Sirius Minerals Regulatory News (SXX)

30 April 2012

Sirius Minerals Plc

("Sirius" or the "Company")

Completion of York Potash Detailed Scoping Study

§ Detailed Scoping Study confirms technical and economic viability of the York Potash Project

§ Phased approach to development with three year initial construction period, targeting first production in early 2017

§ Estimated Phase 1 start-up capital cost of US$2.7 billion1 for mining and processing of 5mtpa of Polyhalite ore to produce 1.4mtpa of Sulphate of Potash ("SOP")

§ Phase 2 expansion to produce 4.1mtpa of SOP by 2024 or earlier

§ Robust cash FOB operating cost estimate of US$225/t1 of SOP and US$65/t1 of SOP after by-product credits

§ Low impact sustainable development potentially becoming one of North Yorkshire's largest employers

Sirius Minerals Plc (AIM: SXX, OTCQX: SRUXY), the globally diversified potash development group, is pleased to announce the completion of the Detailed Scoping Study (the "Study", "DSS") for the Company's 100% owned York Potash Project (the "Project", "York Potash").

Chris Fraser, Managing Director and CEO of Sirius commented:

"The completion of the York Potash Detailed Scoping Study is a significant achievement for Sirius and the results confirm the strength and quality of the Project. York Potash has the potential to be the largest low cost SOP mine in the world and towards the bottom of the global potash cost curve after accounting for the potential value of the by-products produced by the Project. 

The estimated US$2.7 billion Phase 1 capital that is required to become a significant global producer is competitive and we believe financeable. The successful completion of the Detailed Scoping Study allows us to quickly progress onto the feasibility studies which will further define and de-risk the Project in preparation for financing. Our next milestone for the Project is to deliver the maiden JORC resource statement at the end of May 2012."

Investor Presentation and Audio Webcast

This announcement should be read in conjunction with the Detailed Scoping Study Investor Presentation available at www.siriusminerals.com. There will be an audio webcast available on Monday 30 April 2012 at 15:30 (BST) on the Company's website and a replay of the webcast will be available from Tuesday 1 May 2012 at www.siriusminerals.com.

York Potash Detailed Scoping Study Objectives

The primary objective of the DSS was to evaluate the Project from a technical perspective to identify a sustainable development concept, estimate capital and operating costs, demonstrate the potential of the Project, define the risks and their mitigation and identify further opportunities for optimisation. The DSS was compiled by the Sirius and York Potash management teams and was designed to cover all the key aspects of the Project. Specific studies were undertaken by expert third party consultants in the areas of shaft design, mining, ore transportation, processing, energy efficiency, infrastructure, shipping and marketing.

DSS Key Findings

Potential to become one of the world's most important mining and fertilizer projects

§ Phased development up to 4.1mtpa of SOP by 2024 or earlier.

§ Phase 1 capital cost estimated to be US$2.7 billion1 to deliver 1.4mtpa of SOP.

§ Modular and flexible Phase 2 build out of capacity to 4.1mtpa of SOP estimated to be US$3.3 billion1 which could be internally funded from cashflows.

§ Estimated FOB cash operating cost of US$225/t1 of SOP (including the full costs of Epsomite and Gypsum production) delivers robust economics. After accounting for the assumed value of the by-products, the estimated FOB cash operating cost of US$65/t1 of SOP could place York Potash towards the bottom of the global potash cost curve.

§ These capital and operating cost metrics deliver significant positive free cashflow in 2018, the second year of production, and a current project after tax net present value of over US$6.0bn2.

§ Low impact, low cost, high capacity shaft development system to deliver production within three years of commencing construction.

§ Multiple large-scale, low-cost, bulk underground mining methods available.

§ Low cost and low impact transportation of crushed Polyhalite as a slurry technically viable.

§ Multiple processing routes available for Polyhalite. Selected route maximises SOP production and produces the two marketable by-products of Epsomite (Magnesium Sulphate) and Gypsum;

§ No infrastructure constraints to the Project have been identified.

