Sirius Minerals Share News (SXX)

(Sharecast News) - Sirius Minerals has entered into an exclusive 10-year supply and distribution agreement with European agribusiness group BayWa Agri Supply & Trade (BAST) - a wholly-owned subsidiary of BayWa - for the distribution of POLY4 into Europe, it announced on Thursday.The FTSE 250 company said BAST intended to actively distribute POLY4 through its Cefetra business - a well-established distributor and trader in Europe active across the agricultural value chain to the farmgate.It said BayWa, a publicly-listed entity based in Munich, had revenues of €16bn in 2018.The group distributed more than 30 million tonnes per annum (Mtpa) of agricultural goods across Europe, including sales of approximately 2.0Mtpa of fertilisers.Across Europe, the group had a "strong" footprint and agricultural platform with strategically-located assets such as warehouses, hubs and ports.BayWa was also active in developing and managing digital farming platforms to strengthen its 'one-stop-shop' strategy for farmers."The European fertiliser market is highly advanced and the second largest in the world behind China," said Sirius Minerals managing director and chief executive officer Chris Fraser."We are delighted to be partnering with a leading agribusiness to distribute our POLY4 product into this key market."Fraser said the exclusive partnership with BAST would enable Sirius to reach downstream customers through BAST's "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."The agreement provided for the exclusive distribution of guaranteed minimum tonnes of POLY4 across most of Europe for a 10-year term, that would start from first production, and included two five-year extension options.Pricing under the agreement was "unique", Sirius said, in that it aimed to incentivise both parties to optimise product value appreciation as well as logistics excellence.The guaranteed minimum volumes under the agreement would increase to 2.5 Mtpa in the fifth year, with the deal also providing for an option for Sirius to elect for BAST to purchase and distribute additional volumes above the guaranteed volumes.If that option was exercised, BAST would receive a greater share of the received pricing.Sirius said the mechanism provided it with "significant flexibility" to move uncontracted capacity within the European market through the extensive BayWa network.The pricing mechanism in the agreement was linked to the downstream pricing received by BAST on the sale of POLY4 in Europe.The price received by Sirius under the deal would be determined by the price received by BAST, with reference to benchmark pricing and the nature of the final BAST customer.BAST was incentivised to sell the product further down the value chain - as in, closer to the farmgate - and to optimise the best free-on-board netback price for Sirius.The company said it expected the partnership approach to pricing to deliver it the highest prices across its current supply agreement portfolio.Based on prices implied for POLY4 by current farmgate prices of polyhalite and similar products in Europe, this deal was expected to deliver prices to Sirius between the current offtake agreement levels and the full nutrient value of POLY4.Subject to the parties' internal approval processes, the agreement would also provide for the establishment of a joint venture vehicle for the management of sales and marketing of POLY4 into Europe, as well as the movement of product.Should such a joint venture be established, the rights and obligations of BAST under the deal would be novated to the joint venture vehicle, while BAST would continue to guarantee the obligations of the joint venture vehicle under the agreement. Daan Vriens, chief executive officer of BAST, explained that the firm was "excited" to be partnering with Sirius to take 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," Vriens said."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."