Annual Report 2013

For the year ended 31 March 2013 Welcome to the Sirius Minerals 2013 Annual Report

SIRIUS MINERALS PLC IS A POTASH DEVELOPMENT COMPANY LISTED ON THE LONDON STOCK EXCHANGE’S AIM MARKET.

SIRIUS MINERALS IS PRIMARILY FOCUSED ON THE DEVELOPMENT OF THE WORLD’S LARGEST AND HIGHEST GRADE POLYHALITE DEPOSIT IN THE UNITED KINGDOM, THE YORK POTASH PROJECT. POLYHALITE IS A UNIQUE MULTI-NUTRIENT AND MULTI-PRODUCT ORE WHICH WILL BE USED TO INCREASE BALANCED FERTILIZATION AROUND THE WORLD.

THE COMPANY IS ALSO COMMITTED TO DEVELOPING A PORTFOLIO OF PROJECTS AND CONTINUES TO REVIEW OPPORTUNITIES AROUND THE GLOBE THAT FIT THE COMPANY’S LONG TERM STRATEGY TO BECOME A LEADING GLOBAL POTASH PRODUCER.

This Annual Report contains forward looking statements. These forward looking statements are not guarantees of future performance. Rather they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results to differ from any future results or developments expressed or implied from the forward looking statements. Each forward looking statement speaks only as of the date of the particular statement.

Many thanks to Kane Cunningham for providing many of the images used in this report. CONTENTS: PAGE

OVERVIEW

Chairman’s statement 4 York Potash Project Rapid Progress 7 Chief Executive Officer’s statement 8 Industry overview 13

BUSINESS REVIEW

Operations report: The York Potash Project 21 Sustainable development 27 Principal risks and uncertainties 33

GOVERNANCE

Board of Directors 38 Corporate governance statement 41 Directors’ report 44 Statement of Directors’ responsibilities 46

FINANCIALS

Independent auditors’ report 48 Financial statements 50 Notes to the accounts 58

OTHER

Notice of Annual General Meeting 82 Glossary 85 Additional information 87 Directors and advisers 88 Company information 89

1 Sirius Minerals Plc > Annual Report 2013 > OVERVIEW > OUR VISION

2 our VISION to beCoMe a leaDing global potash proDuCer larGe scale: TARGET OF BECOMING A TOP FIVE POTASh PRODUCER low cosT: OPERATIONS hAVE ThE POTENTIAL TO BE AT ThE BOTTOM OF ThE COST CURVE FOR KEY MARKETS lonG life: ASSETS WITh A RESOURCE LIFE OF OVER 50 YEARS independenT and cusTomer aliGned: ENGAGE DIRECTLY WITh CUSTOMERS AND ALIGN ThE COMPANY WITh MAJOR CUSTOMERS

3 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > CHAIRMAN'S STATEMENT

CHAIRMAN’S STATEMENT

SIRIUS MINERALS REMAINS ONE OF THE MOST EXCITING RESOURCE DEVELOPMENT COMPANIES GLOBALLY. THE RAPID PROGRESS OF OUR FLAGSHIP PROJECT AT YORK POTASH, TOGETHER WITH THE MULTI-NUTRIENT QUALITIES OF POLYHALITE WILL HELP TO PLACE THE COMPANY AT THE HEART OF THE GLOBAL FERTILIZER INDUSTRY.

Dear Shareholders, uncertainty in the global potash industry. These statements related to an intention I am pleased to submit to you my to end its joint marketing arrangement second annual Chairman’s Statement with Belarus Potash Company and to for Sirius Minerals Plc after a year of increase its production levels from its Russell Scrimshaw signifi cant accomplishments for the operations towards capacity. Should Chairman Group. these statements be followed through with actions then it would be contrary Over the past year a large proportion to past behaviour by Uralkali where it of our effort has focused on preparing has managed production volumes to our submission for the onshore mining the benefi t of better pricing. Whilst it is It will be an exciting approval required for the York Potash too early to foresee the ultimate longer year ahead for the Project (the “Project”). A huge amount term effect on the industry of this single Group as we move of work has been undertaken to deliver producer’s actions, it is my view that our towards approval a vast array of technical studies and shareholders should remain confi dent of the onshore designs for our world leading proposals. that the York Potash Project will be at, Whilst the planning decision for the or near, the bottom end of the cost mining plan and mine was targeted for the middle of curve for potassium based materials. the infrastructure this calendar year which is outside Our polyhalite product is positioned elements of the of the fi nancial year for this report, it advantageously in the market compared York Potash Project would be wrong not to comment on to traditional potassium chloride, it is and ultimately this critical objective for the York Potash absolutely saleable and, critically, the construction. Project. Requesting a delay to the most expected returns on the Project, even recent targeted approval date was not at potentially reduced long-term prices, an easy decision to make and is very remain very attractive. frustrating for all, most especially our loyal shareholders and staff. However, It is true that for very large ground- it is absolutely right that the Company breaking projects of this nature the path properly, and in appropriate detail, to success is not always smooth – and address all outstanding concerns we have experienced several bumps in brought to our attention by the various the road in recent times. However, the interested parties. Our fi nal submission essence of the outcomes we are setting must and will be robust, and as out to achieve remain exactly the same; complete and professional as possible, a world-class, large scale, potassium in order to achieve the positive planning based fertilizer business that will deliver decision on the application. huge economic and social benefi ts for the UK, our global customers, Recently Uralkali, the world’s largest our employees, partners and, very potash producer, made certain importantly, our shareholders. statements that have created

4 This last year has also seen the world Pre-Feasibility Study for the phase 1 developing major resource projects, witness a heightened awareness of the development that focused on producing to lead these efforts. Gordon is now critical issue and strategic importance 5 million tonnes per annum (“mtpa”) well ensconced in North Yorkshire and, of food security, with a particular focus of granulated polyhalite. This followed besides his project development work, on the use of fertilizers to improve from positive market engagement is also leading our approvals work. agricultural productivity. This has with customers and a realisation of recently been highlighted within China the benefits of balanced fertilization to The achievements made by the with a specific forum held at the very address nutrient deficiencies in soils Company this year could not have important 2013 Boao Conference on around the world. been achieved without the dedication the subject of food security. Around a of our Managing Director and CEO, dozen world leaders were present at Our global crop study programme has Chris Fraser. Chris and his team have the conference including the recently made significant progress over the worked tirelessly to develop world-class elected Chinese President Xi Jinping. past year to commercially validate the designs and strategies for the Project. Both Chris Fraser and I were invited to benefits of polyhalite in addressing Following the announcement of the participate in key panel forums and it these deficiencies through multi-nutrient revised development strategy and the is a testimony to the credibility of the solutions. The Board’s decision to appointment of Gordon Cowe, I am Company in Asia that I participated revise the strategy has lowered risk and pleased to confirm that we now have in a ‘Future Food Security’ panel with enhanced value for the Company and all key management team members such eminent panellists as the Chinese created further flexibility to expand the in place to oversee the transition Agricultural Minister, the Deputy Prime product portfolio at a later date. from planning and development to Minister of Thailand and the CEO’s of construction and production. I would major global food companies such as The Group has also witnessed also like to thank members of the Board Pepsico and Mars. In addition, at the acceptance of our polyhalite product as of Directors for their diligence alongside People’s Congress in China earlier highlighted by the marketing agreement the management team in reaching this year, strong priority was given to signed with global fertilizer trader critical milestones over the past financial boosting agricultural productivity and KEYTRADE AG for up to 1.75mtpa year. yields to increase food production in the and the signing of initial framework Plan for National Economic and Social sales agreements in Europe and the The share price performance of Sirius Development. UK for around 310,000 tonnes per for the year ended 31 March 2013 annum (“tpa”) and a further 700,000tpa resulted in a high of over 46% relative Globally, the Food and Agriculture of framework sales agreements and to the start of the year. This reflected Organisation (“FAO”) released a report letters of intent in various countries. This the positive support for our evolution predicting that more than twice as provided a strong prelude to the signing in strategy and significant progress much meat, fruit and vegetables of the major offtake agreement in China made on the York Potash Project. will be required by 2050, compared for 1mtpa of polyhalite for ten years Unfortunately, the delay in a planning to today, to meet the demand of a from 2017. This offtake agreement, decision and more significantly the growing population. Earlier this year, signed in June 2013 with TCT from recent statements by Uralkali (noted prominent business figure Bill Gates Yunnan Province in China, is a major above) has seen the share price come noted that “innovations that are guided milestone for the Company and further under downward pressure. We are by smallholder farms, adapted to local demonstrates the demand for polyhalite continuing to advance the Project with circumstances, and sustainable for and the outstanding potential of the recent agreements with customers, the economy and environment will be York Potash Project. suppliers and financiers. It is no comfort necessary to ensure food security in the but the large majority of existing future”. These issues are at the heart of Since announcing the revised product potash producers and other potash the strategy in place for the Company strategy, the Company has made good developers have also seen a substantial moving forward with development of the progress in the feasibility studies which loss in market value. I have personally York Potash Project. will guide the construction of the York increased my shareholding in Sirius over Potash Project. We were pleased to the past year, reflecting the continued In late 2012, the Company announced announce the appointment of Gordon confidence I have in the Company and a simplified development approach for Cowe as Development Director, who the highly skilled management team. the York Potash Project publishing a has more than 25 years’ experience of

5 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > CHAIRMAN'S STATEMENT

The consolidated financial statements It will be an exciting year ahead for for the year ended 31 March 2013 have the Group as we move towards been prepared under the going concern approval of the onshore mining plan assumption however the Directors and the infrastructure elements recognise that there are a number of of the York Potash Project and material uncertainties inherent in the ultimately construction. The Board York Potash Project specifically the final and management team have already results of feasibility studies, obtaining demonstrated outstanding dedication appropriate planning permissions and to development of the Project that will securing long term project finance. need to be sustained as we continue The impact of these on the Directors’ to face challenges moving forward. consideration of the going concern Once we have worked through the assumption is set out in note 1 to these current set of challenges, we expect financial statements. to see a substantial increase in activity and employment in the local area that Although beyond the financial year, the will provide a much needed boost to securing of a £25 million convertible the regional economy. I continue to security financing in August 2013 strongly believe that the York Potash was an important step forward. This Project will provide a multi-generational, financing demonstrated confidence in environmentally friendly, economic and the ongoing development of the York social stimulus to North Yorkshire and Potash Project at a time when there was the UK as well as a sustainable positive increased volatility in the potash sector. contribution to the issue of global food The funds will enable the Company to security. continue the work needed to secure the required approvals, in addition to THANK YOU FOR YOUR INTEREST other development initiatives including AND SUPPORT. global crop trials which we expect will further demonstrate the unique value of polyhalite and further de-risk the Project.

More broadly I would like to thank all who have supported us through the ongoing planning approval RUSSELL SCRIMSHAW process including landowners, local Chairman councils, members of the community and government, industry experts, business people, and shareholders. The overwhelmingly positive response received towards the development of the York Potash Project has been very gratifying.

6 YORK POTASH Project RAPID PROGRESS

The york POtash Project has made rapid progress since being acquired by the company in 2011

Jul–13: Additional framework sales agreements and letters of intent in South East Asia Jul–13: and Latin America for 700,000tpa Completion of drilling programme Jun–13: Impressive preliminary crop study results Jun–13: Major polyhalite offtake contract for May–13: 1mpta for 10 years with Yunnan TCT Resource increase – 2.66bn and upgrade of 820m tonnes to May–13: Indicated category Initial UK and European framework Feb–13: sales agreements equating to 310,000tpa KEYTRADE AG marketing agreement Jan–13: Onshore mining application submitted Jan–13: Offshore mining license received Dec–12: Pre-Feasability Study published Nov–12: Public Resource increase – 2.2bn tonnes consultation results of polyhalite Sept–12: Mine location announced and 91% – Support Jun–12: extensive public consultation 8% - Undecided Maiden Resource Statement – 1% – Against 1.35bn tonnes of polyhalite Apr–12: Detailed Scoping Study published Jul–11: Drilling commences

Jan–11: Acquisition of York Potash

7 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > CHIEF EXECUTIVE OFFICER’S STATEMENT

CHIEF EXECUTIVE OFFICER’S STATEMENT

THIS YEAR HAS SEEN SIGNIFICANT PROGRESS AND ACHIEVEMENT OF KEY MILESTONES FOR OUR FLAGSHIP YORK POTASH PROJECT AS THE GROUP MOVES CLOSER TO BECOMING A LEADER IN THE FERTILIZER INDUSTRY

