Supply Agreement and Investment in South America

17/09/2018

Major Supply Agreement and Downstream Investment in South America

  • Sirius signs its largest POLY4 supply agreement for up to 2.5 Mtpa
  • Long-term supply agreement with Cibra, Brazil's sixth largest fertilizer distributor group
  • Acquisition of 30 per cent. equity stake in Cibra in return for 95 million ordinary shares in Sirius
  • Sirius aggregate peak contracted take-or-pay sales volume increased to 8.2 Mtpa

Sirius Minerals Plc ("Sirius" or the "Company") announces the signing of a take-or-pay supply agreement between its wholly owned subsidiary York Potash Ltd, OFD Supply Inc. and Cibrafertil Companhia Brasileira de Fertilizantes (together the "Cibra Group Companies") for the supply and resale of POLY4 into Brazil and certain other countries in South America (the "Supply Agreement"). Linked to the Supply Agreement Sirius has also agreed to acquire through one of its wholly owned subsidiaries a 30 per cent equity interest in each of the Cibra Group Companies for a total of 95 million fully paid ordinary shares of Sirius.

Santiago Franco, CEO of Cibra, comments:

"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. 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."

Chris Fraser, Managing Director and CEO of Sirius, comments:

"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. 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 Mtpa and is a major step forward as we look to complete Stage 2 financing and building our global fertilizer business."

Investor webcast

Sirius Minerals will host a webcast for investors and analysts at 9.30am today. The webcast can be listened to live by clicking on the link below. A replay will be available on the Company's website in due course.

https://event.on24.com/wcc/r/1834205-1/CC1D15E05774FD5C2A78E841BD9F0CEB

The Cibra Group

Cibra is part of the Omimex Group, a privately held independent fertilizer and energy group based in Fort Worth, Texas and engaged in the production of fertilizers in Latin America through the Cibra Group Companies. Cibra is a top six fertilizer distributor in Brazilwith annual revenues of approximately US$500m. Cibra operates one Single Super Phosphate (SSP) plant, nine blending plants, a distribution center and has operations and warehouses in multiple key ports across Brazil. Cibra holds a market share in Brazil of approximately four per cent.

Supply Agreement

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 Mtpa by the seventh year following commencement of commercial production. The Supply Agreement contains provisions which 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 mechanic which enables Sirius to benefit from higher realized POLY4 prices for the duration of the contract. Pricing to be received by Sirius under the Supply Agreement is expected to be broadly in-line with other offtake agreements in the early years of supply, with the potential to realise higher pricing sooner than the Company's existing supply agreements.

Cibra Strategic Investment

The acquisition of the 30 per cent interest in each of the Cibra Group Companies is expected to include the following benefits:

  • access to key markets for the long-term growth of Sirius;
  • ability for Sirius to participate in the strategic direction and marketing strategy of the Cibra Group; and
  • protection for Sirius' route to market.

Following completion of the acquisition of the equity in the Cibra Group Companies 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. In line with an investment of this size and nature, certain strategic matters relating to Cibra Group Companies will require unanimous approval by the parties and the shareholder agreements also contain typical pre-emptive rights, transfer protections and rights and change of control protections. The Sirius shares issued to the shareholders of the Cibra Group Companies will be subject to a lock-up period of 12 months. Completion of these arrangements are subject to the satisfaction of certain conditions precedent and are expected to take place in the coming weeks.

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