Excellent write up by a poster called End of Time from the iii board in the UK:
2009 has been without doubt the most significant in Sirius short history where it has laid the foundations by acquiring assets in both North America and Australia. The share capital increased via these acquisitions and there was consternation from some quarters regarding the effects of dilution. Quite simply without these acquisitions Sirius would have been languishing around the 1.5p mark, with no capital and no way of developing the business. Some would argue that perhaps the volume of acquisitions were unnecessary but as ever there is a bigger picture to consider and the ability to develop those assets is multi faceted both in terms of the resource and cavern storage. If a business wants to gain a strong market position then it needs to ensure that it acquires those assets which it feels gives it the stronger possible market position to realise that ambition. The only true dilution that Sirius undertook this year was the highly successful placing which ensured the business had the necessary capital to continue to operate of which there was some notable institutional uptake in the shape of Knighthead and Global Opps.
Clearly the market currently feels it is unable to value the assets acquired although there is sufficient historical data for both Queensland and North Dakota which demonstrates that in terms of the resource capacity they are in principle assets which can be developed and capable of being economically viable. However, having said that I feel that there are a number of key milestones which need to be met before the market will become convinced and in the current economic climate that is a reasonable stance for them to take.
2009 has also been a year when Sirius made two announcements which they admit went largely under the radar and I have to agree. I stated in the GM precisely that feeling and suggested that this was as much an inability of would be investors to understand the magnitude and gravity that these both hold. I suggested that Sirius looks to update their website with a detailed breakdown in laymans terms of what the purpose of these RNS's were, what they were looking to achieve, what the key objectives where and the significance of these partnerships in terms of the bigger picture. It was agreed by Sirius that this activity should be undertaken which is another example of the board listening to its shareholders and a mere PI.
Lets look at those two RNS's in a little detail. The EPRI initiative struck me as being highly significant for two principle reasons. Firstly the fact that they are looking to develop the end game solution at this stage suggests a degree in confidence that they can exploit the resource they have in North Dakota and secondly that they are looking to take the lead in terms of energy storage solutions in this region. The significance of this development is a cost-effective and reliable Bulk Energy Storage solution which will be a vital component of the electric grid of the future via the provision of high renewable energy market penetration and enhancement of the cost effectiveness of the grid operation.
Of the two RNS's under the microscope in this section the one that leapt out of the page was the Carbon Capture Research Initiative. The initial aim was via a JV with UniQuest Pty Limited, the contract research arm of The University of Queensland, to conduct formal research into the concept of using land-bound salt beds as a medium for sequestering CO2 as solid carbonates/bicarbonates underground. Assuming that the initial six month research period proves to be successful, Uniquest will then carry out further programmes to establish the optimum operating conditions and optimum process equipment to allow a preliminary design for a pilot plant to be created and initial economic analysis conducted. A proposed solution to render CO2 inert on a industrial scale is something that has far reaching consequences and could provide a solution which deals effectively with CO2 emissions rather than paying lip service which has largely been the case for the last 20 years. However we have to be realistic that Sirius are in the early stages of developing this proven solution but it shows a desire and willingness on behalf of Sirius to be at the forefront of this technology which could provide a highly lucrative revenue stream in its own right and would compliment their strategy with respect to energy storage.
If we look at the assets they have acquired in Australia and North America there has been a degree of speculation as to why they would have looked to adopt such an aggressive strategy to acquire these assets. When we consider the assets Sirius has acquired we need to consider the range of possible solutions and revenue streams that can be derived from these. It is all to easy to focus on potash extraction whilst neglecting the bigger picture. Some have argued that the EPRI and Carbon Capture initiatives are akin to putting the cart before the horse. How sometimes the cart is the horse because it can shape how you intend to develop the assets in terms of the resource in the ground. Furthermore given the timescales to bring these initiatives to fruition, investors need to keep in mind that in order for Sirius to maximise the potential of these assets they have to consider the chronology of events and when they need to start to develop solutions for the end-game of storage capability with respect to the timelines for extraction of the resource. It would clearly make little sense to extract the resource from the assets, only to be left with an uncomfortable long hiatus before being able to fully exploit the resultant caverns. In addition Sirius also need to ensure that they are at the forefront of the end game initiatives now so they ahead of their potential or realised competitors and not left behind in the starting stalls. Timing is critical in all these types of initiatives.
So what will the primary objectives be for Sirius in 2010?