On behalf of the entire Sirius team, I am both employees and contractors. There pleased to provide the following update can be no compromise on safety and Chris Fraser on the progress of the Group over the our team is dedicated to achieving our Managing Director and CEO past year in refining and implementing target of Zero Harm as we move forward our strategic goal to become a future into this critical stage of development. leader in the fertilizer industry and, Luke Jarvis joined us in November 2012 in doing so, making a significant from Agrium and has taken on the role contribution towards the solution for the MILESTONES of International Sales General Manager. global issue of food security. Luke was Managing Director at Agrium Over the past 12 months, the for UK and Ireland for nearly five years. Group has successfully refined the Agrium is a global producer, marketer SAFETY development strategy for its flagship and distributor of crop nutrients and York Potash Project, confirming its a leading retail supplier of agricultural Two years ago the Group committed world-class potential through major products and services. Luke has to a safety goal of Zero Harm, accomplishments that demonstrate our specialised in the fertilizer business for representing the highest standard goal to deliver financing, construction almost 20 years having been involved under which a mining company should and production as quickly as possible. in the sales, marketing and distribution operate. This effort will only increase of various fertilizer products. Prior to as our operations increase in scale and joining Agrium, he was the UK and present a higher level of physical risk. PEOPLE Ireland Managing Director at Helm We have established a system to ensure Fertilizer for seven years, having worked appropriate training, monitoring and The past year has seen continued in commercial roles at Cleveland Potash corrective actions are taken to facilitate development of the management team Limited, the UK’s only operating potash us achieving our goal of Zero Harm. at Sirius with a simplified organisational mine, for eight years. As the Company progresses towards structure implemented alongside the its goals there will be a requirement for formation of an Executive Committee In February 2013 we announced more people in the safety team and we (“ExCo”) to enhance cross team the appointment of Gordon Cowe look forward to welcoming them at the coordination and communication. Within as Development Director following appropriate time. the ExCo, heads of each team report the confirmation of Engineering directly to me and meet at least weekly. Procurement Construction (“EPC”) / As we move towards the approval Moving forward as we continue to Engineering Procurement Construction and then construction phase for the rapidly develop the York Potash Project Management (“EPCM”) methodologies York Potash Project (the “Project”), this simplified structure will guarantee as the most likely approach to develop we continue to increase our team’s effective and efficient coordination the York Potash Project. Gordon will be awareness on the importance of between teams. responsible for leading the development safety through detailed planning and of the Project through approvals, implementation of specific policies for Definitive Feasibility Study (“DFS”),

8 construction and into production. Following announcement of the selected Gordon is one of the world’s leading mine location in September last year, THIS YEAR HAS BEEN EPC and EPCM contractor managers we undertook the drilling of two shaft ONE OF SIGNIFICANT and brings unparalleled skills in these pilot holes to gather detailed technical PROGRESS: project development methodologies. information for the construction of the Gordon has over 25 years of experience shafts. Results to date from these holes in managing business units and major have been very positive and support DRILLING results increased our projects in the resources industry selection of the mine site at the optimal polyhalite resource to 2.66 billion across the globe. location. metric tonnes and achieved the important Indicated Mineral We now employ over 50 people spread Resource upgrade to 820 million across our base in North Yorkshire, PRE-FEASIBILITY STUDY metric tonnes of 87.3% grade and offices in London and Sydney. polyhalite In addition to the five office-based As announced in November last year, apprentices already in place, we hope our engagement in the major fertilizer to take on another 20 engineering markets around the world has led us LOCATION of the mine announced apprentices in September 2014. Five to focus the initial development of the and extensive public consultation young people have already been signed York Potash Project on polyhalite, showed overwhelming support for on to the York Potash undergraduate a unique and sustainable potash the York Potash Project programme which is designed to result product containing potassium, sulphur, in a job upon graduation. We hope to magnesium and calcium. Industry-wide take on another five in September 2014. recognition and scientific support for KEY APPROVAL to mine offshore the value of balanced fertilization have received from the Marine highlighted the outstanding potential Management Organisation DRILLING PROGRAMME of polyhalite. Sirius is targeting multiple routes to market for polyhalite from the Over the last year we have successfully initial development as either a direct GLOBAL agronomic research completed our drilling programme which application multi-nutrient fertilizer or results validate that polyhalite is an further defined our polyhalite resource as a cost-effective blending agent effective and valuable fertilizer and resulted in an increase of nearly to create nitrogen, phosphorus 100% from 1.35 to 2.66 billion metric and potassium (“NPK”) fertilizers tonnes. The total resource of 2.66 billion containing all six macro-nutrients OFFTAKE signed for 1mtpa of metric tonnes of 85.7% grade polyhalite essential for balanced fertilization. polyhalite for ten years in addition is located within an area representing to over 1mtpa of framework sales just 7% of the York Potash Project area The simplified development approach, agreements and letters of intent of interest, highlighting the significant analysed in the Pre-Feasibility Study scale of our flagship asset. During the (“PFS”), delivered a significantly lower year we also upgraded 820 million capital cost to achieve first production ADDED a depth of experience, metric tonnes of 87.3% grade polyhalite and materially reduced our initial leadership and knowledge to our into the important Indicated Resource financing requirements. The revised management with the appointment category, which will provide the basis for strategy will enable us to maximise value of Gordon Cowe as Development a move to a reserve estimate. Defining for the Company and its shareholders Director an economic reserve is a critical by reducing capital costs to first milestone for completion of the DFS and production by approximately for financing of the Project. US$1 billion and lowering risk by simplifying the initial production

9 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > CHIEF EXECUTIVE OFFICER’S STATEMENT

process. In addition to the PFS, provide estimates to a level of accuracy In late January 2013 the Group we also published a NPK Concept of +/− 15% and will represent a critical submitted an application to the Study that confirmed the viability of document for the Project and not only in NYMNPA for an onshore mining license producing a variety of NPK fertilizers support of financing, but also to provide and was advised of an expected using polyhalite as the primary the basis for key construction elements determination date outside of the source of potassium (the “K”). as we transition to the next phase of financial year in May 2013. Following development. evaluation of the application and a The initial development of the Project comprehensive public consultation will focus on producing 5 million tonnes process the NYMNPA requested per annum (“mtpa”) of granulated APPROVALS AND additional information to assist in the polyhalite product. This approach will ENVIRONMENT approvals process. The determination deliver a simplified start-up to reduce date was subsequently moved to the external financing requirements and The Company has made significant 29 July 2013 and then subsequently moves the Project into positive cash progress over the past year towards deferred at the request of the Company flow as early as possible. The initial receiving the approvals required for to enable additional information to be estimate was engineered to a level of development of the York Potash Project provided and to clarify certain remaining accuracy of +/− 25% with key findings but has also suffered some delays and issues. as follows: setbacks. Whilst frustrating, it is important that a • Estimated capital cost to first In August 2012 we formally submitted decision to approve the onshore mining production of US$1.7 billion1; an application to the Marine is made correctly and there were some Management Organisation (“MMO”) for issues relating to European Habitats • Construction timetable of 3 years an offshore mining license, which was Regulations in particular that we needed to first production with ramp up to subsequently granted in January 2013. to address. Importantly, this deferral 5mtpa rate within 3 years; This represents an important license also allows the Group to address the that we will require in the long-term for remaining environmental issues that • Estimated Teesside FOB cash extraction of polyhalite beneath the have been raised by the NYMNPA, operating cost of US$37/tonne1; and seabed, which represents the largest its consultants and other external single landownership within the York stakeholders. The Company does • Positive free cash flow in the second Potash Project area. not believe there are any fundamental year of production. environmental issues that deliver In September 2012 we submitted the unacceptable impacts that cannot On completion of construction, the Environmental Impact Assessment either be addressed or mitigated, so is infrastructure in the Project will have (“EIA”) Screening and Scoping Request confident that its revised EIA will be both embedded capacity of 12–15mtpa. This to the North York Moors National legally robust and provide a high level of allows us to have lower cost expansion Park Planning Authority (“NYMNPA”, assurance over the likely impact of the options into increased polyhalite “National Park” or “the Authority”) to plans. production or product expansion into formally launch the planning process NPK and/or SOP production once the for onshore mining approval. Following The team has worked diligently to Project is generating positive cash flow. this submission, we undertook a address issues raised throughout comprehensive six week pre-application the process and whilst there have Work is already progressing on refining local consultation programme that previously been some differences in the PFS estimates in the DFS and we highlighted strong support for the opinion with the Authority as to the level will target completion of the estimates Project with over 90 per cent in favour of detail required, our re-submissions when greater clarity on the planning and less than one per cent against. will present a robust set of updated timeframe is available. The DFS will documents. Many of the issues

1. Figures exclude contingency, costs +/− 25% accuracy, operating costs exclude royalties and sustaining capital expenditure. previously raised relate to construction impact and as a result we have asked Gordon Cowe to lead the work to provide the additional information to the Authority. The Company’s discussions with the Authority will continue and a number of new or additional specialist consultants are being employed to assist with this process.

In addition to the offshore and onshore mining licenses, we must obtain three additional approvals covering the pipeline, the materials handling and port facilities at Teesside. For the pipeline, a draft application has been submitted to the Planning Inspectorate with a full application due to be submitted in late Signing of the Yunnan TCT Offtake Agreement 2013. For the port facilities, applications are currently being prepared in anticipation of EIA works with a targeted the UK, Brazil, Malaysia, China and the KEYTRADE AG is marketing our submission date in 2014. USA, and we are looking to implement polyhalite product in the key regions of studies in India and Africa. Central and South America (excluding Brazil), South East Asia, as well as AGRONOMY The results received to date are further specific countries in Europe and Africa. validation of the market-changing The agreement provides an outstanding In June 2013 we released a detailed potential of polyhalite as a unique multi- global platform to reach customers overview of the global crop study nutrient fertilizer. The wide ranging crop and countries with substantial programme that had been underway trial programme has been designed to growth potential and is a significant during the year to underpin the value deliver relevant and valuable information endorsement of polyhalite. of polyhalite as a fertilizer. Studies for the customers with whom we are in already underway have provided ongoing discussions. Separate to this we also announced in results which validate polyhalite to be May 2013 that the Group has entered an effective, valuable fertilizer that in into a number of framework sales certain circumstances outperformed SALES AND MARKETING agreements with fertilizer distributors the traditional potash product and manufacturers in the UK and potassium chloride (or “MOP”) on seed In February 2013 we signed a marketing Europe for supply of 310,000tpa of germination, early growth, yield and agreement with KEYTRADE AG, one polyhalite, including 60,000 within the quality. The positive seed germination of the world’s leading fertilizer trading, UK. In July 2013 further commitments and early growth results have distribution and marketing companies, for 300,000 tonnes (framework sales demonstrated the significant potential for up to 1.75mtpa of polyhalite agreements) were made with fertilizer for polyhalite as an excellent starter produced by the York Potash Project. distributors and manufacturers fertilizer. KEYTRADE AG is 50% owned by CF operating in various countries including Industries, a US based global leader in Mexico, Chile, Ecuador, Thailand and The global programme designed by fertilizer manufacturing and distribution. Indonesia. This was a result of much our consultant, the leading agronomist CF Industries is the second largest hard work during the financial year and Dr Fran Pierce, has been developed nitrogen fertilizer producer in the world is a further customer endorsement of to provide unbiased global agronomic and the third largest phosphate fertilizer polyhalite. It has demonstrated a clear research in cooperation with leading producer among public companies, and strong demand for our sustainable universities. Studies have included and has a market capitalization of over multi-nutrient form of potash. major crops of global importance such US$10 billion. As at June 2013, letters as corn, wheat, cotton, oil seeds, and of intent for 400,000 tonnes per annum In June 2013 we announced the signing fruit and vegetables such as potatoes, (“tpa”) have been signed between of a significant offtake contract with onions and peppers. The studies are various potential customers and Chinese based Yunnan TCT Yong-Zhe being undertaken in key markets to KEYTRADE, as a result of the marketing Company Limited (“TCT”) for the sale enhance the understanding of the agreement. A total of 300,000tpa of of 1mtpa of polyhalite for ten years performance of polyhalite-based this volume is targeted for sales in Latin from 2017. The initial price under fertilizers in local growing conditions. We America. the offtake contract is in line with currently have ongoing programmes in what we used in our base case NPV 11 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > CHIEF EXECUTIVE OFFICER’S STATEMENT

modelling, supporting the outstanding the goal of minimising dilution and I am very confident that the York Potash economics behind the Project. TCT is maximising value for shareholders. An Project will be approved and developed. one of the fastest growing domestic example of this is securing a £25 million The Project is too important to the agricultural product companies in convertible security financing in August local, regional and national economies. China, integrating production and 2013 to help continue the work needed More importantly it delivers perhaps distribution of agricultural products to secure the required approvals and the most important need for humanity along with import and export trade progress other development initiatives – food security through sustainable and agrochemical services. TCT was such as global crop trials. development. The support for the particularly attracted to the organic and Project is very strong throughout the multi-nutrient nature of our polyhalite The consolidated financial statements community and all levels of government, product and have agreements to supply for the year ended 31 March 2013 have from the local boroughs to senior both government and private entities been prepared under the going concern government ministries. within China. The offtake agreement assumption however the Directors is the latest endorsement of the global recognise that there are a number of I am confident that Sirius has the team demand for polyhalite and the role that material uncertainties inherent in the in place with all the necessary skills, balanced fertilization can play in the York Potash Project. Further details determination and energy required to largest fertilizer market in the world. are set out in note 1 to these financial achieve our goals for the coming year This agreement is a major milestone statements. in progressing the York Potash Project for the Group that will ultimately help into the next key phase of development. to give confidence in the financing for The loss for the Group for the year was I would like to thank the entire team and construction of the Project. £8,588,000 (2012: £60,104,000). The our shareholders for all the support and loss for the Company for the year was hard work to date, which has brought Discussions for further polyhalite supply £10,901,000 (2012: £50,552,000). us closer to the delivery of Sirius as the agreements in various forms remain FUTURE OF FERTILIZER. ongoing with a range of customers Due to the focus on the York Potash including major distributors and Project, no further work is planned in fertilizer blenders around the world. the near future in North Dakota and the Supported by the outstanding results Company has discontinued studies on of our ongoing crop study programme, the Adavale and Canning Basins due customers are seeing the significant to lack of prospectivity and the high agronomic value in our polyhalite carrying costs of the tenements. products and are encouraging us to CHRIS FRASER reach production as fast as possible. Managing Director and CEO INTO THE FUTURE

FINANCE Sirius has made significant progress over the past year. That progress is a Over the past year we have further reflection of the dedication and hard developed rigorous internal cost work put in by all members of the controls and procedures to ensure Group. Good progress has been made efficient use of capital as the Company that will ultimately enable us to move continues to grow with the progression forward in the year ahead into the next of the York Potash Project. Furthermore, phase of development of the York in October 2012 we appointed Potash Project. PricewaterhouseCoopers LLP as auditors for the Group. The year ahead will be dominated by the approval process for the York Potash The finance team, led by Jason Murray, Project. Although delays of several has made considerable progress on months are frustrating, we should not multiple pathways for financing the lose sight of the fact that we are building York Potash Project. A number of a business that could potentially last funding options for short and long-term for hundreds of years. Building strong requirements have been progressed foundations for such an undertaking throughout the year and the Group takes time and everyone is working as remains confident that it will be able hard as possible to do this right. to obtain capital as it is required with

12 inDustrY OVERVIEW the future of fertiliZer

BALANCED FERTILIZATION, PARTICULARLY OF ThE SIX MACRO- NUTRIENTS (NITROGEN, PhOSPhORUS, POTASSIUM, SULPhUR, MAGNESIUM AND CALCIUM), IS ESSENTIAL TO OBTAIN OPTIMAL CROP YIELDS. WITh MOST REGIONS EXPERIENCING ThE ChALLENGES OF MULTIPLE NUTRIENT DEFICIENCIES, BALANCED FERTILIZATION WILL hAVE TO BE AT ThE CENTRE OF AChIEVING SUSTAINABLE GROWTh TO FEED ThE WORLD.

