2O, while RTZ defined a resource of 380Mt at 23% K2O, including onshore and offshore mineralisation over an area of approximately 30km2. These are understood to have included only the Boulby Potash seam.

The Sirius Minerals Aquisition of York Potash

The Company acquired the entire share capital of York Potash in January 2011 for the issue of 150 million new ordinary shares, which together with an acquired outstanding loan, valued the company at £25.3 million. York Potash has options over a substantial mineral rights portfolio both onshore in North Yorkshire and in the adjacent offshore area underneath the North Sea.

The Target Seams

Based on a significant amount of historical information including over 97,000 metres of historic drilling and extensive 2D seismic work in the project area, completed in previous potash and oil and gas exploration, the Company and its advisers are targeting three separate known seams of potash in the following order of priority:

• Fordon Seam - The potentially very large and high grade polyhalite (potassium sulphate or K₂SO₄) target
• Boulby Seam - A high grade (potassium chloride or KCI) sylvite target and
• Sneaton Seam - A thicker, but lower grade sylvite

To the north of the York Potash Project, the Boulby mine owned by ICL, through its subsidiary Cleveland Potash Ltd, currently mines both the Boulby seam and more recently the Fordon seam. In April 2011 Cleveland was successfully awarded a £15 million grant from HM Government's Regional Growth Fund. This grant was awarded to secure a positive decision from ICL to begin the world's first commercial production of polyhalite. Sirius believes this is a positive endorsement of its strategy to focus on polyhalite as its priority target.

Polyhalite is a complex hydrated sulphate mineral (K₂SO₄.MgSO₄.2CaSO₄.2H₂O), which can be processed into various potassium based fertilisers as well as being a valuable source of magnesium minerals. Although there are currently no commercial scale operations based on polyhalite, extensive research was done into various process routes in the 1930's and 1940's. In addition, recently ICL has made patent applications on further process routes focused on potassium nitrate.

Polyhalite is potentially a valuable source of minerals including

• Raw polyhalite: can be simply crushed for use as a direct application organic fertiliser;
• Sulphate of Potash (SOP): there are several known routes to produce commercial quantities of SOP from polyhalite. As part of its Detailed Scoping Study, Sirius will be working to decide which process route is the most attractive economically and environmentally;
• NOP: Potassium nitrate is a high value fertiliser product;
• Various potassium and magnesium fertiliser compounds: these combine the potassium sulphate with the important micro-nutrient magnesium and are typically used where soils are magnesium deficient;
• Magnesium hydroxide (Mg(OH)₂): a compound that is increasingly seen as an environmentally sustainable and safer alternative to caustic soda in the water treatment and paper milling industries. In addition, it is a valuable feedstock for the production of other magnesium compounds;
• Magnesium oxide (MgO): is used in global steel and other industries for refractory bricks in kilns and furnaces;
• Gypsum (CaSO₄): primarily used as plasterboard
• Rock Salt: used as road salt

In January 2011, based on the available information on the then mineral rights position of 608km² (now over 621km²), FWS Consultants, a Competent Person under JORC, established in- situ JORC Exploration Targets¹ at the York Potash Project of between 3.3 and 6.0 billion tonnes of 67% to 94% polyhalite (19% to 24% K₂SO₄) and of between 330 million and 400 million tonnes of 35% to 40% KCl. These estimates have been adjusted to exclude ore under urban areas and for known faults and dykes.

In the case of the polyhalite, the estimate assumes only a five metre extraction thickness out of an apparent high grade zone of between ten and fifteen metres. In addition, the Company has increased and continues to increase its mineral rights position by entering into option agreements with additional landowners in the project area. As a result the Company believes that this is potentially a conservative Exploration Target for the polyhalite.

                                Figure 3: Area of Interest

The Drilling Program

The drilling program to date:

• SM1 complete. Significant upside to first estimates in size and quality of deposit
• SM2 awaiting chemical assay results but demonstrated a much shallower second shelf
• SM3 awaiting preliminary results

A second coring rig commissioned by the Company's retained drilling contractor is now complete and undergoing final maintenance and equipment checks. It is envisaged that the rig will be on site around the end of March 2012. The second rig will help to speed up the completion of the York Potash Project drilling programme.

The Detailed Scoping Study

Sirius Minerals is currently conducting a Detailed Scoping Study (DSS) with the aim to deliver an engineering report and provide estimates of capital and operating costs for:

• Slurry pipeline options
• shaft sinking
• mining
• polyhalite and by-product processing

Included in the DSS will be project implementation schedules and timelines.