§ Employment created at Phase 2 production would be in excess of 1,170 jobs, which would make the Project one of the largest employers in North Yorkshire.

§ Significant opportunities exist to optimise the Project further and will be investigated as part of the feasibility study work programmes.

SOP Market

Positive potash market dynamics underpin the DSS

The world's Potash requirements show no sign of slowing in the future. Potassium Chloride or Muriate of Potash ("MOP") consumption is expected to grow at 3.5% per annum from 58mt in 2012 to 65mt in 2016 and 75mt in 20203. SOP consumption is expected to grow at a faster rate from 7.5mt in 2012 to 9.3mt in 2016 and 10.3mt in 20204.

World-wide income and population growth is expected to drive higher consumption of speciality crops and an increasing demand for healthy fruit and vegetables. In addition, the decreasing supply of arable land places even greater pressure on farmers to increase crop yields. Parts of the world are suffering from years of under-application of potash and the over-use of nitrogen as a lower cost, but unsustainable substitute. Importantly, there is no commercial potassium substitute for potash.

MOP is widely used in all types of farming and is primarily used to increase crop yield and quality. However the chloride in MOP can be detrimental to some crop types, especially in many fruits and vegetables. Therefore the soil's chloride content has to be carefully managed as over-application of MOP can have a detrimental effect.

SOP, which does not contain chloride, can be used in every application that MOP can. However, it is preferred in many circumstances such as in arid, saline and heavily cultivated soils and for the growth of potatoes, beans, fruits, vegetables, nuts, tobacco and other crops. SOP currently attracts a premium to the MOP price due to limited availability, superior benefits over MOP and high production cost due to approximately 60% of supply coming from upgrading MOP to SOP using Sulphuric Acid in a Mannheim Kiln. 

Sirius's strategy will be to sell into the current SOP market but also to expand the market for SOP by targeting higher value crops and those with known SOP performance benefits.

DSS Assumptions

The key assumptions adopted for the DSS were:

§ Polyhalite deposit information based on historical data obtained by the Company and results of drilling at the Company's new holes, SM1, SM2 and SM3;

§ Conventional underground mining of Polyhalite to take place 1,400 - 1,600m below the surface in a location between Whitby and Scarborough in the United Kingdom;

§ Mine life in excess of 50 years;

§ Ore transportation via buried pipeline from the mine to a processing plant and port facilities in Teesside; and

§ All products, SOP, Epsomite (Magnesium Sulphate) and Gypsum sold directly to customers via road, train or ship from Teesside.

DSS Development Strategy

Phased Approach

York Potash is planned to be developed in a phased approach:

§ Phase 1 is planned to reach production of 5mtpa of Polyhalite ore producing 1.4mtpa of SOP by 2018; and

§ Phase 2 to increase the mining and processing capacity to match the installed shaft hoisting capacity of 15mpta of Polyhalite ore producing 4.1mtpa of SOP by 2024.

The phased approach has been undertaken to reduce external financing requirements and optimise market entry for all products. The Project will have an installed shaft hoisting capacity in excess of 15mtpa and an installed slurry pipeline transport capacity of 20mtpa upon completion of Phase 1. Faster development with greater initial production capacity is possible, however this would increase the external financing requirements.

Shaft Systems and Low Impact Mine Designs

Earlier production, less impact, cost effective

Sirius engaged Alan Auld Engineering ("AAE") to undertake a study of mine shaft and low impact mine head development concepts. 

Rather than sinking shafts from the surface, AAE have proposed a system using decline tunnels approximately 4kms in length, driven by high speed tunnel boring machines ("TBMs"), to access an intermediate sinking station at 500-750m below surface. From the immediate station, 6.5m internal diameter twin vertical shafts will be sunk to a depth of around 1,400 metres using two Herrenknecht Shaft Boring Roadheaders ("SBR"). This is the preferred design concept for sustainable rapid development of York Potash. This system has reduced impact on the surface because the decline tunnel access results in a simple portal entrance at the surface and avoids any need for major structures with significant elevation due to the mine head being below ground level. 