IN ThIS RESPECT, POLYhALITE-BASED FERTILIZERS WILL BE A KEY COMPONENT OF ANY BALANCED NUTRIENT PROGRAMME ThAT AIMS TO MAXIMISE CROP YIELDS AND qUALITY IN A SUSTAINABLE WAY.

13 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > INDUSTRY OVERVIEW

INDUSTRY OVERVIEW

FOOD SECURITY CHALLENGE According to a 2012 study by the This food security challenge needs to be United Nation’s Food and Agriculture addressed and in the context of four key Achieving food security has become Organization (“FAO”), crop production daunting issues: one of the biggest challenges for will need to rise 60% by 2050 to the world and focus on this topic feed the world’s population, which is 1. Land scarcity - There is a growing has continued to increase. The expected to reach 9.1 billion people by gap between the demand for unprecedented high levels of basic 2050, from today’s 7 billion people. Next food and the amount of available food prices, even higher than during to a growing global population, soaring farmland. Less farmland per capita the 2008 food crisis, have brought food demand stems from the cumulative will be available as the world’s price volatility to the forefront of the effects of dietary changes from rising population increases, which implies international debate (see Chart 1). It incomes, and the growing use of that each unit of farmland will need to has been generally accepted that the biofuels. There is no sign that these feed more mouths (see Chart 2). extraordinary rise of global food prices food demand drivers are slowing down. since 2002 are posing a major threat Rather, they are expected to strengthen 2. Water scarcity – In many parts to global food and nutrition security over the coming decade and drive future of the world there is increased and may have a host of humanitarian, fertilizer demand to unprecedented competition for water for agriculture, socio-economic, environmental, levels. domestic consumption, and industry. developmental, political and security- In most major food producing areas, related consequences. human water use already exceeds

CHART 1 CHART 2

FAO FOOD AND CEREALS PRICE INDEX DECREASING ARABLE LAND 1960-2050

300 Food Price Index Cereals Price Index 0.5 10 Population growth Arable land/capita 0.45 9 250 0.4 8

on 0.35 7 Population (Billions)

200 rs 0.3 6

150 0.25 5

0.2 4 es in use per pe 100 0.15 3 Hectar

50 0.1 2

0.05 1

0 0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: FAO Source: FAO Statistic division

CHART 3

WATER DEMAND AND SUPPLY 2025 (CUBIC KILOMETRES)

5,707 km3 4,182 km3 USA

China p India -27% ga

1,525 km3 Other

Demand 2025 Supply 2025 Gap 2025

Source: FAO; ASTI; Sirius Minerals the rate of replenishment. By 2025 to waterways, which has the potential BALANCED FERTILIZATION TO the gap between water demand and to cause nutrient overloads and soil ACHIEVE SUSTAINABLE FOOD supply is forecasted to be 27% (see and water pollution. SECURITY Chart 3). 4. Nutrient deficient soils – 3. Climate change and the All major agricultural markets Crop nutrition environment – Global warming, are increasingly facing multiple increasing floods and droughts are nutrient soil deficiencies. One In order to grow, plants require a range forecast to result in a 6–16% yield of the main reasons for this is of non-substitutable nutrients. Mineral decrease by 20802. It will be of poor, unbalanced fertilization and fertilizers are a major source of these vital importance to increase food agricultural management practices. nutrients and therefore essential to food production in the face of climate Replenishment of these deficient security. There are 13 nutrient minerals change, particularly global warming. soils is essential if the world is to that are divided into two groups: macro- The main solution is to reduce achieve food security. and micro-nutrients. The six macro- emissions of greenhouse gases, nutrients are the most important to plant and with agriculture responsible for Achieving food security requires growth; they are consumed in large 25–30% of emissions, the sector has improved agricultural productivity while amounts. Table 1 outlines the specific a big responsibility3. An additional using less water, land, and energy. value of each of the six macro-nutrients: environmental challenge resulting Enhancing and accelerating productivity nitrogen (N), phosphorus (P), potassium from fertilizer use in agriculture is in a sustainable manner is a key (K), sulphur (S), magnesium (Mg), and leakage of nitrogen and phosphorus prerequisite. calcium (Ca).

TABLE 1

NUTRIENT VALUE FOR PLANT Nitrogen (N) • Promotes protein formation, growth and yield • Primarily responsible for vegetative growth. Nitrogen assimilation into amino acids is the building block for protein in the plant • Component of chlorophyll and is required for several enzyme reactions Phosphorus (P) • Phosphorus is a major component in plant DNA and RNA • Critical in root development, photosynthesis, drought resistance, crop maturity and seed production Potassium (K) • Improves take-up of nitrogen and phosphorus • Facilitates photosynthesis and building of protein • Increases resistance against disease, drought, frost and insects Sulphur (S) • Increases the efﬁciency of nitrogen and phosphorus • Involved in the development of protein and chlorophyll • Enhances plant root growth Magnesium (Mg) • Central atom of chlorophyll and thus essential for photosynthesis • Helps activate more plant enzymes than any other nutrient • Key for transport and storage of carbohydrates, proteins and fat Calcium (Ca) • Required for root growth and strength in the plant • Counteracts the effect of alkali salts and organic acids in a plant • Strengthens plant resistance

15 2. UNEP (United Nations Environmental Program) 2009, “The Environmental Food Crisis” (pg 46). The United Nations Environment Programme (UNEP) is an international institution (a programme, rather than an agency of the UN) that coordinates United Nations environmental activities. 3. WorldWatch Institute ( Reynolds & Nierenberg) 2012, “Innovations in Sustainable Agriculture” (pg 8). WorldWatch Institute is a globally focused environmental research institute based in Washington D.C. SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > INDUSTRY OVERVIEW

Balanced fertilization – POLYHALITE AT THE HEART OF • Essentially chloride-free: “law of the minimum” BALANCED FERTILIZATION Polyhalite’s maximum chloride content is less than 2%, minimising Every crop requires a complementary the potential for fertilizer “burn”. mix of nutrients. Nutrients are Polyhalite is a unique Chloride-free fertilizers are widely complementary to each other and fertilizer product used on chloride-sensitive crops like a deﬁciency in any single nutrient is most fruit and vegetables. enough to limit yield, just as the shortest Sirius aims to deliver balanced fertilizer stave will limit capacity of the barrel: solutions for sustainable food security. • Certiﬁed for organic use: the “law of the minimum”. Sustainable Polyhalite fertilizers help increase Polyhalite is registered for organic agriculture is best served with balanced agricultural productivity to produce the use in the UK and Europe, fertilization. This is widely recognised food required for the growing global underscoring the sustainable nature by major stakeholders in the agricultural population. Polyhalite is a unique natural of the mineral. sectors from governments to producers, and organic multi-nutrient mineral scientists and farmers alike. containing four macro-nutrients that • Does not change soil pH: are known to be important for crops Polyhalite is a neutral salt which has Balanced supply of nutrients will result and soils and an ideal foundation for no effect on soil pH regardless of the in less fertilizer required to achieve the balanced fertilization. The nutrient application rate. same yields as there will be a synergistic breakdown of polyhalite –

interplay between nutrients. This leads K2SO4.MgSO4.2CaSO4.2H2O – is shown • Sustainable: Polyhalite has a low to improved nutrient use efficiency in Chart 5 below. carbon footprint compared to the (“NUE”), which eventually translates into same tonnage of other fertilizer a significant increase in yield and farmer Polyhalite has unique and compelling products. This will significantly profits (see Chart 4). benefits over other potassium based reduce carbon emissions and fertilizer products, including: improve air quality. In addition, the enhanced NUE of both nitrogen and • Balanced nutrient provider that phosphorus implies less leaching enhances NUE: Polyhalite provides and therefore soil and water pollution a supply of K, S, Mg, and Ca that are of these two nutrients. all naturally consumed by the major global crops. Balanced fertilization • Diverse application uses: through polyhalite enhances NUE Polyhalite can be applied directly to and, subsequently, increases farmer the soil or seamlessly blended with yields and profits. nitrogen and phosphorus to create unique NPK blends that contain all six macro-nutrients.

CHART 4 CHART 5

NUTRIENT USE EFFICIENCY POLYHALITE NUTRIENT COMPOSITION (90% POLYHALITE PRODUCT GRADE)

EOR – Economically Optimal Rate Standard Fertilizer Balanced Fertilizer Potassium Sulphur

(14% K2O) (19% S) EOR EOR Yield Response Yield

More yield with less fertilizer Magnesium Calcium (6% MgO) (17% CaO)

Fertilizer Rate

Source: Heady et al, Iowa State University

16 Polyhalite fits with nutrient and achieve optimal crop performance. main insight from this analysis is that needs of the world’s major Theoretically, subject to soil conditions, polyhalite’s unique characteristics of crops the closer the match between low chloride content and the additional polyhalite’s nutrient make-up and crop supply of sulphur and magnesium can Each crop type has its specific natural nutrient uptake, the more effective provide superior value to crops than uptake of all the four nutrients that are polyhalite will be for that crop. Muriate of Potash (“MOP”). MOP is the part of polyhalite. Chart 6 matches biggest potassium fertilizer but contains polyhalite’s nutrient make-up with To further underline the importance of over 46% chloride and does not provide natural nutrient needs of the major polyhalite as the “Future of Fertilizer”, any other macro-nutrients. To validate crops in the world. The overarching global crops have been benchmarked these findings in practice, Sirius has conclusion is that all major crops need against three important criteria; chloride embarked on a global crop study the four macro-nutrients provided by sensitivity, sulphur and magnesium programme. polyhalite to meet their nutritional needs uptake fit (see Chart 7 overleaf). The

CHART 6

POLYHALITE COMPOSITION AND HIGH-VOLUME CROP NUTRITION REQUIREMENTS (IN %)

Nutrient Nutrient uptake per crop Supply 100% 100% % S

% K O 90% 90% 2 % CaO

80% 80% % MgO

70% 70%

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0% t t y s s s e e a o er es ns lm ne Polyhalite na ea Tea ples to Rice bee ea ca na r Maiz r Barle Wh Coffee Ap Onions Grapes n ow Ba Oil Pa Orange Cassav ga Tobacc Pota Cabbag Soyb Tomatoes Su Rapeseed Suga Su Cucumber Cottonseed Watermelon Sweet potatoe

Source: Sirius Minerals global estimated nutrient uptake database based on Roland Berger; FAO; IFA; various scientic studies

17 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > INDUSTRY OVERVIEW

LARGE MARKET FOR 1. Potassium market: Opportunity 3. Multi-nutrient market: Opportunity POLYHALITE for polyhalite to replace MOP and for polyhalite to capitalize on the SOP as a low-cost direct application surging need for balanced fertilization fertilizer in the 60mtpa product products. For instance, as a viable Polyhalite routes to market market (based on 2012 data). In alternative to balanced fertilizers particular, for the 20% of the global such as potassium-magnesium- Polyhalite offers a compelling value crops which are sensitive to chloride sulphate “SOP-M”. Polyhalite nutrient proposition both as a direct application fertilization and crops that require make-up shows close similarities to fertilizer and as a component of NPK significant amounts of S, Mg, and/ SOP-M which 2012 consumption fertilizers. Each application use has a or Ca in addition to K. The chloride was 1.2mtpa product (see Chart 9). specific set of benefits to the customer free markets of SOP and SOP-M and end-user (see Chart 8). represent an equivalent market of During the financial year, the average approximately 20mtpa of polyhalite. price for Trio (product produced by Intrepid Potash) was US$362/metric

Direct application 2. Sulphur market: With a sulphur tonne. This implies on a K2O adjusted fertilizer market content of 19% and the addition basis, a value of US$232/metric tonne of three other macro-nutrients, for polyhalite. Although the market for As a direct application fertilizer, polyhalite is a viable product to these products is relatively small and polyhalite is a viable value proposition in capitalize on the fast-growing sulphur is supply constrained, the nutrient different product markets: fertilizer market which is forecasted similarities provide a very relevant value to be 12.5mtpa by 2015 (or 66mtpa and agronomic benchmark for polyhalite of polyhalite equivalent). in the market.

