Sirius Minerals PLC share price surges 5% on supply agreement: is further growth ahead?

Does Sirius Minerals PLC (LON:SXX) (SXX.L) offer investment appeal after today’s news?

Sirius Minerals PLC
Sirius Minerals PLC

The Sirius Minerals PLC (LON:SXX) (SXX.L) share price has gained as much as 5% today after it released news of a major supply agreement.

It has signed a take-or-pay supply agreement with Cibra for the supply and resale of POLY4 into Brazil and certain other countries in South America.

Cibra is Brazil’s sixth-largest fertiliser distributor group. The deal is Sirius Minerals’ largest supply agreement, with it being for up to 2.5 Mtpa. The offtake agreement takes the company beyond its targeted 7 Mtpa, and suggests that it is making progress with its plans as it seeks to complete stage 2 financing.

The company has also agreed to take a 30% equity stake in Cibra in return for 95 million ordinary shares in Sirius Minerals. The supply arrangement takes the company’s aggregate peak contracted take-or-pay sales volume to 8.2 Mtpa.

In my view, the deal is a positive step forward for the business. In recent months it has been able to gradually increase its peak take-or-pay sales volume, with it now being ahead of previous targets. This could help to improve investor sentiment over the medium term, following its recent share price fall after the company reported that the cost of the project may be higher than previous expectations.

While I still think that the Sirius Minerals share price could be risky and highly volatile, I remain optimistic about its long-term investment potential. It seems to be moving ahead with its overall strategy, and continued progress in this regard could see it deliver on its long-term financial and operational goals.

Since the stock has an NPV of around 230p per share and what seems to be a strong long-term growth outlook, I feel that it could deliver capital growth over the coming years. Within what I view as an appealing FTSE 350 resources sector, it could perform relatively well.

About Robert Stephens 5431 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email or use one of the other contact methods available on the 'Contact Us' page