May 17, 2017 / 8:44 AM / in 3 months

Exclusive: Chinese company confirms huge UK fertilizer deal

FILE PHOTO: An employee poses for a photograph at the Sirius Minerals test drilling station on the North Yorkshire Moors near Whitby, Britain, July 5, 2013.Nigel Roddis/File Photo

LONDON/SHANGHAI (Reuters) - A small Chinese company that is key to plans by Sirius Minerals to build a huge fertilizer mine under a national park in the north of England has confirmed it has a binding agreement with the UK firm.

DianHuang CEO Wang Xiaotian reiterated the agreement in a letter to Reuters on May 15, saying it had been signed on May 27 last year. DianHuang would buy 150,000 tonnes of the mineral polyhalite a year from first extraction in 2021, scaling up to a million tonnes a year over five years as part of plans to grow peony flowers and extract edible oil from their seeds, he said.

The reassurance from Wang followed a May 8 telephone interview with Reuters in which he said the two firms were still negotiating.

The DianHuang deal is the biggest take-or-pay agreement Sirius has inked so far with a named customer. By demonstrating confirmed demand for its product, it helped Sirius raise $1.2 billion in financing for the mine and win planning permission from the North York Moors national park.

Sirius needs its existing take-or-pay agreements and more to raise a further $2.6 billion, in debt financing, to complete the mining project. The company has said it must double the amount of polyhalite covered by take-or-pay deals to satisfy the banks arranging the financing that it has enough potential cash flow.

Asked if DianHuang had signed a legally binding agreement with Sirius, Wang had said by telephone: "We have not officially signed this, it is just a strategic cooperation agreement ... Because with Sirius we have a framework cooperation, of course we hope this cooperation can be pushed forward."

These were the first comments to media by the Chinese company on the deal, which Sirius announced in June 2016. At that time, Sirius said DianHuang would buy up to a million tonnes of fertilizer a year from first extraction, under a take-or-pay arrangement.

In the telephone interview, Wang had said DianHuang was also negotiating with a rival firm, ICL, also known as Israel Chemicals.

"It depends whose fertilizer is more beneficial for us," he said. "ICL is the biggest global producer of organic potassium fertilizer. They are also competing, they are also in touch with us. They have brought over some fertilizer for test use."

ICL, whose mine is on the same Yorkshire seam that Sirius plans to exploit, declined to comment on DianHuang's statement.

After Reuters posed questions to Sirius Minerals about Wang's phone comments, Sirius said the assertion that it only had a framework agreement with DianHuang was incorrect: "The Company has a binding offtake agreement in place."

Sirius added that any possible talks between DianHuang and its rival were up to the Chinese firm.

In Wang's letter, which he wrote after Reuters contacted Sirius, he said: "To clarify, the contract is not a framework agreement but rather a firm take or pay agreement." Wang was not immediately available to comment further when contacted by Reuters after the letter.

ICL is so far the only company that has actually begun mining polyhalite, a relatively new entrant to the fertilizer market which both it and Sirius say is a multi-nutrient product superior to traditional potash. Wang's follow-up letter to Reuters made no reference to ICL.

Sirius has announced take-or-pay agreements for up to 3.6 million tonnes a year of its polyhalite product so far. It has not named some customers for commercial reasons. That is about half what it says it needs to complete the project.

It says the mine will create thousands of jobs and add as much as 2.4 billion pounds ($3.11 billion) per year to the United Kingdom's gross domestic product.

Editing by Lina Saigol and Philippa Fletcher

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