CHART 7

COMPARISON OF POLYHALITE AND MOP FIT WITH CROPS

High High response POLYHALITE FIT Tobacco to Mg fertilization Watermelons

Medium response to Mg fertilization Sweet Potatoes Oranges Vegetables Onions Potatoes

Soybeans Low response Rice Sun ower Grapes Sugarcane Apples Rapeseed to Mg fertilization Barley Coffee Size = Global

Corn crop production in million tonnes Cassava Bananas Cabbage Cottonseed Cucumbers Wheat Tomatoes Oil palm

Sugar beet

MOP FIT

Chloride sensitivity Low Low High

Sulphur uptake ﬁt

18 Source: Sirius Minerals global estimated nutrient uptake database based on Roland Berger; FAO; IFA; various scientic studies CHART 8

VALUE PROPOSITION

Granulated polyhalite

Direct application NPK blend component

• Unique balanced fertilizer product that • Comprehensive NPK blends that Value supplies four essential macro-nutrients provide all six essential nutrients in Proposition in one granule one value-packed fertilizer product

• Viable proposition to the existing • Viable proposition in the global NPK Target markets of potash, sulphur and compounds market with annual market straight multi-nutrient fertilizers consumption of 100+mtpa

• Seamless t with key farmer needs • Easily blendable with N and P Key customer and agricultural market growth trends • Unique product that aligns with benets • Multiple routes to market increased farmer needs for S, Mg &Ca • Excellent margin potential • Excellent margin potential

• Comprehensive nutrient supply that is • Complete macro-nutrient supply rapidly Key farmer effective during entire crop growth cycle available for uptake by plants benets • Enhances land and water usage • Enhances land and water usage • Increases yields and prot potential • Optimizes yields and prot potential

CHART 9

POLYHALITE NUTRIENT MAKE-UP COMPARED TO TWO SOP-M FERTILIZERS

62% 63% 56% 18% 18% CaO 17%

MgO 6% 22% 23%

S 19%

22% 22% K2O 14%

Polyhalite Trio K-Mag

Source: CRU; The Mosaic Company; Intrepid potash; Sirius Minerals

19 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > OVERVIEW > INDUSTRY OVERVIEW

NPK blend fertilizer market KEY GEOGRAPHIC MARKETS

Polyhalite can be easily blended with It is widely-acknowledged that nitrogen and phosphorus to create balanced fertilization should be a key unique, complete fertilizer products that part of any agricultural strategy aimed contains all the six macro-nutrients. at addressing increasingly nutrient Polyhalite as a full or part substitute for deficient soils. Global analysis of areas MOP as the K-source in NPK blends deficient in K, S, Mg, and Ca combined offers three key benefits: with the intensity of agricultural activity in those areas, shows that all major • Lower chloride content than agricultural markets in the world have traditional NPK blends multiple nutrient deficiencies (see Chart 10). Balanced fertilization with products • Higher nutrient content than MOP- like polyhalite has become necessity. based NPK blends

• More diverse, complete nutrient make-up than MOP-based NPK blends

The NPK market is a key potential route- to-market for Sirius. The 2011 global NPK market is estimated to be 104mtpa product and is forecasted to grow to 124mtpa by 2017, a 3% CAGR4.

CHART 10

KEY MARKETS

4. FAO, Deutsche Bank and Roland Berger 20 5. Potassium Status and Crop Response to Potassium on the Soils Agroecological Regions of India, IPI 2011, Motsara, 2002 & Tewaita, 2006, TSI, Potassium Sulphates & Potassium Nitrate Market Outlook, 2012, CRU, Fertilizer Sulphur and Food Production Kanwar & Mudahar, Indian MoA 6. Potassium Sulphates & Potassium Nitrate Market Outlook, 2012, CRU, The Sulphur Institute, RISM Sulphur Corporation. Ming Xian Fan & D L Messick USDA 7. Fertilizer Use in Brazil 2003, FAO, Potassium Sulphates & Potassium Nitrate Market Outlook, 2012, CRU, – USTIC (United States International Trade Commission) - Brazilian Agriculture Outlook April 2012 OPERATIONS REPORT

HIGHLIGHTS FROM THE YORK POTASH PROJECT

EXPLORATION DRILLING PROGRAMME COMPLETED

THE LARGEST AND HIGHEST GRADE POLYHALITE DEPOSIT IN THE WORLD

MINERAL RIGHTS SECURED OVER 95% OF THE PROJECT AREA

ONE OF THE FOUR KEY PERMITTING APPROVALS RECEIVED

PRE-FEASIBILITY STUDY COMPLETED

OFFTAKE CONTRACT FOR THE SALE OF 1MTPA OF POLYHALITE FOR 10 YEARS WITH YUNNAN TCT YONG-ZHE COMPANY LIMITED

FRAMEWORK SALES AGREEMENTS AND LETTERS OF INTENT FOR OVER 1MTPA OF POLYHALITE

GLOBAL CROP STUDY PROGRAMME UNDERWAY

21 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > OPERATIONS REPORT

THE YORK POTASH PROJECT

OVERVIEW CHART 11

YORK POTASH PROJECT LOCATION In January 2011 Sirius acquired York Potash Limited (“YPL”), a private company registered in England and Wales with a signiﬁcant onshore and offshore mineral rights position relating to all evaporites including potash (sylvite), polyhalite, rock salt and intermingled minerals. Since the acquisition of YPL, Sirius has focused primarily on exploration and evaluation of the York Potash Project (the “Project”). The Project is based in North Yorkshire, within the United Kingdom, and is the Company’s ﬂagship development asset.

The Project area of interest (“AOI”) Mine site and SM11/SM14 borehole location 2 comprises approximately 799km Historical boreholes not drilled through polyhalite (274km 2 onshore and 525km2 offshore) Historical boreholes drilled through polyhalite General area of interest within North Yorkshire, between Completed York Potash hole Planning Approved /Underway Scarborough and Whitby, extending Postponed approximately 16.5km inland west from the coast and up to 14km offshore.

The region is home to the Boulby potash mine operated by Cleveland initially focus on producing granulated to reduce the external financing Potash Limited (owned by Israel polyhalite rather than SOP as outlined requirements and move the Project into Chemicals Limited) which has been in the Detailed Scoping Study (“DSS”) positive cash flow as early as possible. producing potash since 1973 and was in April 2012. In December 2012, The PFS for the initial development was known to host deposits of both sylvite under the new polyhalite development an estimate to a level of accuracy of +/− and polyhalite. strategy, the Company announced 25% with key findings as follows: the key findings of its Pre-feasibility The immediate focus of the Project is Study (“PFS”) which highlighted that • Estimated capital cost to first to develop and extract the polyhalite the Project has the potential to be one production of US$1.7 billion8; resource, a multi-nutrient mineral of the largest low cost multi-nutrient containing four of the six macro- producers globally. • Construction timetable of 3 years to nutrients required for plant growth first production with ramp up to full (potassium, sulphur, magnesium and This revised strategy enables Sirius to production within 5 years; calcium). The initial development for maximize value for the Company and its the Project will target multiple routes shareholders by reducing capital costs • Estimated Teesside FOB operating to market through the production to first production by approximately cost of US$37/tonne8; and of large-scale polyhalite as a direct US$1 billion and lower risk by application fertilizer and as a main simplifying the production process. In • Positive free cash flow in the second source of potassium for the production addition to the PFS, York Potash also year of production. of nitrogen, phosphorus and potassium published a NPK Concept Study that fertilizers (“NPK”). confirmed the viability of producing NPK Work is already progressing on refining fertilizers using polyhalite as the primary the PFS estimates in the Definitive source of potassium (the “K”). Feasibility Study (“DFS”) and we will DEVELOPMENT PROGRESS target completion of the estimates The initial development of the Project when greater clarity on the approvals Over the past 12 months, the will focus on producing 5mtpa of timeframe is available. The DFS will Company has successfully refined the polyhalite product. This approach will provide estimates to a level of accuracy development strategy for the Project to deliver a simplified start-up project of +/− 15% and will represent a critical

22 8. Figures exclude contingency, costs +/− 25% accuracy, operating costs exclude royalties and sustaining capital expenditure. document for the Project and not only in methodologies as the most likely The upgrading of a substantial part support of financing, but also to provide approach. Gordon will be responsible of the Resource to the Indicated the basis for key construction elements for leading the development of the category is based on the updating as the Project transitions to the next Project through DFS to construction and of the geological model following the phase of development. into production. successful completion of SM11 which helped to demonstrate the extent, The proposed location for mine access The York Potash Project represents quality and importantly the continuity and related surface infrastructure a large-scale, nationally significant of the polyhalite mineralisation over was selected in September 2012 development and is a unique mineable distances. Defining an approximately four kilometres south of opportunity to transform the local economic reserve is a critical milestone the outskirts of Whitby on the B1416. and national economy through multi- for completion of the DFS and for The site’s current use comprises generational employment and wealth financing of the Project. farming and commercial forestry creation for both residents and the and already benefits from extensive government. This opportunity comes woodland screening and good access at a time of stagnant economic growth MINERAL RIGHTS to the main A171 road. The selection throughout the UK and particularly in of the site has allowed Sirius to further the North East. Minerals in the UK, other than minimise the visual impact of the mine, hydrocarbons and gold (which belong as part of a long standing commitment to the government), are generally owned to the local community and investors. RESOURCE UPGRADES by the freehold owner of the surface Ongoing engineering design work has land unless a previous owner excluded resulted in the Company replacing the In May 2013, the JORC compliant them from a sale of the land. twin drift tunnel design considered Mineral Resource was upgraded to in the DSS, with more traditional twin 2.66 billion tonnes at an average grade In order to extract the minerals, Sirius vertical shafts sunk from surface. This of 85.7% polyhalite within an area has had to gain the agreement of the resulted in greatly reduced volumes representing 7% of the York Potash mineral rights owner for extraction of of excavated material during mine Area of Interest. This is an increase of potash and other evaporate minerals. construction and further reduced the nearly 100% from the maiden resource The offshore mineral rights over an area surface area footprint. estimate of 1.35 billion tonnes of 88.7% of 525km2 are owned by The Crown grade polyhalite in June 2012. The Estate with whom Sirius has agreed an The appointment of Gordon Cowe updated York Potash Mineral Resource option to lease. An onshore agreement as Development Director in February includes an Indicated Mineral Resource has now been reached with the majority this year follows the confirmation of of 820 million tonnes of polyhalite at an of large owners and small local owners Engineering Procurement Construction average grade of 87.3%. for at least 70 years. Management (“EPCM”) / Engineering Procurement Construction (“EPC”)

TABLE 2

YORK POTASH PROJECT ECONOMICS

TYPICAL SASKATCHEWAN YORK POTASH INITIAL DEVELOPMENT GREENFIELDS MINE POLYHALITE 9 10 MOP (KCl) (K2SO4•MGSO4•2CASO4•2H2O) TONNES OF POTASH 2mtpa MOP 5mtpa polyhalite PRODUCTS CAPEX PER TONNE ~US$2,100/t MOP US$389/t polyhalite OF CAPACITY YEARS TO PRODUCTION 2–6 years ~ 3 years

FOB OPEX/TONNE US$155/t MOP US$37/t polyhalite

ANNUAL EBITDA

LOW PRICE US$290 million @ US$300/t US$316 million @ US$100/t

MID PRICE US$490 million @ US$400/t US$691 million @ US$175/t

HIGH PRICE US$690 million @ US$500/t US$1,066 million @ US$250/t 23 9. Capex (Saskatchewan Greeneld) sourced from PCS presentation 15 May 2012. Opex based on K+S Legacy estimate of US$155/t FOB cost. 10. Capex for 5mtpa for granulated polyhalite and opex +/− 25%. SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > OPERATIONS REPORT

TABLE 3

INFERRED MINERAL RESOURCE

SEAM CATEGORY MEAN TONNAGE AVERAGE EQV. 100% THICKNESS (mt) POLYHALITE POLYHALITE (m) GRADE CONTENT (%) (mt)

SHELF Indicated 12.8 820 87.3 710

SHELF Inferred 12.8 840 85.7 720

BASIN Inferred 14.8 1,000 84.7 850

TOTAL 2,660 85.7 2,280

With mineral rights secured for over 95% Onshore underground Onshore buried pipeline of the AOI of 799km2, the Company has extraction all the required agreements in place for A Development Consent Order under a viable and long term operation. The onshore underground extraction the Planning Act 2008 is required from and mine head location will be in the National Infrastructure Directorate The North York Moors National Park (“NID”) of the Planning Inspectorate APPROVALS and therefore the North York Moors (“PINS”). As part of the formal pre- National Park Authority (“NYMNPA” or application process for the development The key planning consents the “the Authority”) will be the determining consent order for the pipeline, drafts Company needs to obtain in order authority. The proposal must meet of relevant reports and supporting to undertake the development of the requirements of the National Planning statements were provided in March Project are summarised as follows. Policy Framework (“NPPF”), including 2013 to PINS. This is a standard satisfaction of the “Major Development process ahead of a full submission to Test” which assess whether there are ensure that the procedural requirements Offshore mineral extraction exceptional circumstances and if the are understood by the applicants. PINS development is in the public interest. has already reviewed the documentation The Marine Management Organisation In late January 2013, the Company and provided feedback to the Company. (“MMO”) is the determining authority submitted the application documents Discussions with owners on the for a Marine Licence for offshore for the onshore mining and mine selected pipeline route are nearing mineral extraction. In August 2012 the access infrastructure to the NYMNPA. completion. Company submitted the application for In April 2013, the Company submitted a Marine Licence for the extraction of additional information requested The decision making process under potash minerals beneath the seabed by the NYMNPA in support of the the NID route allows for a six month within its 525 km2 offshore project area. application. The determination date was period of consideration by the NID after In January 2013, the Company was subsequently moved to 29 July 2013 a 28 day acceptance period. Once the granted the offshore licence, subject to and then subsequently deferred at the NID has made a recommendation, the appropriate conditions. The extraction request of the Company. This deferral Secretary of State has three months in of these minerals pursuant to this was granted to enable the Company which to make the ﬁnal decision. This licence represents the ﬁrst of the four to provide additional information to time period applies to all projects that key approvals required for the Project, address a number of outstanding come under the jurisdiction of the NID. but is conditional on approval being issues. obtained for the onshore mining and surface infrastructure.

