Good day, and welcome everyone to the Anglo American Recommended Cash Acquisition of Sirius Minerals Plc Conference Call hosted by the Anglo American team. My name is Karen and I'm your event manager. During the presentation, your lines will remain on listen only. I'd like to advise all parts conference is being recorded for replay purposes. And now I'd like to hand over to the Anglo American team.
Please go ahead.
Thanks, Corinne. Good morning, everyone, and thank you for joining us. I'll hand over to Mark and Duncan shortly to run through the presentation for 30 minutes or so.
And then
we'll open the lines for Q and A and Stephen is also here to help us. But and it's a big but just to remind you that Osiris is now in an awful period under the takeover code. We are still limited in what we can say from a regulatory perspective. So apologies in advance if there are some questions that we can't answer at this stage. Mark, over to you.
Okay. Thanks, Paul. Good morning, ladies and gentlemen. As most of you know, we have been repositioning the Anglo American portfolio for the last 6 years. Our offer for Sirius is consistent with our portfolio transformation objectives.
This is a quality, potentially Tier 1 asset and these types of assets do not become available very often. In my commentary, I will make sure that I'm checking on slide numbers, so people can keep pace with our presentation. Just going through the cautionary statement, nothing much else to be added there. And now I'm on slide 3. The project as we see it is a good fit for Anglo American and we believe it is a great opportunity for the group.
The project consists of an integrated mine development, processing facilities and a loading operation at the port. It's not a complex operation in terms of the technical side of things and it does have work on the marketing side that we believe we understand and creates a great opportunity. We believe the asset package can be developed and materially grown over the long term to match the market. We have conducted detailed due diligence through our various Anglo teams with some input from outside consultants in the months we've been looking at Sirius. And I must commend both the Sirius and the due diligence team for the work they've done to this day.
We believe we can build on that good work and take the project to a successful completion. In terms of the arguments for the transaction, we see a clear strategic fit. It is a quality asset. It's a substantial polyhalide resort, which has a long life, low cost and is scalable to the market. It is in our view a potential Tier 1 asset.
We are leveraging our capabilities matched to mining and processing skills and experience, which can be enhanced through our technical process and processes and our innovation platforms. It also would fit with our global marketing model and our internal expertise. And given the fact that we've been in this market for 50 years, it's a market that we're very comfortable with, albeit this is a new type of product, but it isn't an absolutely new product and that we'll talk about a little bit later. The competitive position of the asset supports in our view future strong returns. This is a multi nutrient product.
Its position supports the market interest that Sirius has seen as consistent with our view of the quality of the product And its low chloride content enhances market attractiveness and as we see value in use. It has a low cost to market and by that I mean low cost mining and proximity to low to key markets supports low cost delivery that is it's a highly competitive cost position across global markets. It is a product that travels well, providing us with good exposure to a range of global customers and that's very important in terms of our thinking. And finally, this project is well established and the Sirius team has done a great job in getting where they are today. Licenses and infrastructure in place and well positioned to generate an EBITDA margin potentially in excess of 50% as defined by the Sirius 2.
The low cost quality product and the breadth of the market is something that we think all works in that favor. We also believe it will play well into the substantial in the sustainability conversation as it has a low carbon footprint and non chemical production characteristics, which again we see think plays to the positioning we have over the long term with our broader asset portfolio. So in moving to the agenda slide, the plan for today, a couple more comments from me before I hand over to Duncan for the benefit of those less familiar with the product, the market and the project. He will walk you through some of the details before I then talk to the broader fit within Anglo. Stephen is also here.
So the 3 of us will tag team in terms of Q and A and as we wrap the conversations up. So I'm on slide 5. To quickly recap some of the key points in our offer, we are offering 5.5p per share in cash. That value Sirius at around US500 $1,000,000 equity. The intention is to acquire via scheme of arrangement.
We've already received should it be approved subject to conditions precedent, we expect completion by around the end of March 2020. For Sirius shareholders, the offer of 5.5p in cash represents a significant premium to the Sirius share price before our first announcement and indeed a premium to where the Sirius share price is traded ever since their financing update last September. We recognize that this is below the levels of where the Sirius shares have traded historically, But we believe that we are offering or what we're offering is fair in an environment which is very challenging to raise capital for large Springfield projects in general and for Sirius in particular, 1 mine companies, it is a challenge. And from our point of view, we think as Anglo American, we offer a breadth both in terms of technical, marketing and our broader financial capacity is certainly something that brings certainty to the project. We also believe or in that context, we believe our offer is in the interest of Sirius broader shareholder groups and stakeholder groups and that includes its employees and the broader local community given the greater certainty that it provides for the future of the project.
