Sirius Minerals : Preliminary results for year ended 31 March 2014

07 August 2014

Sirius Minerals Plc

Preliminary results for the year ended 31 March 2014

the preliminary results for Sirius and its subsidiaries ("the Group") for the year ended 31 March 2014.

Key highlights

·     Exploration drilling programme completed.

·     JORC compliant mineral resource increased to 2.66bn tonnes of 85.7% grade polyhalite within an area representing 7% of the York Potash Project area of interest - the largest and highest grade in the world. Upgrade of 820 million tonnes of polyhalite at an average grade of 87.3% to Indicated Category.

·     Crop studies results announced, validating polyhalite as an effective, valuable fertilizer that outperforms traditional potassium chloride ("MOP") in some circumstances.

·     Major offtake contract for the sale of 1mtpa of polyhalite for ten years from 2017 to China based Yunnan TCT Yong-Zhe Company Limited.

·     Framework Sales Agreements ("FSA's") with fertilizer distributors and manufacturers for 310,000 tonnes per annum in the UK and Europe, and a further 700,000 tonnes per annum of FSAs and letters of intent in various countries including Mexico, Chile, Ecuador, Thailand and Indonesia.

·     Convertible security financing of up to £25 million secured with New York based Institutional Investor.

·     Additional polyhalite sales commitments secured, amounting to 750,000 tonnes per annum in China, Africa and Latin America, including a 500,000 tonnes per annum memorandum of understanding with Sinoagri, one of China's largest fertilizer distributors.

·     York Potash Project Ore Reserve of 250 million tonnes announced, with an average grade of 87.8% polyhalite from just 1% of the Project Area. 

·     Acquisition of Dove's Nest Farm, the 100 acre site of the majority of the mine site for the York Potash Project.

·     Two memorandums of understanding signed with customers in China, each for 500,000 tonnes of polyhalite from the York Potash Project future production.

·     Successful polyhalite characterisation tests.

·     Additional polyhalite memorandums of understanding for 500,000 tonnes per annum with leading Chinese agricultural business, Sichuan AMPC.

·     Appointment of Keith Clarke CBE, former CEO of WS Atkins plc, as non-executive director.

·     Polyhalite take or pay offtake agreement with fortune 500 US based agri-business.  Agreement for at least 500,000 tonnes per annum, for a minimum of five years, with an option for customer to take up to one million tonnes per annum.  Agreement took total of polyhalite sales commitments to 4.8 million tonnes per annum.

·     Launch of the mineral transport system for the York Potash Project, reducing construction disturbance by 70%, and reducing buildings required at mine site.  Significant improvement to project value through operating cost reductions, increased capacity, reduced construction disturbance, reduced risks and additional product options.

·     Successful raising of £43 million and increase in holdings of institutional investors.

·     Stephen Pycroft, Executive Chairman of Mace, appointed as non-executive director.

·     Appointment of WH Ireland as joint broker.

Post balance sheet events

·     Publishing of updated crop study webcast.

·     Warrants listing on the Channel Islands Securities Exchange.

·     Signing of MoU with Tanzanian Ministry of Agriculture.

Financials

The Group's year-end cash and cash equivalents position as at 31 March 2014 was £48.4 million (2013: £18.0 million). The Group's loss for the year ended 31 March 2014 was £8.0million (2013: £8.6 million).

Annual Report & Accounts and AGM

The Annual Report & Accounts and Notice of Annual General Meeting ("AGM") will be posted to shareholders at the end of August and a copy will be published on the Company's website .

The AGM will be held at 11.30am on Tuesday 23 September 2014 at the Royal York Hotel, Station Road, York, YO24 1AA and the Notice for the AGM will be found in the Annual Report when published.

For further information, please contact:

About Sirius Minerals Plc

Sirius Minerals is a globally diversified potash development company. Its primary focus is to bring on stream major potash mining facilities through the acquisition and development of projects overlying recognized potash deposits.  Today it holds properties in the United Kingdom (North Yorkshire) and the United States (North Dakota).  Incorporated in 2003, Sirius Minerals' shares are traded on the London Stock Exchange's AIM market.  Its shares are also traded in the United States on the OTCQX through a sponsored ADR facility.  Further information on the Company can be found at .