24 CHART 12

YORK POTASH PROJECT DESIGN

1 4 5

2 3

1500m Slurry receiving Dryers Granulation Stockpiles Product and dewatering Dryers and Baghouse Stockpiles Storage 1.2m

Pipelines To Port

KCI SEAMS 600-700mm

6 POLYHALITE SHELF

POLYHALITE BASIN

1 MINE SITE 3 SLURRY PIPELINES: 44.5km 5 PORT INFRASTRUCTURE Agricultural Style Buildings 2 × 600–700mm pipelines buried 1.2m (20 MTPA Capacity) Exported in up to 150,000DWT vessels 2 PIPELINE LOADING AREA 4 TEESSIDE PORT PROCESSING 6 MINING Crushed & Milled to 0.2mm Slurry dried and granulated to 2–4mm Conventional underground room and pillar mining

Materials handling facility and GLOBAL CROP STUDY crops produced in the important port infrastructure PROGRAMME agricultural production regions of China, the United States and Europe Planning permission will be required Sirius has a strong commitment to where polyhalite fertilizers will be of from NID at PINS for the port research that will endorse the scientiﬁ c critical importance to food and nutrition infrastructure. An application is currently basis for its polyhalite fertilizers and their security. Expansion of this research being prepared, including relevant application recommendations. Sirius is network to additional growing regions in environmental information. A decision partnering with an international team the world is part of the long term vision. is then expected within 15 months of of scientists and also has in place an Chart 13 overleaf overviews the current submission of the application. Teesside extensive commercial and university- crop study programme. site negotiations to complement and based research programme, with a goal facilitate operations are also nearing to generate data on crop response to The programme has been developed completion. The materials handling polyhalite and various polyhalite-based to provide unbiased global agronomic facility at the port of Teesside is likely NPK blends. research in cooperation with leading to require the approval of a planning universities. Studies have included application to Redcar and Cleveland Efforts are focusing on ﬁ eld crop studies major crops of global importance such Borough Council. for numerous crops in a range of as corn, wheat, cotton, oil seeds, and growing regions in the target countries. fruit and vegetables such as potatoes, Initially the focus will be on the major onions and peppers. The studies are 25 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > OPERATIONS REPORT

being undertaken in key markets to • That polyhalite has a positive effect specific countries in Europe and Africa. enhance the understanding of the on overall performance of both staple The agreement with KEYTRADE AG performance of polyhalite based crops and high value crops; provides an outstanding global platform fertilizers in local growing conditions, to reach customers and countries with including the United Kingdom, the • That polyhalite has promising yield substantial growth potential, and is a United States and China. increase potential both on high and significant endorsement of the potential low fertility soils; and market for polyhalite. As at June, In June 2013, the Company released letters of intent for 400,000 tonnes a detailed overview of the global crop • The value of balanced multi-nutrient per annum (“tpa”) have been signed study programme being carried out fertilization. between the customers and KEYTRADE to underpin the value of polyhalite as as contemplated by the marketing a fertilizer. Studies to date validate The results received to date are further agreement. A total of 300,000tpa of polyhalite to be an effective, valuable validation of the market-changing this volume is targeted for sales in Latin fertilizer that in certain circumstances potential of polyhalite as a unique multi- America. outperforms the traditional potash nutrient fertilizer. The wide ranging crop product potassium chloride (or “MOP”) trial programme has been designed to Separate to the KEYTRADE AG on both yield and quality. In addition, deliver relevant and valuable information agreement, the Company has also positive seed germination and early for the customers that Sirius is in entered into a number of framework growth results have demonstrated the ongoing discussions with. sales agreements with fertilizer significant potential for polyhalite as an distributors and manufacturers in the excellent starter fertilizer. UK, Europe and South America for MARKETING supply of 710,000 tpa of polyhalite, Initial greenhouse and field study results including 60,000 targeted for within the unanimously confirm the unique value of In February 2013, the Company signed UK. polyhalite. Overall findings demonstrate: a marketing agreement with KEYTRADE AG, one of the world’s leading fertilizer In June 2013, the Company announced • The excellent potential of polyhalite trading, distribution and marketing the signing of our maiden offtake as an effective fertilizer on both a companies, for up to 1.75mtpa of contract with Chinese based Yunnan direct application and NPK blend polyhalite. KEYTRADE AG is marketing TCT Yong-Zhe Company Limited basis; our polyhalite product in the key regions (“TCT”) for the sale of 1mtpa of of Central and South America (excluding polyhalite for 10 years from 2017. TCT Brazil), South East Asia, as well as is one of the fastest growing domestic agricultural products companies in China, integrating production and distribution of agricultural products CHART 13 along with import and export trade and agrochemical services. TCT will target SIRIUS MINERALS CURRENT CROP STUDY PROGRAMME supply of polyhalite to both government and private entities in important agricultural provinces of Yunnan, UNIVERSITY STUDY TYPE CROPS IN SCOPE Sichuan and Guizhou in China.

Greenhouse and eld • Soybean • Potatoes Discussions for further polyhalite • Sorghum-wheat supply agreements in various forms Texas A&M • Peppers University • Onions remain ongoing with a range of customers including major distributors Greenhouse • Wheat and fertilizer blenders around the • Cotton • Oilseed rape world. The results we have achieved Durham • Soybean University so far in sales and offtake agreement • Potatoes with customers endorses the global Greenhouse and eld • Sugarcane demand for polyhalite and the role that • Soybean balanced fertilization can play globally. • Corn University of Supported by the outstanding results Florida of our ongoing crop study programme,

Greenhouse and eld • Corn customers are seeing the signiﬁcant • Peanuts agronomic value in our polyhalite • Tomatoes products and are encouraging us to Shandong Agricultural • Watermelons University • Apples reach production as fast as possible.

Field • Oil palm 26 Advanced Agriecological Research SUSTAINABLE DEVELOPMENT

THE COMPANY HAS SET A NEW BENCHMARK FOR SUSTAINABLE DESIGN IN A SENSITIVE ENVIRONMENT AND WILL CONTINUE TO DEMONSTRATE A COMMITMENT TO THE PRINCIPLES OF SUSTAINABLE DEVELOPMENT BY:

COMMUNICATING EFFECTIVELY WITH THE LOCAL COMMUNITY, PROVIDING CLEAR INFORMATION ON FUTURE PLANS AND RESPONDING PROMPTLY TO QUESTIONS AND CONCERNS

MINIMISING THE PROJECT’S IMPACT ON THE ENVIRONMENT AND CONTRIBUTING TO IMPROVEMENTS WHEREVER POSSIBLE

MAXIMISING THE ECONOMIC AND SOCIAL BENEFITS TO COMMUNITIES BY EMPLOYING LOCAL PEOPLE, USING LOCAL SUPPLIERS AND IMPROVING COMMUNITY FACILITIES

OPERATING IN A MANNER THAT ENSURES THE SAFETY OF STAFF, CONTRACTORS AND THE WIDER COMMUNITY

27 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > SUSTAINABLE DEVELOPMENT

OVERVIEW

OVERVIEW ZERO HARM approach a Safety First programme has been developed and will continue to be The Company is committed to Health and Safety is an integral element implemented moving forward. sustainable development and has of the business, and Zero Harm is at the adopted the ten principles set out by heart of the Company’s safety culture. The implementation of the health the International Council of Metals and The principle of Zero Harm is embedded and safety management system has Mining (see Chart 14). These provide a into the Company’s management commenced, the framework and framework that continues to guide the systems and processes, and influences expectations are fully developed and Company in its operations and decision everything that it does. The Company’s the supporting policies, standards and making. safety performance over the last year processes for day to day operations are was good and work is ongoing to currently being finalised. The framework The principles of sustainable continually improve. will provide a leadership, governance development have been put into and reporting structure that will enable practice throughout the development of The vision of Zero Harm extends to the Company to create a culture the York Potash Project, accompanied staff, assets and the environment. With and behaviours that align with the by a pro-active approach to Corporate York Potash, the Company has ensured achievement of Zero Harm. Social Responsibility (“CSR”). The that contractors also share the goal of Company has a firm belief in a positive Zero Harm. To support this pro-active engagement with the local community and recognises a responsibility for protecting, and if possible improving, the environment wherever it operates. CHART 14

INTERNATIONAL COUNCIL ON MINING & METALS The York Potash Project designs have SUSTAINABLE DEVELOPMENT PRINCIPLES set a new benchmark for sustainable design in a sensitive environment, and will continue to demonstrate PRINCIPLE 1 PRINCIPLE 6 a commitment to the principles of Implement and maintain ethical business Seek continual improvement of our sustainable development by: practices and sound systems of corporate environmental performance governance • Communicating effectively with the local community, providing clear PRINCIPLE 7 information on future plans and PRINCIPLE 2 Contribute to conservation of biodiversity responding promptly to questions Integrate sustainable development and integrated approaches to land use and concerns; considerations within the corporate planning decision-making process • Minimising the Project’s impact on the environment and contributing PRINCIPLE 8 to improvements wherever PRINCIPLE 3 Facilitate and encourage responsible possible; Uphold fundamental human rights and product design, use, re-use, recycling and respect cultures, customs and disposal of our products • Maximising the economic and values in dealing with employees and social beneﬁts to communities by others who are affected by our activities employing local people, using local PRINCIPLE 9 suppliers and improving community Contribute to the social, economic facilities, and; PRINCIPLE 4 and institutional development of the Implement risk management strategies communities in which we operate • Operating in a manner that ensures based on valid data and sound science the safety of staff, contractors and the wider community. PRINCIPLE 10 PRINCIPLE 5 Implement effective and transparent Seek continual improvement of our health engagement, communication and and safety performance independently veriﬁed reporting arrangements with our stakeholders

28 STAFF TRAINING Polyhalite is a certified organic product Higher nutrient use efficiency delivered and together with its low carbon by the synergy of the nutrients within A comprehensive training package footprint, provides a sustainable fertilizer polyhalite, together with nitrogen for staff and contractors has been solution. can increase yields and quality of developed over the last year, which crops for the same unit application of includes: fertilizer. A net reduction or improved POLYHALITE efficiency of use of the fossil fuel based • Induction training for all workers CHARACTERISTICS nitrogen fertilizers can have a positive environmental impact globally. • Confined space training for all those • Certified for organic use and engaged in specific activities sustainable product in the UK and Europe with no chemical processing SITE RESTORATION • Working at height required The Company’s most visible presence in • Manual handling training the local community has been through its temporary drilling operations. The • Fire awareness and extinguisher drilling sites were selected in areas training that would not damage sensitive or protected environments, and where they • Control of substances hazardous • Low carbon footprint compared to would not cause disturbance for local to health the same tonnage of other fertilizer communities. In addition only those products sites which could be restored to their • First aid at work original condition, or even improved, • Essentially chloride free, ideal for were considered. • Risk assessment chloride sensitive crops All temporary drilling operations required • Has no effect on soil pH for the successful resource upgrade POLYHALITE: have been undertaken, with a further A SUSTAINABLE FERTILIZER

Balanced fertilization is regarded as a key solution to global food security. The discovery of the world’s largest and highest grade polyhalite resource at the York Potash Project, places the Company at the forefront of developing a sustainable fertilizer of the future.

Polyhalite, which uniquely contains four of the six macro-nutrients that plants needs to grow, will be a key component of any balanced, sustainable nutrient programme to boost crop yields. The focus is on marketing polyhalite as a SM2 with coring rig on site – Autumn 2011. component of a blended NPK product or as a direct application natural multi- nutrient fertilizer. By not separating the ore into its distinct nutrient components (SOP, Magnesium Sulphate and Gypsum) through an energy intensive process, the Project is able to become one of the most sustainable sources of vital large scale nutrients for food production globally.

SM2 fully restored and returned back to agricultural use – June 2013. SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > SUSTAINABLE DEVELOPMENT

five sites completed throughout the last COMMUNITY ENGAGEMENT financial year. All temporary drilling sites, with the exception of the proposed The Company has continued to engage mine site, have been carefully restored. proactively with the local community Reed bed style Boreholes have been filled with cement in the last year, particularly through settlement ponds and capped, the concrete platforms consultations for the mine and pipeline removed and the sub and top soils planning applications. This included replaced. The land has been replanted, thirteen public exhibitions, attended Additional screening fences and gates either installed or by 1,246 members of the public, who replaced and any damage to local roads provided overwhelmingly supportive or verges has been repaired. feedback with 91% in favour of the proposals.

A SCREENED AND Throughout the year the Company CONCEALED MINE has attended over 50 parish council meetings, engaged pro-actively with The Company has developed an local landowners, and ensured that extremely sensitive mine design and the local residents who live nearby the a method of operating for the Project, proposed mine site have been kept up which will have the lowest possible to date as the Project develops. visual and environmental impact on the National Park. The site currently Two York Potash newsletters have been comprises a farm and commercial distributed widely throughout the area forestry block. The proposed mine and the Project website includes news buildings will be screened and disguised updates, access to consultation material within the landscape of the National and the opportunity for businesses Park. and individuals to express an interest in Mine shaft head working for the Company. Any queries frames sunk below The proposals reﬂect the latest thinking from the public are dealt with via the surface in sustainable design principles and community helpline or email. also take into consideration extensive and ongoing consultation with the local The Company also endeavours to community, stakeholders and other third support community causes as much as parties. The two shaft head frames and possible, including the sponsorship for pipeline loading equipment will be sunk community organisations and Company below ground level and accessed by a staff participating in fund raising events. tunnel from close to the mine support buildings. They will be covered with Sub-surface mineral buildings designed in an agricultural crushing and pipeline style. loading area

SUSTAINABLE MINERAL THE BURIED PIPELINE TRANSPORT SYSTEM HAS SEVERAL MAJOR Technical analysis has concluded that ADVANTAGES: the most sustainable way to transport the mined ore from the site to a • It is unnoticeable at the surface processing facility in Teesside is to use buried pipelines. The most efﬁcient • Its visual and environmental route, with the lowest impact on both impact is far lower than alternative the environment and the neighbouring transport methods such as road communities, has been selected. or rail

• It is the most efﬁcient mode of transport in the world for minerals of this type

• It is proven technology that 30 operates successfully outside the UK Site view from prominent location on A171.