Undoubtedly this will be the year when Sirius looks to develop those assets and it has been stated that in combination with the historical data, 3D seismics will be undertaken and drilling commencing to verify and prove the resource capacity. From discussions in the GM it seemed that Sirius did not see the need to establish a JORC compliant report or anything similar. I expressed the viewpoint that in order to develop the assets they would need to prove the resource both qualitatively and quantitatively. However given the size of these assets, clearly and it was confirmed by Sirius, they are not looking to develop the entire asset but will look to develop smaller sub-blocks presumably and initially based on the wealth of historical evidence available. This suggests to me and significantly so that they have prospective funding solutions under development to ensure that they are able to develop their assets in such a way so as to maximise the derived benefit with minimal impact to the shareholder. Clearly at the appropriate time, Sirius will release news to the market. Funding is undoubtedly a cause for concern amongst shareholders and it would be unwise of me to speculate on possible avenues going forward, but there are many options open to Sirius and potentially there are some innovative solutions available going forward. To suggest that the only course open to Sirius is to issue more shares to fund resource extraction misses the very essence of what Sirius is looking to achieve with the assets. They expressed in the past ways of exploiting their assets in a controlled and managed process via development of small sub blocks of their properties as mentioned earlier. JV's would immediately spring to mind but there are other possibilities which could prove to be beneficial to the parties concerned.
The assets in Australia combine resource potential, geographical significance, proximity of infrastructure and the ability to not only extract potash, develop cavern storage but as was stated in the GM and presentation, the two southerly tenement blocks in Adavale has higher salt content which potentially could be exploited by the rendering of CO2 inert via injection into the salt beds. Sirius suggested that they have sufficient capacity to handle 50-70 years of Australia's total CO2 emissions in these two tenement blocks. It is also worth remembering that the resource can potentially contain other aggregates which can be exploited in the market place. It is clear that Sirius is looking to maximise potential revenue streams across all its properties in Australia both in term of the resource in the ground and the prospective cavern storage capability. I will not be discussing these options in detail otherwise this post will become ridiculously long. However over recent months there have been several posters who have posted excellent pieces of research and background information so I would suggest anyone who is interested should look to those for additional reading. Sirius have also stated that they will be undertaking further seismic work to support the current historical data with a view to preliminary drilling being undertaken in 2010. Sirius gave the impression that they are not looking to prove the resource exists, but merely to verify with modern techniques that it has a measured resource capacity. That is a subtle yet significant statement.
If we turn to North America, we once again have a wealth of historical data to support Sirius case for economic resource extraction. They have stated that they are looking at trebling their acquisitions to 15000 acres. There will no requirement to dilute shareholders as they will take in the leases on the additional acreage and payment will be made to the landowners via future royalties via capital generation from resource extraction. Clearly Sirius are looking to lead the end-game solution via the EPRI initiative. However Sirius have also stated that they will be undertaking further seismic work to support the current historical data with a view to preliminary drilling being undertaken in 2010. I suggested at that the GM the potential for reduction in drilling could be realised in North Dakota based on the activities undertaken in the 50's and 60's when seismic data would have been insufficient to assess whether the resource was Oil which was what they were looking to exploit or otherwise. It would seem reasonable to suggest that until they hit the payload they would not have known that the resource was in fact potash. It is therefore a possibility that certain drill sites dating back to those times, may have been cased and subsequently capped and may negate some of the mining activity required as well as assisting in the ease of provision of measured resource estimates. Sirius did not comment on my statement in any respect but that is perfectly reasonable as it does have potentially price sensitive connotations and until they can make an official statement via an RNS you would not expect them to comment. Sirius did give the impression that they are not looking to prove the resource exists, but merely to verify with modern techniques that it has a measured resource capacity. That is a subtle yet significant statement.
When you couple together the development of their resources in both North America and Australia with the aforementioned carbon capture and EPRI initiatives as well as the expectation of additional personnel joining the company which was mentioned again in the GM, 2010 looks to be a very interesting period in Sirius's development of its potential and future prospects.
Sirius also made a bold pronouncement that they intended to challenge the current pricing structure and would look to undercut their competitors in terms of selling Potash to the market. This was mentioned in the evening presentation and demonstrates their desire to break into the marketplace.
On a broader note I raised the issue of the provision of quarterly trading updates which they agreed was a good idea, the utilisation of their website to provide shareholders with detailed information and the recognition of the need to update their wholly owned subsidiaries websites as the detail on these sites is out of date and needs to reflect the change in emphasis and direction now they are under the Sirius umbrella.
In summary Sirius have an exciting year ahead for shareholders in that they are looking to develop their assets, exploit and future proof technologies to ensure that they can fully utilise their assets in term of secondary revenue streams. It would be foolish to suggest that these hurdles ahead are a done deal. There is a significant body of work that has to be accomplished and the current share price adequately reflects that. However on a personal level I am happy to give the BofD the time and my support to achieve those objectives. For a small AIM cap company they have come along way in the last 12 months and sometimes it is all to easy to forget that. This is a long term investment and whilst it is all too easy to suggest that Sirius should just get on with drilling, as ever there is a bigger picture to consider and I would rather they got things right first time, rather than looking for subsequent opportunities by which time shareholder confidence has eroded as well as the capability to achieve the long term goals. Lets also not forget Sirius is capitalised currently and has no debt.
Sirius is not the appropriate investment for some and you need to take everything on board and decide whether the timescales fit your criteria for investment