CHAIRMAN'S STATEMENT

Dear Shareholders

I have the pleasure of submitting my latest Chairman's Statement to you.  In recent years we have made exceptional progress towards our goals and also experienced some real highs and lows along that journey. 

It is said that 'what doesn't break you makes you stronger' and despite the disappointment of the delays to the mine planning application for the York Potash Project ("YPP" or the "Project") in 2013, we are emerging with an even stronger planning case and environmental statement as well as with further strengthening of our business and project plans.

The year will also be remembered for signing a major, long term take-or-pay contract with a Fortune 500 US based agri-business - such a commitment at this stage of a Project's development has been hitherto largely unheard of in our industry.  Our global sales and marketing programme continues to impress in both its depth and breadth and I believe we may be able to achieve more here in the short to medium term.

It is easy to forget that our progress in sales and commitments during the last year came at a time of considerable (and unusual) upheaval in the consolidated global potash industry.  Prior to Uralkali announcing its decision to stop cooperating with Belaruskali the potash price per metric tonne was around $420.  It has since fallen to as low as $315 and now appears to be stabilising with prices of $345 in June 2014.

Despite the disruption in potash price stability over the past year, we do not benchmark our polyhalite price against traditional muriate of potash ("MOP").  Polyhalite is a chloride-free source of potassium (with a balance of other nutrients required for plant growth) which can therefore attract a market advantage over MOP.  The pricing assumptions behind our business model are conservative and the viability of the Project and its returns continue to outstrip others because of the performance of polyhalite in crop trials, our low cost operating structure and the bulk volumes that we plan to deliver.

My own view is very positive on the long term fundamentals of the fertilizer industry.  I have seen in the last few months first-hand how the large emerging nations in Asia, Africa and South America are developing their economies and the difficulties they have importing the optimum level of nutrients that their soils need without driving prices dramatically higher.  Our unique multi-nutrient product polyhalite will, we believe, play a key role in this mix. 

These considerations, of course, only come into play once we have the approvals we need to build our globally competitive project.  The past year has seen an intense level of activity on this important area of our business.  As I mentioned in my statement last year, requesting a deferral to our mine application was frustrating and the subsequent length of that delay even more so.  However, some significant good has come from this disappointment and a lot of adjustments have been made to our methodology since that time.  Your Board has overseen a complete restructure of the approach and our team tasked with securing the key approvals.  This has meant not only changing and enhancing our project and consulting teams but also adopting new procedures and approaches.  In addition to commissioning extra work from world-leading experts to support our approvals, we are using previous queries or concerns, raised by the planning authority and various critics, as the benchmark for agreeing methodologies in our work before it is completed and submitted. 

The resubmission of the planning application for the mine will allow all to see the new level of detail that has been achieved, and I believe it will be a very comprehensive and high quality submission. 

The same high standards will apply to our Mineral Transport System ("MTS") planning application, due for submission in September 2014.  The switch to this system in February (a change from the previously proposed pipeline system) was a surprise to many, but a step that the Board felt necessary once the level of benefits from doing so became clear.  Innovative thinking from our mining and engineering teams who were exploring ways of reducing the environmental impact of the Project- which is an ongoing ethos in the Group - led to this change.  Although a higher capital cost, the Board remains comfortable with this outlay on the basis of the operating simplicity and cost savings that it will deliver for generations.  The positive reaction it has had from statutory bodies, engineers and financiers alike is a strong endorsement of our strategies to pursue innovation and sustainability at reduced risk.

The detailed engineering across all aspects of the Project continues at pace and has also been a constant theme of the year.  There have essentially been two levels of engineering underway throughout this period.  The first covers the level of detail needed to establish the parameters for the approvals submissions and the second is the more advanced work and refining that towards delivering the Definitive Feasibility Study ("DFS").

Both engineering streams have required a balance of internal resource and external specialists.  This effort is being led by Allan Gamble, our Development Director with a 34 year career in the delivery of major projects.  Allan has an experienced team of around a dozen engineers and project development professionals that oversee our engineering and approvals work, managing a range of consultancies.  The work towards first construction requirements and our DFS also continues in parallel.  We are adopting several creative approaches where appropriate, along with tried-and-true designs for key elements of the Project.  Our engineering spend is also being undertaken with a clear risk perspective in order to coincide with the granting of the necessary approvals for the Project.    