MINE SUPPORT BUILDING

The mine support building will be hidden in an existing commercial forestry block and will provide essential facilities such as:

• Staff welfare areas • Survey ofﬁces • Mine rescue facilities • Control room • Security ofﬁce • Workshop • Lamproom • Laydown area • Laboratory

Existing access onto B1416

Site view: Current view from “Red Gate” showing existing screening (to be retained). SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > SUSTAINABLE DEVELOPMENT

York Potash sponsors Scarborough Engineering Week

EDUCATION AND SKILLS Apprenticeships YORK POTASH FOUNDATION

The Company is committed to The Company has taken on five The establishment of the York maximising the employment of local apprentices at the Scarborough Potash Foundation demonstrates people at the Project, and work is office and will create 20 engineering the Company’s commitment to the ongoing to ensure that the right skills apprenticeships in the coming years in community. The Foundation is an are available in the local area. preparation for mining operations. independently run body that will “asset lock” its income by becoming a charity so that its funds can only be used for Promoting engineering and Graduates charitable purposes. technical careers The Company is supporting five young The York Potash Project will contribute A new careers guide, ‘Potash students from the local area who are an annual royalty of 0.5% of revenue to Prospects’, has been published that studying for engineering or geology the Foundation. highlights the types of jobs available degrees by providing work placements and the qualifications and other qualities and bursaries. The York Potash Based on current estimates the annual required. The Company continues Undergraduate Programme will support payment could be up to £7 million at to encourage more young people to another five young people from 2014. full production. An initial start-up fund become engineers and technicians, of £2 million will be contributed by York and has worked with local schools Potash as soon as construction begins. and colleges over the last year to Programmes for the unemployed enrich relevant curriculum areas, given The Foundation’s broad objectives numerous careers presentations, and Supporting people that are currently provide a wide range of areas where supported industry led events such as out of work is a relevant part of the it can support community projects. Scarborough Engineering Week. Company’s approach to CSR. A pre- These will range from bursaries, employment programme to prepare scholarships or skills training for local people for construction opportunities people to improving public spaces and is under development with the local facilities, health & wellbeing projects, council. Around 150 construction environmental initiatives and community workers will then be trained to become building projects. mineworkers. There are seven voluntary Trustees, who will oversee the Foundation. Three have been appointed by the Company, with the remaining four from the local area. The majority of the charitable donations and grants of the Foundation will occur within the confines of the York Potash Project’s operational area, although the York Potash Undergraduates Foundation will have the ability to also fund further afield. 32 prinCipal risKs anD unCertainties

33 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > PRINCIPAL RISKS AND UNCERTAINTIES

PRINCIPAL RISKS AND UNCERTAINTIES

KEY PERFORMANCE historical holes, has been used by SRK The revised strategy of mining and INDICATORS to derive the resource estimates. While marketing polyhalite directly as a there has been geological and seismic fertilizer will enable the Company to The Board monitors spending against testing of the Project’s polyhalite ore complete construction within three the budget through monthly reporting from samples taken across the drilling years and lower risk by simplifying the and meetings every two months. At programme at the York Potash Project, production process. the current stage of development of by its very nature mineralisation is not the Company’s projects, there are few homogenous and the samples may not meaningful key performance indicators be representative of the broader ore MINERAL TITLE RISK or comparatives to prior years. body. There is often an element of uncertainty Progress towards the development Other aspects of the Project’s about the validity of mineral titles of the York Potash Project will be development risk will be assessed as they rely on the quality of State tracked against milestones such as during a sequence of ever more detailed record keeping over many years, even the completion of the DFS and other and accurate engineering studies of centuries. However, the Company’s engineering and environmental studies, which the DSS announced in April 2012 projects are all in countries with completion of our global crop study and PFS announced in December 2012 sophisticated land registry systems so programme, further polyhalite supply were the first two stages. Following that the risk of the Company’s mineral agreements, all key planning consents the positive results of these studies, and exploration rights not being valid is and in due course commencement of the Company has commenced a DFS low. construction and production. Resource on the Project, which will provide estimates have been prepared to the the engineering and design basis for In the UK, mineral rights and surface 2004 edition of the JORC Code. construction. The DFS will incorporate a rights do not always go together and wide range of other studies performed the land registry system is focused on The principal risks currently both by suitably qualified third parties surface rights rather than mineral rights. identified for the Company are as and completed internally which will This introduces an additional level of follows: cover all aspects of the Project including uncertainty and the Company makes resources and reserves, environment, considerable efforts to confirm mineral infrastructure, planning, mining, rights ownership before entering into EXPLORATION, DEVELOPMENT processing, infrastructure and markets. option and exploration agreements AND PRODUCTION RISK There is no certainty that the DFS will with the mineral rights owners. Finance be positive or that the Project will be may not be available if insufficient Exploration, development and developed into a commercial mining mineral rights are held. At York Potash production risks are inherent in the operation. the Company has entered into option mining industry. It is impossible to agreements with a large number of remove all risks or to establish for The York Potash Project may experience minerals rights owners under which the certain the true extent of the size construction and schedule delays due Company may acquire the mineral rights and grade of an ore body. However, to unforeseen technical issues. Detailed and conduct exploration and mining experience developed over many planning by the management team and activities. The Company has five years years by the industry has established external consultants will be completed to exercise the options, extendable by methods for assessing, evaluating and prior to project development through three years in certain circumstances, reducing the risks inherent in a project. the DFS to de-risk the Project before and thereafter 70 years to extract the The Company, with the assistance construction commences. Sections of minerals. of experts in their respective fields, is the DFS, including the mine and shaft currently applying these methods to development, will be completed initially The existing contracted mineral rights the geological, mining, processing, to enable construction to start on these position is over 745km2 representing infrastructure, environmental, key schedule areas prior to the full DFS over 95% of the York Potash Project construction and other aspects to the being completed. The success of the area, which ensures the Company York Potash Project. Project depends in significant part upon has the required agreements in place Sirius’ ability to complete construction for a viable and long term operation. In May 2013 the Company announced and commence production within the Compulsory acquisition rights could an increase in the total mineral resource planned time frame and in accordance ultimately be implemented post- for the Project according to international with the cost estimates that will be construction to secure mineral rights for standards universally accepted within contained in the DFS. Management 100% of the Project area. the mining industry, JORC Code. In continues to pursue all acceleration total the Company has now completed options available for the Project to 34 over 16,000m of drilling and this, reduce the time required to reach first along with information from additional production. PERMITTING RISK There is also a risk that access may and therefore buffered from periodic not be granted for key infrastructure for market fluctuations such as the recent A large number of permits are required the development of the Project, namely Uralkali announcement. Furthermore, to bring a mining operation successfully the port and pipeline. The Company where appropriate, the Company will into production. These permits and has land access options agreed for the seek offtake agreements with major licences vary country-by-country and mine and a number of options available customers to reduce market and price relate to conducting exploration work, for the port and is in negotiations risk exposure. construction, traffic, environmental, with further relevant counterparties. operations and a host of other areas. Additionally, the Company has been The nature of the process means granted access to the vast majority of LIQUIDITY RISK that permits and licences can only be the pipeline route, with negotiations applied for when the development of to continue and planning to run under There is a risk that the Company will a project reaches the stage that the the National Infrastructure Directorate have insufficient funds to develop the particular permit or licence is required. (“NID”) with compulsory powers York Potash Project. The Company will It is not possible to say that all such available. need to raise additional funds and there licences will be obtained when they is no assurance that adequate funds are needed, but the Company and will be available when they are required its specialist consultants will continue COMMODITY PRICE RISK to finance the Company’s activities. to take all possible actions to be However, the directors of the Company successful in its applications. There is a risk that fertilizer prices, have a reasonable expectation that including potash and polyhalite, could additional funds will be secured when The significance of the York Potash fall to levels at which it would not be they are required. The Company has a Project from an employment and economically viable to develop the strong Board and management team economic perspective provides a Project. Fertilizer prices have fluctuated with extensive experience in financing compelling case in favour of a positive over recent years and can be expected large multi-billion dollar projects. permitting outcome for the onshore to do so over the coming years as well. mining application in particular. The While the Company does not expect There is also the risk that capital development will need to be shown fertilizer prices to decline to levels at and operating costs as outlined in as in the public interest and to have which the Project is not viable there the Project’s PFS are significantly exceptional circumstances in order is a risk that this could occur either underestimated, further increasing to overcome the policy presumption before construction of the Project, or funding requirements. Completion of against major development in National once it is in operation. Such conditions the DFS will reduce this uncertainty Parks. The Company has received a would materially and adversely affect with cost reduction and optimisation significant level of local, regional and production, earnings and the financial strategies currently being investigated. national support for the Project and will position of Sirius. Such conditions continue ongoing engagement to ensure could result in the cessation of mining The Company has been successful in a full understanding of the Project’s activities that become uneconomic, halt raising funds in the recent past and benefits. The Company has already or delay the development of new areas intends to raise a combination of debt received the Marine Licence for offshore to mine, and reduce funds available and equity in the future to provide mineral extraction which represents the for proving reserves, resulting in the funding for development and initial first of the five key approvals required depletion of reserves. There is no operations for the York Potash Project. for the Project. The Company does assurance that, even as commercial have the ability to go to appeal to the quantities of polyhalite ore are Planning Inspectorate if the onshore produced, a profitable market will exist CURRENCY RISK mining planning application is refused. for it. Decisions to delay the submission of this Sirius will have currency exposure application to the Authority were made The Company’s research team in both the procurement of capital to ensure that the Company is able to continues to analyse the various fertilizer equipment for the construction phase provide the most appropriate detail and markets, including NPK, potash and and in the sale of polyhalite ore. At address outstanding concerns from polyhalite, and current studies support present the Company raises funds the various key and interested parties. the continued growth in world demand in sterling and the considerable Permits are also required for the port and a positive price outlook over the majority of its expenditure is also infrastructure, materials handling and medium-term. NPK in particular has in sterling. However, the Company pipeline elements of the project. large demand globally; however the expects an increasing proportion of its price does fluctuate with economics expenditure to be incurred in Euros, of various regions and supply and US Dollars, Canadian Dollars and demand dynamics. The Project will be Australian Dollars during the period of 35 at the bottom of the potash cost curve, project evaluation and development. SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > BUSINESS REVIEW > PRINCIPAL RISKS AND UNCERTAINTIES

Revenue from polyhalite sales and the operations to scale and to construct the may not be representative of the majority of financing for the Project infrastructure facilities to deliver potash broader ore body. The geological test will be denominated in US Dollars, to the market. The major competitors all work conducted to date has been on providing a natural exchange rate have substantial existing infrastructure, samples which have been determined hedge. However, a significant portion less leverage and substantially greater by Sirius to be representative of the ore of the construction, development and financial resources than new entrants. body at the Project, but there is a risk operating expenses for the Project will As a result, the major players generally that this may not be the case. be incurred in non-US Dollar currencies. have a greater capacity to respond Accordingly, appreciation of such non- to competitive pressures and market Polyhalite has only been mined in US Dollar currencies, without offsetting dynamics in the potash market. There small volumes to date, well below the improvement in US Dollar denominated can be no assurance that Sirius or proposed initial development production polyhalite prices, could adversely affect the Project will be able to successfully rate of five million tonnes per annum. the Project’s profitability and financial respond to such competitive pressures Production of the scale proposed for the position. or the competitive activities of the Project will require significant expansion other major suppliers in its markets. of the current polyhalite market, which However, polyhalite is unique in that it entails substantial market acceptance COMPETITOR RISK contains four of the six macro-nutrients and price risk. Polyhalite is however a (potassium, sulphur, magnesium and mineral comprised of well understood Polyhalite as a potassium bearing calcium) required for plant growth. and traded nutrients used in the fertilizer mineral is classified as “potash”. The Polyhalite is an effective direct industry. Sirius’ internal market research primary competitors for polyhalite are application multi-nutrient fertilizer and and strategy team have developed potash suppliers. The supply of potash can also be combined with nitrogen and a comprehensive global crop study to the global market is denominated phosphorus to create high value NPK programme to underpin the value of by two major suppliers. The two major fertilizer products that contain all six polyhalite as a fertilizer. Studies already suppliers are Canpotex, which sells macro-nutrients. As such, the Company underway have provided results which potash outside North America on behalf is less exposed to the existing potash validate polyhalite to be an effective, of PotashCorp, Mosaic and Agrium and supply structure with respect to product valuable fertilizer that outperforms the Belarusian Potash Company (“BPC”), supply and demand dynamics. traditional potash product potassium the marketing arm of Moscow-based chloride (or “MOP”) on both yield and Uralkali and Belaruskali of Belarus. quality. The Company will continue to Together they control approximately PRODUCT RISK develop its global strategy to ensure 75 per cent of global trade in potash. the Project’s products comply with However, on 30 July 2013 Uralkali The Project is subject to product risks registration requirements and satisfy announced its decision to step out of and the risks of developing a relatively rigorous testing to facilitate market the BPC trade venture with Belaruskali new market. penetration. However, there can be and pursue a volume over price no guarantee that the crop study strategy. While there has been geological and programme will continue to provide seismic testing of the Project’s polyhalite positive results for the Company’s There are high barriers to entry ore from samples taken across the polyhalite based fertilizer products. for potential new entrants into this drilling programme at the York Potash market due to the significant capital Project, by its very nature mineralisation 36 costs required to commence mining is not homogenous and the samples goVernanCe

37 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > GOVERNANCE > BOARD OF DIRECTORS

BOARD OF DIRECTORS

RUSSELL Previously he was a board member of In addition he is Chairman of ASX- SCRIMSHAW Commonwealth Properties Ltd, EDS listed Cleveland Mining Company NON-EXECUTIVE Australia, Mobilesoft Ltd, Telecom Limited, an Associate Member of the CHAIRMAN (64) New Zealand Australia Pty Ltd, The Australian Society of Certiﬁed Practicing Garvan Institute Foundation and Accountants, and an Adjunct Professor Athletics Australia and has also held of Mining Economics at China Central senior executive positions within the South University in Changsha, China. Russell Scrimshaw was formerly Commonwealth Bank of Australia, an Executive Director and Deputy Optus Communications, IBM and Russell Scrimshaw was appointed CEO of Fortescue Metals Group Amdahl USA. Chairman of Sirius Minerals in Ltd (FMG) and was a member of the November 2011 and is a member of FMG Board from 2003 until 2011. the Remuneration Committee and the Nominations Committee.