An alternative system has also been considered which would involve sinking a shaft head frame approximately 100m below the surface with TBM declines developed in parallel. This concept would have greater concentration of facilities at the mine head location, reduce shaft hoisting capacity, extend development time and increase cost.

The preferred development concept is expected to take approximately 3 years from commencement of construction to reach production. This is due to high advance rates (500-1000 metres per month) expected to be achieved by the high speed TBM's, and the use of the SBR rather than conventional blind shaft sinking from the surface. The SBR has been developed by Herrenknecht to quickly and safely sink deep vertical shafts and sinking rates of 4-6 metres per day are anticipated - which is significantly quicker than conventional shaft sinking.

This system is expected to deliver a total hoisting capacity in excess of 15mtpa which is achieved by using a dual winding system and four 30 tonne ore skips in the ore shaft and a single 30 tonne ore skip in the men and equipment shaft.

Mining Methods

Technically feasible bulk mining methods

Based on the positive exploration results to date for the Polyhalite deposit, a study by Ercosplan has confirmed the technical feasibility of four possible mining methods that could be used. Three are variants on room and pillar mining (drill and blast, continuous mining, and a combination of both) and the fourth being long-wall mining.

For the purposes of the DSS, the continuous mining method has been selected as it is expected to be the most efficient and productive of the four alternatives. In addition, the conservative assumption has been made that the continuous miners will operate with shuttle cars providing the haulage system rather than the more productive, but higher cost, continuous haulage systems that are available. The optimal mining method will be determined once further exploration and geotechnical test work has been completed.

Pipeline Transport

Low impact, low cost

The location of the underground mining will mostly be within the North York Moors National Park ("National Park"). In addition, it is most likely that the required mine surface infrastructure will also be within the National Park. To reduce the impact of the operation as much as possible, the mined ore will be transported subsurface in a pipeline from the mine to the preferred processing plant and port location in Teesside.

A study by Murphy Pipelines and OSL has confirmed the technical viability of a buried slurry pipeline system in which crushed ore mixed with water is pumped to the process plant. The hydraulic analysis has determined that one 600mm diameter pipeline would be sufficient to transport up to 20mtpa of ore in slurry form and a separate 600mm diameter pipeline will return the transport water back to the mine site, the two lines effectively forming a closed loop system.

Processing

Maximum SOP volume with minimal waste

Sirius engaged K-Utec to study processing options for Polyhalite. K-Utec, based in Sondershausen Germany, currently operate a fully equipped pilot plant facility and have previously carried out test-work on Polyhalite to design various processing options. K-Utec considered three possible process options each of which produce a different mix of products: SOP/Epsomite, SOP/Langbenite (or SOPM) and Schoenite. The SOP/Epsomite route has been selected as the base case for the DSS due to the increased volume of SOP produced and the valuable by-product potential.

Polyhalite is a hydrated sulphate of potassium, magnesium and calcium with the following chemical formula: K2SO4.MgSO4.2CaSO4.2H2O. The processing of the Polyhalite to produce SOP will involve four key steps once delivered to the processing facility in Teesside:

1. Calcination - thermal treatment of the ore at 450°C for 20 minutes in a multi-level calciner kiln to remove all water and to break down the mineralogical structure to render the key components soluble;

2. Water Leaching and Filtration - the calcined ore is mixed with water at 95°C to create a solution of mineral salts (SOP and Epsomite) and solid Gypsum;

3. Gypsum Washing - the filtered Gypsum is washed to remove any residual SOP and to produce marketable quality Gypsum for building material and industrial applications; and

4. Leach Liquor Evaporation and Crystallisation - leach liquor to be evaporated using a Mechanical Vapour Recompression system to produce the SOP and Epsomite products.