To slide 6, 1st and before we go further, I want to address one of the key areas we've been asked about since the initial announcements. And that is how this project fits into our capital allocation framework and our specific capital plans. With $1,100,000,000 incurred to date, that's U. S. Dollars, the project has been well progressed.
That's around 25% of the current expected capital to get to 10,000,000 tons per annum production. We believe we can help build on this encouraging progress and we'll do it the right way consistent with our capital allocation framework and our key control processes that as of today have served us well in terms of the key Avaya curve projects and the projects that we've completed over the last 4 or 5 years. We are comfortable with the serious revised development schedule announced in November last year. In the 1st 2 years, the plan is to spend somewhere around $300,000,000 in both 2020 2021. We expect Quellaveca, our Peruvian copper project to come on stream and start contributing cash flows in 2022.
We will then look to step up the capital on Sirius. We will spend in the next 24 months we will spend the next 24 months updating and optimizing the timeline and the mine design. At the same time, we will integrate the project with our operating standards and practices. And I think that's an important piece of work that we want to do to set the organization up for the long term. Based on the Sirius model at a 90% confidence level, incremental CapEx is approximately US3.3 billion dollars in order to reach the target production level of 10,000,000 tons per annum.
The main capital for this project will only come once Quellaveco is up and running. So we will not dilute our focus on Quellaveco or compromise our ramp up on the project. And we will not be focusing on 2 major multi $1,000,000,000 Greenfield projects at once. One does have to remember that by the time we get to a decision point pre or per 2022, the go forward spend and that's based on the current Sirius estimates would be around $2,700,000,000 The project is not certainly not as complex as the Quay Vecchio. And so from our point of view, we're well positioned in terms of going forward and making sure we stick to our commitment of 1 major project at any one time.
The spends that we would add to the business are in addition to the amounts we guided in December. That is the $300,000,000 in 20.2021 would be in addition to the numbers we set out in our previous guidance numbers. On slide 7, as Stephen would want me to remind you, we will remain balanced in our approach to returns of capital to shareholders and in our focus on improving operations and our ongoing business performance. Our disciplined capital framework will of course apply to this project. And as I've said, the major spend on Sirius will follow our spend on Quellaveco.
This fits with our commitment to maintaining a strong balance sheet. We will not go beyond the one point five times net debt to EBITDA at the bottom of the cycle without a plan to bring it back into line. And we reiterate our commitment to a 40% of earnings dividend payout ratio. I will now hand over to Duncan to take you through the project, the market and the other elements that connect.
Thank you, Mark, and good morning, everybody. Just like to reiterate, obviously, our focus on asset quality, which is a key driver for us strategically. But I'd like to get to that a little bit later. Firstly, we need to talk a bit about the product and the market itself. And just to clarify, as Mark mentioned a bit earlier, we have spent indeed considerable time now trying to understand the product, the market and the project.
We're not new, as Mark points out, to the fertilizer business. We've had exposure to it in some way, shape or form for most of the last 50 years. And we've been seriously looking at this asset class again over the last 2 years. Specifically, we've engaged with Sirius on 2 separate occasions in due diligence. Preliminary assessment was done on the project in 2018 and we took a detailed look from September 2019 after they announced their strategic review.
Our own due diligence has been supplemented by 3rd party independent consultants advice as well as that from current employees, ex employees and industry specialists who have been associated with the industry to get us to this point today. Moving to Slide 9, I'd like to establish from our perspective that whilst Poly 4 is new as a product to the market, it's actually not so new in and of itself. What is poly4? It's a multi nutrients product, which contains 4 of the 6 key nutrients that plants need to sustain growth. Think of it, if you like, like a product with co products or coming from the polymetallic resource in terms of its form.