CHRIS FRASER In these roles he led the bank to Chris Fraser holds a Bachelor in become one of the leading investment Commerce from the University of MANAGING DIRECTOR banking franchises in the mining Western Australia. He is a qualified AND CEO (39) industry in Australia. In particular he was Chartered Accountant and a member of the lead adviser on the US$2.5 billion the Institute of Chartered Accountants initial development capital financing for in Australia. In addition, he is a Senior Fortescue Metals Group Ltd (FMG). He Associate of the Financial Services Chris Fraser has approximately 17 has provided strategic advice to many Institute of Australia (FINSIA) and a years’ finance experience in the of the world’s leading mining companies member of the Institute of Company mining industry. During this time he including BHP Billiton, Rio Tinto, WMC Directors in Australia. worked for Citigroup, Rothschild and Resources and Paladin Energy. KPMG and has market leading expertise Chris Fraser joined the Board in in all aspects of the financing and In 2009 Chris Fraser founded Sigiriya January 2011. development of major mining projects. Capital, a specialist advisory and investment house focused on the Having joined Citigroup in 2000, Chris resources sector. In 2010 he founded Fraser was appointed Head of Metals York Potash Ltd to undertake the and Mining Investment Banking for exploration and development of the York Australia in 2006 and Managing Director Potash Project and in January 2011 York in 2008. Potash was acquired by Sirius Minerals.

JASON MURRAY Moscow. In the last decade, prior to him Jason Murray joined the Board in May joining the Company, he participated 2012. FINANCE DIRECTOR in raising over US$250 billion for global AND CFO (44) companies in the debt, equity and hybrid capital markets in the USA, Europe and Asia.

Jason Murray previously worked As well as being at the forefront of at Bank of America Merrill Lynch capital markets globally, Jason Murray, where he was Head of Capital is a member of the Institute of Chartered Markets in Australia. Jason Murray Accountants of England and Wales and has over 20 years’ finance experience has a degree in Accounting. Jason is having held senior positions at Citigroup currently a member of the Australian and JP Morgan and previously working Institute of Company Directors and the in various accounting and finance British Institute of Directors. sector roles in London, New York and 38 CHRIS CATLOW During his seven years at FMG, initially Chris Catlow has a BSc in Engineering as its inaugural Chief Financial Officer Science from the University of Durham NON-EXECUTIVE and then as its Investment and Business in the UK and is a Fellow of the Institute DEPUTY CHAIRMAN (52) Development Director, the company of Chartered Accountants in Australia. financed and brought into production its He is currently Chairman of Allied major iron ore mining, processing and Healthcare Group Limited and a Director port facility in Western Australia’s Pilbara of Indo Mines Limited, both listed on the Chris Catlow is highly experienced region. The development established ASX. in the international resources FMG as Australia’s third largest iron ore industry having worked on the producer behind Rio Tinto and BHP Chris Catlow was appointed as a development and operations of oil Billiton. director of the Company in April 2010 and gas, hard rock and sand mining and as Deputy Chairman in November projects over a 25 year career. He 2011. He is Chairman of the Audit played a central role in the formation Committee and is a member of the of Iluka Resources Limited and most Remuneration Committee. recently was a senior executive and CFO of the ASX-listed iron ore mining company, Fortescue Metals Group Ltd (FMG), having joined shortly after its formation in 2003.

JOHN HUTTON

BARON HUTTON Lord Hutton was a legal adviser to the In 2005 Lord Hutton was briefly OF FURNESS, Confederation of Business Industry in appointed Chancellor of the Duchy of NON-EXECUTIVE the late 1970s before becoming a senior Lancaster and Minister of the Cabinet DIRECTOR (58) law lecturer at Newcastle Polytechnic. Office before being made Secretary of In 1992 he was elected to the Barrow State for Work and Pensions. In 2007 and Furness seat in Cumbria where he Lord Hutton was appointed Secretary Lord Hutton was a distinguished remained as MP until he stood down at of State for Business, Enterprise and member of the Government for 13 the 2010 general election. Regulatory Reform. In 2008 he became years from 1997 to 2010, including Secretary of State for Defence until he 11 years as a Minister and four During Lord Hutton’s varied career stepped down from the Cabinet in 2009. years serving on the Cabinet. in Government, he served first as a Following the general election in 2010 He was appointed Chairman of the Permanent Parliamentary Secretary in he was created a life peer as Baron Independent Public Service Pensions the Department of Trade and Industry Hutton of Furness and now sits in the Commission established by the current before becoming Leader of the House House of Lords. Government in June 2010, which of Commons and then moving to the delivered its final report in March 2011. Department of Health in 1998 where he Lord Hutton joined the Board in became Minister of State for Health in January 2012. He is Chairman of the 1999, a position he held until 2005. Remuneration Committee.

SIR DAVID HIGGINS Previously he was Chief Executive of Earlier in Sir David’s career, he was the NON-EXECUTIVE the Olympic Delivery Authority (“ODA”) Managing Director and Chief Executive DIRECTOR (58) from March 2006 until January 2011 of Lend Lease Group, a global property responsible for Venues, Infrastructure and infrastructure company. He and Spectator Transport for the London graduated in Civil Engineering from the 2012 Olympic and Paralympic Games University of Sydney and also holds a Sir David, is currently the Chief with a budget of £8 billion. Prior to Diploma from the Securities Institute of Executive of Network Rail, the Authority this, he was Chief Executive of English Australia. He was knighted in 2011. responsible for the UK’s rail network Partnerships, the Government’s National with an asset value of £40 billion. Regeneration Agency, for three years. Sir David joined the Board in March 39 2012. He is a member of the Audit Committee. SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > GOVERNANCE > BOARD OF DIRECTORS

BOARD OF DIRECTORS

PROFESSOR MICHAEL MAINELLI FCCA FCSI FBCS Michael’s natural resources experience Michael has worked for public, private dates back to 1979 where his early and not-for-profit companies, led NON-EXECUTIVE research work led to him starting several privatisation projects, was Chief DIRECTOR (54) companies in seismology, cartography Scientist of the DTI Foresight Challenge and oil & gas information for a Swiss award-winning Financial Laboratory firm. In the early 1980s he initiated and served as Corporate Development Michael Mainelli is Executive and ran the Swiss firm’s multi-million Director on the board of Europe’s Chairman of Z/Yen, the City of dollar oil industry consortium (Shell, then largest R&D organisation – the London’s leading commercial think- BP, Chevron and Elf Aquitaine were the 12,000 strong Defence Evaluation and tank and venture firm, where he primary partners plus 10 minor partners) Research Agency of the UK’s Ministry of has worked since 1994 on strategy, to digitise the world. This culminated Defence. Michael is Emeritus Professor technology, finance and business in the development of Geodat and of Commerce at Gresham College and development. He started his career Mundocart, oil industry standard sets was the British Computer Society’s as a research scientist and then spent of cartographic data at scales from Director of the Year 2005. Michael is seven years as a partner in a leading 1:50,000 to 1:1,000,000 and over 60 a non-executive director of the United accountancy firm directing much of million geographic features. Kingdom Accreditation Service (the their consultancy work in the UK and UK’s national body for standards and overseas. laboratories).

Michael Mainelli joined the Board in May 2005. He is a member of the Audit Committee and is Chairman of the Nominations Committee.

PETER WOODS Since leaving Boulby, Peter has In addition to his potash knowledge, NON-EXECUTIVE consulted to a number of potash following a Masters Degree in DIRECTOR (75) companies and projects including Environmental and Resource Selection Trust on the Red Sea potash Management issues in 1988, Peter project in Saudi Arabia and for two Woods served as the Secretary of years on the Environmental Protection State’s Environmental Appointee on Peter Woods is a consulting Scheme for the ASEAN potash project the North York Moors National Park geologist and engineer with in Thailand. In addition he has reviewed Authority from 1996 – 1999. extensive experience in the potash potash projects in Spain and Russia. He industry having worked for 13 years has been advising York Potash Ltd since Peter Woods also ran his own as Chief Geologist at the Boulby its establishment and has continued to environmental consultancy until 2007 Potash Mine in North Yorkshire, do so following its acquisition by Sirius and has lived in North Yorkshire, on and initially on its development and in January 2011. off, for over 40 years. start-up. Peter Woods joined the Board in April 2011.

40 CORPORATE GOVERNANCE STATEMENT

The maintenance of effective corporate The Board considers Russell AUDIT COMMITTEE governance remains a key priority Scrimshaw, Michael Mainelli, Lord for the Board. The Board recognises Hutton and Sir David Higgins to The members of the Audit Committee the importance of sound corporate be independent in character and are Chris Catlow, Michael Mainelli governance and has adopted policies independent in judgement and are and Sir David Higgins. Chris Catlow and procedures which reflect the therefore independent directors. is Chairman of the committee. The principles of the UK Corporate Although not all of these directors fully committee consists entirely of Non- Governance Code that are consistent satisfy the guidelines set out in the Executive Directors and Michael with the Corporate Governance UK Corporate Governance Code the Mainelli and Sir David Higgins are Guidelines for Smaller Quoted Board has considered the situation of deemed to be independent. The duties Companies published by the Quoted each director and the relevance of the of the committee include reviewing Companies Alliance in September 2010, differences with the guidelines in the the Company and Group financial of which the Company is a member. context of the Company being listed statements, reviewing the effectiveness on AIM and has concluded on each of the Company’s internal controls directors’ independence. and risk management systems and THE BOARD overseeing the relationship with the If a potential conflict of interest exists external auditor. The committee The Board comprises two Executive or arises for any director he is required meets at least three times a year. The Directors and six Non-Executive to declare such conflicts, which will be executive directors attend meetings by Directors providing an appropriate recorded, and the Board will exercise invitation. balance of executive and non-executive its authority under the Company’s positions on the Board. The directors Articles of Association as appropriate in have a broad range of relevant strategic, considering such conflict. REMUNERATION COMMITTEE industry, financial, governance and other experience to enable the Company The Board meets regularly during the The members of the Remuneration to fulfil its objective of becoming one year, at least every two months, to Committee are Lord Hutton, Russell of the world’s most important potash discuss significant matters including Scrimshaw and Chris Catlow. Lord producers. The particular experience long term strategy, short-term Hutton is Chairman of the committee. and skills of each director can be found operational activities and financial The committee consists entirely of Non- in their biographies on pages 38 to 40. performance. The latest management Executive Directors and Lord Hutton is reports and accounts, including deemed to be independent. The duties A clear separation is maintained variances to budget, are presented at of the committee include reviewing the between the responsibilities of the each Board meeting. remuneration and service contracts of Chairman and the Managing Director executive directors and reviewing the and CEO. The Chairman is responsible The Company’s Articles of Association design of all share incentive plans. The for leading the Board and the Managing require one third of the directors to retire committee meets at least once a year. Director and CEO is responsible for the from office by rotation at every Annual Directors’ remuneration for the year overall performance of the Company. General Meeting. Michael Mainelli and is given in note 7 to the consolidated Peter Woods will be retiring by rotation accounts and this disclosure forms part The Chairman, Russell Scrimshaw is at the forthcoming Annual General of this report. non-executive. The Deputy Chairman, Meeting. Chris Catlow is also non-executive. The executive directors are Chris Fraser, For the majority of the year the the Managing Director and CEO and Company had an Audit Committee, Jason Murray, the Finance Director and Remuneration Committee and CFO. The remaining four Non-Executive Nominations Committee. All of the Directors are Michael Mainelli, Peter committees have formally delegated Woods, Lord Hutton and Sir David responsibilities by way of terms of Higgins. reference.