Processing 15mtpa (Phase 2) of 94% purity Polyhalite ore using the above process route is expected to produce 4.1mtpa of 50-53% K2O grade SOP and the important by-products of 5.6mtpa of Epsomite (Magnesium Sulphate) and 7.0mtpa of Gypsum. Phase 1 is expected to produce 1.4mtpa of SOP, 1.9mtpa of Epsomite and 2.3mtpa of Gypsum.

The key inputs to the processing route are electricity, gas and steam. Sirius engaged PX Group ("PX") to carry out an optimisation study that demonstrated significant benefits could be gained by using integrated co-generation gas turbines to:

§ generate all the electrical power required for the mine and processing plant;

§ produce heat for the thermal treatment of the ore; and

§ produce the steam required in the process.

The only waste expected to be produced from the end to end process is a relatively small amount of salt from the ore. This will most likely be evaporated and made available for sale or disposed of as a clean brine. To minimise the water requirement of the Project, condensers are planned to be used to capture and reclaim as much water as possible from the process for re-use.

The processing plant has been designed based on multiple 1mtpa ore processing modules, each with a 12 month construction schedule. Modules will be built to match the planned ramp-up of mine production. This modular design facilitates a flexible development model for the Project and enables both acceleration and deceleration of the ultimate development schedule of Phase 2 and beyond.

By- Products

Significant value creation opportunity

The by-product Epsomite is a highly soluble form of Magnesium Sulphate which can be sold as a product or potentially used as a raw material for the production of Magnesium Oxide or Magnesium Hydroxide. The current market for Magnesium Sulphate is relatively small, estimated to be approximately 1mtpa globally. However, the Magnesium Sulphate market is expected to grow as it is increasingly being used to correct magnesium soil deficiencies in such places as South East Asia and Brazil. The assumed price for the DSS of US$85/t for Epsomite sales was selected from a market price range of US$80-110/t5.

Preliminary analysis suggests that there is significant value potential in the downstream processing of the by-products. There is an opportunity to further process Epsomite to higher value magnesium products and to process Gypsum into wallboards and other building products. Sirius has already commissioned a pre-feasibility study into the direct thermal decomposition of Epsomite to form Magnesium Oxide (MgO), and Sulphuric Acid. Early work highlights the importance of the value of the Sulphuric Acid produced to offset costs of conversion. At 15mtpa of Polyhalite production, York Potash would produce 5.6mtpa of Epsomite which could be converted into 0.9mtpa of MgO. In 2011 the global demand for MgO was 9.6mtpa and is expected to grow to 14.8mtpa by 20205. MgO has a number of grades and uses with refractory grades being used as furnace linings in the steel and cement industries and chemical grades being used for agricultural purposes and hydrometallurgical processing. The price of MgO ranges from US$400-1,200 per tonne depending on the grade5.

Gypsum is removed during the leaching process and only needs to be washed and dried so it can be used as an ingredient in the production of plasterboard or building plaster. There is strong growth in demand for Gypsum and with the expected reduction in the number of Coal Fired Power stations (a significant source of Gypsum) a large low cost stable supply of mined Gypsum will be very important for the United Kingdom and Europe. The global Gypsum market for the wallboard industry was 99mt in 2009 and is forecast to grow by 8% per annum to 143mt in 2014 and a further 5% per annum to 183mt in 2020. The assumed price for the DSS of US$25/t for Gypsum sales was selected from a market price range of US$15-35 per tonne6.

At Phase 2 capacity, York Potash would be producing 7mpta of Gypsum, which at today's production levels would make it the world's largest gypsum mine. As a result York Potash has the potential to become a major supplier to the world's leading low cost plasterboard manufacturers.