In addition to containing 4 of these 6 nutrients, it is also very low in chloride and that's a good thing because that works very well for high value crops and I'll talk about that a bit later too. The demand for these nutrients is very well established. So Poly 4 in and of itself just packages those nutrients slightly differently. It's more of a physical offering if you like than changed chemical offering. What we really do like about it is where it will ultimately sit on the cost curve.
So on Slide 10, I just want to make 2 simple points. Firstly, Poly 4 is not simply a potash or a k substitute. It is this multi nutrient product that I referred to. I think it will ultimately coexist with potash in its various forms. But if you want to focus only on potash market, let's look at it in terms of how the industry described it by convention in terms of its K2O or potassium oxide content, which is the key nutrient of potash.
So MOP is the most common form of K fertilizer and contains around 60 percent of K2O in a 65,000,000 ton market. While the more premium product SOP contains 50% K2O in a 7,000,000 ton market. So simplistically then, in terms of K2O market terms today, that market is around 45,000,000 tons. And Poly 4, which contains only 14% K2O at a production rate of 10,000,000 tons per annum, we'll be adding just 1,400,000 tons per annum to the potash market or just 3% of current supply. And by the way, this is only expected to occur towards the end of this decade in a market which we are expecting to grow at a rate of somewhere between 1% 2% on a compounded basis.
The second point is today the price of MOP is around $2.75 a ton, but it contains as you can see from the picture on the top left hand side of this chart, a significant quantum of chloride and is therefore principally used in bulk applications or broadacre for broadacre crops. And it doesn't really suit the high value and more specialist crops. SOP on the other hand, currently trading around about $500 a ton is the premium product because it is low chloride, more lower chloride and contains a bit of sulfur, which is also a good thing. And it is therefore more suited to these high value costs. But of course, it is much more expensive to produce and the cost curve is extremely steep and this process is also somewhat environmentally challenging.
So a little bit more on that cost curve position on Slide 11. I'd just like to say that I really don't like these curves mainly because I've just told you that this isn't simply a potash substitute. And here I'm comparing it to potash. But this is the benchmark that is in the industry today. And it does give you some sense as to how the costs of this product could be viewed.
So if we were to take a look at these cost curves, both MOP and SOP, Poly 4 would be very low cost alternative. So it sits in Q1 of both of these curves on a co product basis. Exactly where will depend on the different type of nutrients that are valued by the different types of farmers for different types of crops in the various types of applications. So it will price itself in a range, but very likely to be in the bottom quarter of both of those cost curves. So that's the product.
How do you realize value from it given that it's a new form of these nutrients? So as you know, fertilizers are used to increase yield in crops for food, animal feed and for biofuels. And the big macro themes that are in play here, which we like, is a growing population, so perhaps another 1,000,000,000 people on the planet by 2,035. Finite arable land area and as well as that increasing pressure on that land as a result of climate change. So in addition, we have the effect of increasing wealth too, which is leading to greater demand for higher quality foodstuffs and in simple terms, really globally, the desire and the need for more protein.
These factors combined points to positive long term demand outlook for fertilizers with experts estimating, I think 1.3% per annum growth rate for fertilizers even with the impact of improved agricultural techniques and efficiencies or precision farming as it's becoming known. Turning to Slide 13 now. A simple way of trying to understand the potential value of Polyfall is to disaggregate it into its component form. So take the components that makes up as you see in the picture on the top left again and you apply current market prices to each one of those components and you get to approximately $200 per ton on a free on board basis. Now that's the value, if you like, that would apply to a customer using every single one of the established components.
That's the full potential value to a farmer. Now just let's be clear that this is based on current market prices of the underlying components and is not in any way intended to be a forecast of future pricing, which of course could be materially different from that. In addition to the simple value in use, there is more upside potential. Although, let me just be clear that we're not banking in our business case on either the full value in use price or indeed any of this additional upside. Cervious has undertaken some 4 92 agronomy trials of Polyform over the last 7 years.
And these trials were applied to 54 different crops in 31 different countries. So pretty extensive research. They've shown an average of 4% improvement in crop yield and as well as improved resistance to things like drought, frost, insects and diseases. And the product has been certified for organic use, particularly in Europe. And we know that Europe sets a very high bar for these sorts of certifications.
