Sirius Minerals (LSE:SXX) bounced 4.2pc to 21.9p on Thursday morning after securing a major European distribution deal for its flagship fertiliser.

The company has signed a ten-year supply and distribution agreement with agribusiness BayWa Agri Supply & Trade (BAST) for the sale of its POLY4 polyhalite product into Europe. BAST is a subsidiary of listed German entity BayWa AG, which distributes more than 30MMts of agricultural goods across Europe every year. This includes the sale of approximately 2MMtpa worth of fertiliser.

The deal provides for the exclusive distribution of guaranteed minimum tonnes of POLY4 across most of Europe for a 10-year term. This will begin from the first production from Sirius’s Woodsmith Mine in North Yorkshire and includes two five-year extension options. According to Sirius, Woodsmith contains the world’s largest and highest-grade deposit of polyhalite, a unique multi-nutrient fertiliser that can be used to increase balanced fertilisation around the globe.

The guaranteed minimum volumes of POLY4 for sale under the agreement increases to 2.5Mtpa in year five. This takes Sirius’s aggregate peak contracted sales volume to 10.7Mtpa. The deal also allows Sirius to elect for BAST to purchase and distribute additional quantities above the guaranteed amounts, allowing the organisation to shift uncontracted capacity if needed. However, BAST would receive a more significant share of obtained pricing if this option was exercised.

The pricing mechanism in the agreement is linked to the downstream pricing received by BAST on the sale of POLY4 in Europe. Indeed, the price received by Sirius under the deal is determined by the amount received by BAST with reference to benchmark prices and the nature of BAST’s customer.

According to Sirius, this approach incentivises BAST to sell POLY4 further down the value chain and optimise the best FOB netback price. The firm said the deal also gives it greater exposure to pricing in the downstream market and expects to deliver it the highest rates across its current supply agreement portfolio.

Finally, Wednesday’s agreement provides for the establishment of a joint venture vehicle for the management of sales and marketing of POLY4 into Europe.

Chris Fraser, managing director and chief executive of Sirius, said: ‘The European fertiliser market is highly advanced and the second largest in the world behind China. We are delighted to be partnering with a leading agribusiness to distribute our POLY4 product into this key market. Our exclusive partnership with BAST will enable us to reach downstream customers through the groups' well-established and extensive logistics network and long-term, trusted relationships with farmers. Our exclusive partnership is structured to enable us to achieve maximum value for our POLY4 product.’

Meanwhile, BAST chief executive Daan Vriens added: ‘We are excited to be partnering with Sirius to bring a high performing, multi-nutrient fertiliser like POLY4 to customers across Europe through Cefetra. We believe in long term partnerships and we feel confident that this will be a successful new endeavour. POLY4 fits with our sustainability and farmer services strategies across our markets. This will provide farmers, via our extensive networks, a fertiliser product that promotes sustainable agricultural practice in our home market, Europe.’

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