Project Infrastructure, Utilities and Services

Teesside provides gas, water and port facilities

PX was commissioned to carry out a review of the port, water, gas and electricity infrastructure within the Project area of interest. The infrastructure study identified Teesside port as the most appropriate location for the processing and port facilities to be located. This study concluded:

§ Teesside's gas system is extensive and well served for higher gas pressures and as such, a connection should be readily available;

§ No identified constraints in water supplies and sewer services;

§ Electricity supplies at both the mine and Teesside are extensive and no capacity issues were identified; and

§ Substantial port infrastructure exists within the Teesside area with a number of potential wharves that may be suitable for the Project. Sirius will need to construct a specific ship loader capable of loading large vessels for export of bulk product.

Positive Sustainable Development

Sirius is committed to sustainable development

To obtain the approvals to undertake a development of this nature in the National Park, it is necessary for Sirius and York Potash to have the highest standards. As such, the Company has adopted the Principles of the Sustainable Development Framework from the International Council on Metals and Mining, these are available at www.icmm.com. In addition, the Company has the following broad objectives:

§ keep the local community, authorities and their representatives informed;

§ do things in the right way in the local community;

§ be transparent and open in the way we operate; and

§ conduct thorough public consultation before any planning application is submitted.

York Potash has the potential to be one of North Yorkshire's largest employers. At the end of Phase 1, York Potash will employ over 700 people with approximately 430 jobs being at the mine, and by the end of Phase 2 this will increase to a total of over 1,170 of which 700 will be at the mine. In addition to York Potash employees, thousands of jobs are expected to be created in supporting industries and a socio economic study is currently being prepared to provide more information on the positive economic impact from the project.

York Potash will recruit locally whenever possible. Work has already begun in collaboration with Scarborough Borough Council to develop a coherent and evolving education and skills programme. This will involve working with schools, colleges and universities as well as other training providers in the region to help develop the skills and experience that the Project will require.

Project Optimisation Opportunities

Potential to further enhance results of the project

The DSS has identified the following opportunities that could potentially further enhance the results of the Project. These will be further investigated as part of the feasibility studies.

§ Partial Off-shore Processing - the option to build a processing and distribution hub in the Middle East to service the Asian, African and Middle Eastern markets to obtain lower costs to market and take advantage of lower energy cost, without a significant impact on the UK supply or job creation.

§ Dry Pipeline Transportation - transportation of the dry ore to give the potential for greater operational flexibility particularly during the ramp-up of production and energy savings. The utilisation of dry transport also provides the opportunity for the transport and processing of other minerals including MOP and road salt at Teesside.

§ Continuous Haulage System - The mining method selected is continuous miners with shuttle cars. However there are considerable benefits to be gained from the use of continuous haulage systems.

§ By-Product Processing - there is a significant opportunity to participate in the downstream processing of Gypsum to produce wallboard products and processing of Epsomite to produce higher value magnesium based products.

§ Logistics Optimisation - There are a number of suitable docks and loading facilities in the Teesside area including facilities to handle large capesize vessels. This provides York Potash with the flexibility to optimise its logistics by employing appropriately sized vessels that best suit the shipping route and customers.

§ Additional Products - the opportunity exists to directly market Polyhalite as a direct application fertilizer product containing the important nutrients of potassium, magnesium, and sulphur. The mine will also have the ability to produce road salt for the UK and European markets.

Footnotes

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 recognised potash deposits. Today it holds properties in the United Kingdom (North Yorkshire), the United States (North Dakota), and Australia (Queensland and Western Australia).

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 www.siriusminerals.com.

Qualified Person

Graham Clarke, Operations Director for Sirius Minerals Plc, who has reviewed this update, has over 26 years' experience in the potash mining industry. He has a Degree in Mining Engineering from the University of Nottingham and extensive operational experience gained at Cleveland Potash Limited in the mining of the Boulby Potash seam and the exploration and development of the upper Fordon Polyhalite seam.