So, a highly effective and sustainable product, which delivers a variety of key VIU price or the value in used price is significantly in excess of the current price implied in the existing offtake agreements. And of course, at Anglo American, we now have the experience in developing markets for high value add products through our global marketing business. On the next slide, just wanted to point out that we've done some extensive work around the demand for this product and identified an addressable market of around 65,000,000 tons based on substituting Polyfor into existing products and into existing blends of fertilizers that exist in the market today. It'll be more highly valued within certain regions obviously and for certain crops and naturally there will be different value points for different users. The strategy will be to drive into those markets where the product for all of its components is valued the most.
And to do this, Sirius has already partnered with established players in the fertilizer industry and incentivize them to help build this market for Poly 4 by sharing some of this value induced margin that I described on the previous slide. The offtake agreements imply a discount for customers, So they 2 share in the price and then the offtake partners themselves, which include established players like Archer Daniels Midland in the U. S. Are commercially incentivized with Sirius now to develop demand for the product by an opportunity to significantly improve their own margins. So as a result of this strategy, Sirius have already now peak or take agreements in place for more than 10,000,000 tonnes of Polyform.
And based on January 2019 prices, the indicative weighted average FOB price for Polyform would be around $140 a ton under these offtake agreements as outlined by Sirius and their May 2019 prospectus. Again, let me stress that this figure is not forecasted for future pricing because those prices could be very different. So in addition to this value in use, Poly 4 has other benefits which play very strongly to the demand in the modern world. I'm on Slide 16 now. And hopefully, the slide is self explanatory and it explains, I hope, the simplicity of the process of Poly 4 from mine to market.
What I'm really trying to highlight here is that the production of Poly 4, which is shown in that block on the right hand side is relatively straightforward compared to something like MOP or SOP production. And as a result of that, it is much lower in energy and it is cleaner than the processes that are used for producing MOP and SOP. And it's predominantly for that reason why it sits lower on the cost. On Slide 17, we can see that as a result of that, the processing setup of this, the carbon dioxide per ton generated in the production of Polyform is approximately 93% less than that when producing SOP and 85% less than MOP and we like that a lot. So previously, as I said, it represents significant opportunity to reduce the carbon emissions associated with fertilizer production and contribute to a cleaner, greener more sustainable world.
Moving into my last section now, which is to talk a little bit about the assets and the project itself and the Tier one nature of the business as we see it. The project has all of the material and critical permits in place and is meaningfully de risked we believe. Cerus has already invested US1.1 billion dollars in the development of the project to date. Slide 19 tries to set out the key components of the project and what's in so doing, I hope you would understand the relative simplicity of the project itself. Those three components moving from left to right over the chart are simply a mine, a material transport system, which is an underground conveyor taking the product to the processing facilities and the port some 37 kilometers away.
The mine consists really of 2 vertical shafts, 1.5 kilometers deep, a service shaft and a hoisting shaft and the mining method will be a highly mechanized room and pillar method using both drill and blast and continuous miner. So something not very similar from what you might see in a coal mine. We obviously are going to be looking to optimize the mine design where we can and Tony and his team are looking forward to getting their teeth into that. In the middle, we're showing the middle transport system. It's designed to be totally unobtrusive to the local national park that sits above us.
And that's why it's around 300 meters deep where the material will be offloaded mid shaft and travel through this conveyor tunnel all the way to the processing facilities in Teesside. This tunnel is located in a constant strata, the red car milestones, which makes a very stable environment for tunneling. And the process today seems to be going extremely well where they are ahead of their own schedule on the development of that tunnel. On the right hand side, the ore comes to surface, as I said, where it is granulated at the plant and then set on an overland conveyor for the final 3.5 kilometers to the outloading facilities at the port in Teesside where that port could actually take up to Capeside vessels. Very important to add, the nature of this operation where it is such that one ton of ore equals 1 ton of product really.
So there's no waste in terms of tailing dams etcetera. On Slide 20, why do we believe this could be a Tier 1 asset? Well, here's why. It's large in scale. It's scalable, it's flexible and it's very low cost.
So, Cirrus has reported a reserve of 290,000,000 tons, which makes it currently, as Mark said earlier, the world's largest known high grade polyhalide deposit. At initial production rates of 10,000,000 tons per annum, this would give obviously a mine life of 29 years. The result is much, much bigger than that and that's the flexibility that allows us to believe that the life could be extended or the project could grow or we could manage more effectively the quality of the product in terms of the options that we have available within the ore body. The seam thickness and the dedicated infrastructure to that contribute to unit cost, which we think will come out at around $40 to $50 per ton. And that includes all of the royalties, including those landowners and communities, which are facilitated by way of a community trust.