41 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > GOVERNANCE > CORPORATE GOVERNANCE STATEMENT

CORPORATE GOVERNANCE STATEMENT

NOMINATIONS COMMITTEE Further ad hoc meetings were held agreed. The Board also seeks to ensure during the year to approve certain that there is a proper organisational The members of the Nominations matters during the period leading to the and management structure with clear Committee are Michael Mainelli and placing and on other matters. responsibilities and accountability. Russell Scrimshaw. Michael Mainelli is Chairman of the committee. The The Company has adopted and applies committee consists entirely of Non- INTERNAL CONTROLS a share dealing code on the dealing in Executive Directors and Michael securities of the Company by directors Mainelli is deemed to be independent. The Board has overall responsibility for and employees, to ensure compliance The duties of the committee include the effectiveness of the Group’s internal with Rule 21 of the AIM Rules. evaluating the balance of skills, controls in safeguarding the assets of knowledge and experience on the the Group. The internal control systems The Company has undertaken a Board before any appointments are are designed to identify and manage risk assessment to determine the made. The committee was formed risks to ensure that the possibilities of Company’s exposure to bribery and during the reporting period and as yet it material misstatements or loss are kept corruption risk in the countries, sectors has not met but expects to meet at least to a minimum. and markets in which it operates. once a year. The processes used by the Board Following this assessment the Board The performance of the Board, to review the effectiveness of the has considered the Company’s risk committees and individual directors internal controls are through the exposure, and implemented certain are evaluated on a regular basis. Audit Committee and the executive policies and procedures to ensure Individual director evaluation includes management reporting to the Board on compliance with the requirements whether each director continues to a regular basis where business plans, contribute effectively and demonstrates budgets and authorisation limits for commitment to their role by attending the approval of signiﬁcant expenditure Board meetings. including investment are appraised and

ATTENDANCE AT BOARD AND COMMITTEE MEETINGS

Attendance at board and committee meeting during the year was as follows:

SCHEDULED AUDIT REMUNERATION BOARD COMMITTEE COMMITTEE MEETINGS MEETINGS MEETINGS

RJ SCRIMSHAW 8/8 2/2

CN FRASER 8/8

JH MURRAY 7/7

CJ CATLOW 8/8 4/4 2/2

SIR DAVID HIGGINS 8/8 4/4

LORD HUTTON 7/8

PROF M MAINELLI 8/8 4/4 2/2

PJE WOODS 8/8

42 of the Bribery Act 2010 and that COMMUNICATION WITH the Company’s employees were SHAREHOLDERS suitably briefed on these policies and procedures. The Company will The Board places importance continue to monitor risk regularly and to on effective communication with determine the adequacy of the briefing shareholders and maintains regular of employees to ensure compliance. dialogue with and gives briefings to analysts and institutional investors. Due to the small size of the Group, Presentations are generally given an internal audit function has not by the Executive Directors and on been established. The Board receives occasion by the Chairman. In particular sufficient assurance on risk, control a presentation is made at the Annual and governance from other assurance General Meeting. Care is taken activities within the Group including to ensure that any price-sensitive from regular management information information is released promptly to all and the external auditors. shareholders through the Regulated News Service, the circulation of such releases to all shareholders who GOING CONCERN have registered for inclusion on the Company’s circulation list and through The Directors have reviewed the placing the release on the Company’s financial performance of the Group website. The Notice of Annual since 31 March 2013 and have General Meeting, annual report and considered the Group’s cash projections audited accounts and interim financial for the 12 months from the date of statements in particular are issued in approval of these accounts. Based on this manner. The Notice of the Annual these projections, the directors have General Meeting can be found on pages determined that the Group has sufficient 82 to 84. cash resources for the next 12 months and consider it appropriate to draw up Rule 26 of the AIM Rules requires the accounts on a going concern basis. companies to maintain a website on which certain information should The Directors recognise that there are be available, free of charge. This a number of material uncertainties information is available on the inherent in the York Potash Project. The Company’s website at impact of these uncertainties on the www.siriusminerals.com. Directors’ consideration of the going concern assumption are set out in note Approved by the Board of Directors 1 to these financial statements. and signed on behalf of the Board

KEY PERFORMANCE INDICATORS

The Group’s approach to KPIs is set out NA King on page 34. Company Secretary

PRINCIPAL RISKS AND UNCERTAINTIES

A review of the Group’s principal risks and uncertainties is set out on pages 33 to 36.

43 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > GOVERNANCE > DIRECTORS' REPORT

DIRECTORS’ REPORT

The Directors present their annual DIRECTORS report and audited consolidated ﬁnancial statements for the year ended THE DIRECTORS OF THE COMPANY DURING THE YEAR WERE: 31 March 2013. RJ SCRIMSHAW Non-Executive Chairman CN FRASER Managing Director and CEO PRINCIPAL ACTIVITIES AND JH MURRAY Finance Director and CFO Appointed 22 May 2012 REVIEW OF BUSINESS AM LINDSAY Finance Director and CFO Resigned 22 May 2012 The principal activity of the Group is to acquire and develop properties with CJ CATLOW Non-Executive Deputy Chairman exploration and mining potential. Sirius SIR DAVID HIGGINS Non-Executive Director Minerals Plc is a globally diversiﬁed company with properties overlying LORD HUTTON Non-Executive Director recognised potash deposits held in the PROF MR MAINELLI Non-Executive Director United Kingdom, Australia and North America. PJE WOODS Non-Executive Director

A review of the business of the Group is set out in the Chief Executive Ofﬁcer’s statement on pages 6 to 10 and the DIRECTORS’ INTERESTS Operations report on pages 20 to 26. As at 31 March 2013, the Directors had the following interests either directly or through related parties or entities in which the Directors had a beneﬁcial interest in RESULTS AND DIVIDENDS the ordinary shares of the Company:

The loss of the Group for the year was £8,588,000 (2012: £60,104,000). The NUMBER OF PERCENTAGE OF THE loss of the Company for the year was SHARES HELD COMPANY HELD £10,901,000 (2012: £50,552,000). CN FRASER 114,500,750 8.5 The Directors do not recommend a CJ CATLOW 100,000,000 7.4 payment of a dividend for the year (2012: £nil). RJ SCRIMSHAW 32,388,888 2.4

PJE WOODS 4,199,916 0.3

SUBSTANTIAL SHAREHOLDINGS

Shareholdings as at 30 June 2013 of 3% or more are as follows:

PERCENTAGE OF THE COMPANY HELD

DIRECTORS 19.0

HARGREAVES LANSDOWN 7.7

BARCLAYS 6.4

TD WATERHOUSE 6.1

HSDL 5.4

CAPITAL RESEARCH & MANAGEMENT 5.3 44 INTERACTIVE INVESTOR 3.2 DIRECTORS’ INDEMNITIES On 21 May 2013 the Company issued STATEMENT REGARDING 666,667 new ordinary shares of DISCLOSURE OF INFORMATION The Company has made qualifying 0.25p each to JH Murray, under the TO THE AUDITORS indemnity provisions for the benefit Company’s Short Term Incentive Plan of Directors under the letters of (“STIP”) in relation to the year ended In accordance with Section 418 of the appointment of each Director. In 31 March 2013. On the same day, the Companies Act 2006, Directors’ reports addition the Company has purchased Company also issued 1,500,000 new shall include a statement, in the case of Directors’ and Officers’ Liability ordinary shares of 0.25p each to JH each Director in office at the date the insurance. Murray which were awarded to him on Directors’ report is approved, that: his appointment in May 2012 and had FINANCIAL RISK MANAGEMENT vested. a. so far as the Director is aware, there is no relevant audit information of Details of the Group’s financial On 21 May 2013 the Company received which the Company’s auditors are instruments and its policies with regard notification that JH Murray sold unaware; and to financial risk management are given 2,166,667 ordinary shares at a price of in note 24 to the consolidated financial 23.0p per share, and that the Golden b. he has taken all the steps that he statements. Pond superannuation fund, of which JH ought to have taken as a Director Murray is trustee, purchased 2,166,667 in order to make himself aware of ordinary shares at a price of 23.0p per any relevant audit information and PRINCIPAL RISKS AND share. to establish that the Company’s UNCERTAINTIES AND KEY auditors are aware of that PERFORMANCE INDICATORS On 21 May 2013 the Company issued information. 1,730,355 shares under the Company’s Details of the principal risks and STIP to Executive Directors and uncertainties and key performance employees of the Company. INDEPENDENT AUDITORS indicators relative to the Group are set out in the Principal Risks and On 21 May 2013, the Company granted During the year, Nexia Smith & Uncertainties report on pages 32 to 35. 857,143 ordinary shares to CN Fraser, Williamson resigned as auditors to under the Company’s long term the company, and the directors have incentive plan. These will vest one third appointed PricewaterhouseCoopers CREDITOR PAYMENT POLICY each on 1 April 2014, 2015 and 2016. LLP.

Payment terms are normally agreed with On 21 May 2013, 666,667 ordinary A resolution in respect individual suppliers at the time of order shares were also granted to JH Murray of the re-appointment of placement and are honoured, provided as part of the Company’s long term PricewaterhouseCoopers LLP as the that goods and services are supplied incentive plan. These will vest one third Group’s auditors will be proposed at the in accordance with the contractual each on 1 April 2014, 2015 and 2016. forthcoming Annual General Meeting. conditions. On 12 August 2013, the Group At the year end, the number of creditor secured financing of up to £25m with OTHER days of the Company was 7 (2012: 14). an institutional investor. Under the agreement that has been entered into, During the year, the Group made the investor will inject up to £25m into donations of £13,000 to local and EVENTS AFTER THE the Company by purchasing up to four national charities. REPORTING YEAR tranches of interest free convertible securities (the “Convertible Securities”), Approved by the Board of Directors On 15 April 2013 the Company received which are convertible into ordinary and signed on behalf of the Board notification that Scrimshaw Nominees shares in the capital of the Company Pty Limited, trustee of the Scrimshaw (“Shares”). The first tranche is £10m with Family Trust of which RJ Scrimshaw a face value of £11m. The subsequent is a beneficiary, purchased 3,263,664 three tranches can be activated at 120 ordinary shares of 0.25p each at an day intervals at the Group’s discretion average price of 21.49p per share, in the with a minimum of £1m with a face value NA King market. of £1.1m and a maximum of £5m with a Company Secretary face value of £5.5m per tranche. Each 27 August 2013 Convertible Security will have a maturity of 18 months.

45 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > GOVERNANCE > STATEMENT OF DIRECTORS’ RESPONSIBILITIES

STATEMENT OF DIRECTORS’ RESPONSIBILITIES

The Directors are responsible for The Directors are responsible for preparing the Annual Report and the keeping adequate accounting records financial statements in accordance with that are sufficient to show and explain applicable law and regulations. the Company’s transactions and disclose with reasonable accuracy at Company law requires the Directors any time the financial position of the to prepare financial statements for Company and the Group and enable each financial year. Under that law the them to ensure that the financial Directors have prepared the Group and statements comply with the Companies the Company financial statements in Act 2006. They are also responsible for accordance with International Financial safeguarding the assets of the Company Reporting Standards (IFRSs) as adopted and the Group and hence for taking by the European Union. In preparing reasonable steps for the prevention these financial statements, the Directors and detection of fraud and other have also elected to comply with IFRSs, irregularities. issued by the International Accounting Standards Board (IASB). Under The Directors are responsible for company law the Directors must not the maintenance and integrity of the approve the financial statements unless Company’s website. Legislation in they are satisfied that they give a true the United Kingdom governing the and fair view of the state of affairs of preparation and dissemination of the Group and the Company and of the financial statements may differ from profit or loss of the Group and Company legislation in other jurisdictions. for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable IFRSs as adopted by the European Union and IFRSs issued by IASB have been followed, subject to any material departures disclosed and explained in the ﬁnancial statements;

• prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the company and the Group will continue in business.

46 finanCials

47 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > FINANCIALS > INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF SIRIUS MINERALS PLC

We have audited the Group and parent company financial statements (the ‘‘financial statements’’) of Sirius Minerals Plc for the year ended 31 March 2013 which comprise the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity, Consolidated Statement of Cash Flows, Company Statement of Financial Position, Company Statement of Changes in Equity, Company Statement of Cash Flows, the Accounting Policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

As explained more fully in the Statement of Directors’ Responsibilities set out on page 46, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

OPINION ON FINANCIAL STATEMENTS

In our opinion:

• the ﬁnancial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 March 2013 and of the Group’s loss and Group’s and parent company’s cash ﬂows for the year then ended;

• the Group ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;

• the parent company ﬁnancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006;

• the ﬁnancial statements have been prepared in accordance with the requirements of the Companies Act 2006.

48 EMPHASIS OF MATTER – GOING CONCERN

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1 to the financial statements concerning the Group’s and Company’s ability to continue as a going concern. The Group is involved in efforts to complete feasibility studies, obtain appropriate planning permissions and secure long term project finance for the York Potash Project, the outcome of each of which is uncertain.

These circumstances indicate material uncertainties which may cast signiﬁcant doubt about the Group’s and Company’s ability to continue as a going concern. The ﬁnancial statements do not include the adjustments which would result if the Group and Company were unable to continue as a going concern.

OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company ﬁnancial statements are not in agreement with the accounting records and returns; or

• certain disclosures of Directors’ remuneration speciﬁed by law are not made; or

• we have not received all the information and explanations we require for our audit.

Ian Morrison Senior Statutory Auditor, for and on behalf of

PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Leeds

27 August 2013

49 SIRIUS MINERALS PLC > ANNUAL REPORT 2013 > FINANCIALS > FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT for the year ended 31 March 2013

2013 2012

Notes £000s £000s Revenue - - Administrative expenses (15,175) (63,274) Summary of administrative expenses: Impairment charge 4 (2,947) (57,143) Other administrative costs (12,228) (6,131)

Operating loss 5 (15,175) (63,274) Finance income 6 603 164 Loss before taxation (14,572) (63,110) Taxation 8 5,984 3,006 Loss for the ﬁnancial year (8,588) (60,104) Loss per share: Basic and diluted 9 (0.6)p (5.6)p