Forward Looking Statements

This DSS announcement contains certain "forward-looking statements". These statements, which sometimes use words such as "anticipate", "believe", "intend", "estimate", "expect" and words of similar meaning, reflect the Company's intention, beliefs and current expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statement. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

Forward-looking statements involve known and unknown risks, future events, conditions, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, prediction, projection, forecast, performance or achievements expressed or implied by the forward-looking statements. Such factors include, amongst others, the interpretation and actual results of the specific studies undertaken by expert consultants, changes in project parameters as plans continue to be refined, future costs estimates, possible variations in grade or recovery rates, failure of equipment or processes to operate as anticipated, the failure of contracted parties to perform, labour disputes and other risks of the mining industry, delays in obtaining governmental approvals or financing or in the completion of exploration, as well as those factors disclosed in the company's publicly filed documents.

Sirius does not undertake to update any forward-looking statements that are included herein, except in accordance with applicable securities regulations.

DSS Development Schedule

The DSS development schedule is set out in the table below:

Indicative Project Timetable

Key milestones are summarised in the table below:

Capital and Operating Cost Summary

The DSS has produced an initial estimate of capital and operating costs for the Project. These estimates are to an accuracy of +/- 35% and do not represent fully engineered designs and quotations. They are therefore indicative in nature.

FOB Operating Cost Estimate (+/- 35%)1)2)

Notes:

1) Total by-product credits represents sales of Gypsum and Epsomite on the ratio produced with SOP - US$43/t of SOP for Gypsum and US$117/t of SOP for Epsomite assuming sales prices of $25/t of Gypsum and $85/t of Epsomite.

2) Excluding royalties and sustaining capital expenditure.

Capital Cost Estimate (+/- 35%)

Notes:

1) SOP Equivalent includes value of by-products of US$160/t on an SOP equivalent basis (assuming a US$550/t flat real SOP price). Does not include any value for rock salt.

2) MOP Equivalent includes value of by-products of US$160/t and assuming a flat real MOP price of US$450/t. Does not include any value for rock salt.

York Potash Benchmarking

York Potash has leading capex and opex potential versus typical greenfields MOP mines.

Notes:

1) Source - CRU, market reports and company announcements

2) SOP Equivalent includes value of by-products of US$160/t on an SOP equivalent basis (assuming a US$550/t flat real SOP price). Does not include any value for rock salt.

3) MOP Equivalent includes value of by-products of US$160/t and assuming a flat real MOP price of US$450/t. Does not include any value for rock salt.

4) Phase 2 capacity of 15mtpa Polyhalite ore.

5) Excluding royalties and sustaining capital expenditure.

Indicative Financial Analysis

Key assumptions of the financial analysis are as follows:

§ Three products are sold at Teesside; SOP for US$550/t, Epsomite for US$85/t and Gypsum for US$25/t.

§ Net present values are after-tax real project cashflows (i.e. do not include cost of debt other than for tax).

§ Assumed debt finance of US$2.5bn for the purposes of calculation of the interest tax shield.

§ Discount rate of 8% real.

§ Maintenance capex is assumed as 3% of capex for processing and 2% for all other capex.

§ USD/€ 1.35, USD/£ 1.60.

The results of the DSS show the potential for robust financial outcomes.

Net Present Value (After-tax) Sensitivity Tables (US$m)1),3),4)

Detailed Scoping Study Cashflow Profile (US$m) 3)

Notes:

1) The sensitivity tables above provide an indication of the sensitivity of the Project's NPV to changes in the key assumptions used in the DSS.

2) Opex at full production is US$225/t of SOP before by-product credits, excluding royalties and maintenance capex.

3) Assumes long-term real SOP price US$550/t.

4) Net present values are calculated after-tax real project cashflows (i.e. do not include cost of debt other than for tax). Assumed debt finance of US$2.5 billion for the purposes of calculation of the interest tax shield. Discount rate of 8%. Real. Maintenance capex is 3% of capex for processing and balance based on depreciation assumptions.

5) Phase 2 includes development and maintenance capital.

Project Risks and Mitigation

Key Risks Identified and Delivery Strategies in Place

The following table summarises certain project risks identified and Sirius mitigation strategies to ensure risks are appropriately managed.