As we plan for the construction of the Project, we will be ably assisted by two new board members who bring an extra element of experience to our team.  We were sad to see the departure of long serving Board member Michael Mainelli and also Sir David Higgins due to his UK HS2 commitments.  Sir David played a key role in helping to source our new Board members and continues to informally communicate with me on a regular basis.  Keith Clarke joins our Board with many years' leadership experience in large engineering consultancy and construction focused businesses, most notably W.S. Atkins plc.  His passion for safety and the environment is being felt by the executive team in their planning and DFS work and he is already a key contributor to our Board discussions. 

Likewise, Stephen Pycroft joined the Board replacing Michael Mainelli and brings an impressive track record in the construction industry having achieved remarkable outcomes and successes at Mace as CEO and latterly as Executive Chairman. 

Both gentlemen, besides being solid shareholders in Sirius, have added to the Board's confidence over the future of the Group.  These appointments reflect the Group's and my personal desire to, over time, ensure we have the best people and structures to deliver the highest levels of corporate oversight and governance, in line with the QCA code, and in order to underpin the long term success and growth of the Group.  The expertise of the Board as a collective has been enhanced by these appointments and there is very deep experience in managing the types of risks and challenges likely to arise as we implement our project and business strategy. 

Although a post balance sheet event, I must also mention the departure of our CFO and Finance Director Jason Murray in August 2104.  The closure of the Sydney office is the right decision for the business and Jason is unable to relocate to the UK due to personal reasons.  He leaves with our thanks and best wishes for the future.

The last financial year also delivered two significant financings.  There is no doubt that the convertible security announced in August 2013 was essential for the Group, but also one that was delivered at a very difficult time in the potash industry.  The utilisation of this facility ended once we were able to secure an up-sized placing of £43 million of equity capital in March 2014. 

As a significant shareholder myself, I know that dilution is unwelcome but there were a number of very notable positives from this raising.  First was the sheer strength of first time support from a wide variety of major investment organisations for the Group and our York Potash Project in an exceptionally difficult period for the mining development space.  The second was the support and increased positions taken by large existing institutional investors - we thank them for their ongoing confidence and belief in the Group and its long term value.

The year ahead will be a defining period for the Group, but it is only a step on our way to fulfil the Group's true potential.  We have a strong belief in our strategy and if it proves to be correct, the year ahead will be one that will see substantial value creation for our shareholders.  You can be assured, as ever, that our entire team is focused on achieving that goal.  We look forward to achieving our targets and thank all our shareholders and supporters for their ongoing support in the year ahead.

Kind regards,

Russell Scrimshaw

In preparing this financial information, management has used the principal accounting policies that are detailed in the Group's Annual Report and which are unchanged from the prior year. The results shown for 2014 have been extracted from the Group's audited annual report. The financial information contained in this announcement does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006.

Statutory accounts of the Company in respect of the financial year ended 31 March 2013, upon which the Company's auditors have given a report which was unqualified and did not contain a statement under Section 237(2) of the Companies Act 2006, have been delivered to the Registrar of Companies.

For the year ended 31 March 2014 our auditors have issued a modified but not qualified audit report reflecting the material uncertainties over the Director's application of the going concern assumption in preparing the Group's financial statements, outlined below.

Changes in accounting policy and disclosures

(a) New and amended standards adopted by the Group

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year beginning on 1 April 2013 that have had a material impact on the Group.

(b) New standards and interpretations not yet adopted

8. FINANCIAL INFORMATION

The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 March 2014 or 31 March 2013.

The comparative financial information has been extracted from the statutory accounts of the Group for the year ended 31 March 2013. The auditors reported on those accounts; their report was unqualified and did not contain a statement under either Section 498 (2) or Section 498 (3) of the Companies Act 2006 and but did include references to material uncertainties surrounding the Directors application of the Going Concern assumption.  The statutory accounts for the year ended 31 March 2013 have been delivered to the Registrar of Companies.

The statutory accounts for the year ended 31 March 2014 have been finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.