Along with developing a robust and cost effective plan, Sirius is committed to pursuing innovation in all phases of the project to ensure the latest technologies are reviewed, tested and if appropriate, incorporated into the project designs and implementation plans.

The Company has engaged with world class engineering and consulting organisations to deliver the DSS:

• ERCOSPLAN was appointed in June 2011 to conduct the DSS
• HATCH will evaluate innovation and provide analysis
• Murphy Group are focusing on the slurry pipeline transport options
• FWS will continue to be the lead on all geological aspects of the project

The study is due for completion in April 2012. Once the study has been finalised, the Company plans to immediately advance onto a pre-feasibility and feasibility study to refine the estimates and develop detailed project designs.

Infrastructure

Sirius is thoroughly evaluating the most practical, environmentally responsible and efficient means of transportation related to the Project. This could include the development of new infrastructure in order to mitigate the impact of commercial operations within the region.

Road

Yorkshire has a quality road network in the region of Whitby and Scarborough. In particular, the A174, A171 and A169 roadways extend north, west, and south from Whitby, and the A165, A170, A171, and A64 roadways extending north, west and south from Scarborough. The road network in the Project area should be sufficient to support construction activities.

Pipeline

As previously stated, Sirius is undertaking the research into a "slurry" pipeline between a potential mine head and production facility. This is not only a cost effective way to transport ore but environmentally responsible and minimally impactful.

Port

The Company will be evaluating a number of potentially viable commercial ports to the north and south of the target area. There are two major commercial ports situated to the north. These are the ports of Tees and Hartlepool, approximately 40km northwest. These ports jointly handle approximately 6,000 ships and 55 million tonnes of cargo annually and have capacity to grow with Sirius. To the south lie the major commercial ports of Hull, Immingham, Goole, and Grimsby, which all lie approximately 70km south of the target area.

Key Project Benefits

Yorkshire appears to have world-class, but underdeveloped, potash resources. We believe that this project is an exciting opportunity to bring new long-term prosperity and opportunities to the region.

Regional Employment Growth potential

The York Potash Project has the potential to employ a significant amount of people over the various stages of its life time:

•  Employ up to 1500 people for construction and commissioning
• Employ up to 1000 people whilst in operation
• Could generate an additional 4000 jobs indirectly in North Eastern Yorkshire*

*Global experience demonstrates that for every 1 person directly employed, increased demand for local services creates another 4 local jobs.

Economic Contribution

A project of the scale envisioned by the Company would generate a tremendous amount of economic activity and make a significant contribution to the local Yorkshire economy, as well as to the broader UK economy. As an indication of the scale and economic importance of the operation, at 2.5 million tonnes per annum and assuming a theoretical long-term potash price of US$500 per tonne, the operation would generate revenues on the order of ₤1 billion. Subject to profitability this would generate significant tax benefits for the Government and also generate significant exports to enhance the UK's balance of payments.

Polyhalite

Polyhalite is a hydrated potassium-calcium-magnesium sulphate salt which is ~29% K₂SO₄ (@ 100% polyhalite grade). This makes Polyhalite a highly valuable source of premium Sulphate of Potash (SOP). Processing of polyhalite into SOP could be done through two processes with common first steps then either a solar evaporation or chemical precipitation (ammonia) path followed.We believe, at this stage that the chemical precipitation is more appropriate for North Yorkshire due to that particular areas climate. 

By-Product Potential – Magnesium Hydroxide

The by-product Magnesium Hydroxide has exciting potential for both Sirius and the market. Magnesium, in any form  (Hydroxide, Chloride, Oxide and Carbonate) is used in many processes and products suchas detergents, mineral supplementation for livestock the paper industry and for other industrial uses. In particular, the market for Magnesium Hydroxide, Mg(OH)₂ , is growing in developed economies and increasingly being seen as a viable replacement for Caustic Soda (NaOH) which is used for process such as the production of paper.

We believe we could produce up to 0.33 tonnes of Magnesium Hydroxide for each tonne of Sulphate of Potash (SOP) and with a current price of up to US$500 per tonne (~US$165 per tonne by-product), we are excited about the possibilities and impact on production costs for our future potash production with what is commonly thought of as cost inducing waste by-product.

Simplified Project Outline