Nonetheless, this is a low cost producer and compared favorably with other fertilizer projects, which typically have unit costs in the 3 figures. As a result of this asset potential or the asset has the potential to generate a margin comfortably, as Mark pointed out, above 50% through the cycle. The resource scale leaves, as I said, much optionality in terms of what we might be able to do with it in terms of controlling quality and product volume. Mark, I think that's it from me. Back to you.
Thanks, Duncan. Ladies and gentlemen, from our perspective, we see a clear fit with our asset focused strategy and it adds in our view both quality and breadth to our continuing portfolio evolution. And as Duncan pointed out, we've got 50 years experience in the fertilizer business. And whilst this is a new and evolving product, we certainly believe it's a good fit for where we see the industry going and certainly where we see technology development going in terms of the industry. On slide 22, I just want to remind people where we are with our major projects and how this may fit into our business.
Today at Cheuv Ekav, we are very pleased with our progress. We remain comfortable with the 2022 start up. The new Diamonds vessel at Namdev and the Aquila met coal development are also progressing very well. And as we said that we would as we said we would rather, we received the Minas Rio tailings dam raised license at the end of 2019. And don't forget that went with our Stage 3 license that we got actually 6 months ahead of schedule.
So we're very pleased with that progress. Should we be successful in taking ownership of Sirius, we won't be cannibalizing capital from other projects, which are all value adding to shareholders. So no change to the other organic options such as Moranbah, Grosvenor, Deep Bottleneck. And as you know, we've signed the agreements there, likely to go in front of the board for approval in 2020. And the Mogalakwena expansion is being set up currently in feasibility study with a target to go forward sometime in 2021.
And we have our attractive copper growth projects that we're working on and expect to phase through in
the medium
term. On slide 23, the project is also important for a sustainable, cleaner, greener future. We've covered some of these environmental benefits already and certainly from our perspective is consistent with the evolution of the portfolio that we've been talking to over the last few years. This project also brings a significant contribution to the North Yorkshire and Teeside Economies. Sirius have previously stated that the project generates over 2,500 high quality industrial drops to a region with a very proud industrial heritage.
Also, and to quote the Sirius team, they expect the project to increase the size of the local economies potentially in the range of 15%. For Anglo, this project has been well progressed. It's a relatively balanced risk project in a developed jurisdiction with a strong associated governance profile. And from our point of view, again, we believe it fits our skills that come across the business, in particular, fits with our experience and the developments that we've made in our marketing strategy. And finally, to wrap, the Sirius team in our view have made solid progress on the project, but there is still clear value that we can bring to the construction, operation and the marketing of the product.
Our operating model and T101 benchmarking program have delivered significant safety, productivity and cost improvements across our existing operations, which we can integrate into the project. We believe we can effectively deploy relevant technology and digitalization innovations in due course. And obviously with the base that the team the Sirius team has established, we believe that we can work effectively together to take the project forward. Our established mine to market expertise in our leading marketing business and certainly we've gone ahead leaps and bounds in the last few years in developing a new business model inside our marketing. We are set up well to capture the premium that this product could attract and continue to work with the Sirius team in developing the market's understanding of the value in use to customers.
And I want to be clear, That sets us up well to That sets us up well to ramp up after Quellaveco comes on stream in 2022. So this project does tails nicely into the existing growth pipeline and positions us nicely for the long term. And it maintains our strategy of only having one major project being developed at a particular time. And I'll just reiterate that point by sticking to the serious revised plan. We'll fit the program as we would like to execute, so that we're able to make sure that we're happy with all of the elements, how they fit together and how it connects into our own engineering and capital development program.
So to conclude, this is in our view a Tier 1 asset, a fit for our strategy of holding world class high quality assets. We've been aware of and looking at the project in right detail for some time and now the timing is right for us to progress the opportunity we can see. We have a strong balance sheet. We have delivered additional returns to our shareholders during the last 6 months of the year. And now we are looking to continue to generate long term shareholder value by maintaining a 30 year asset life across a quality portfolio of assets for now and into the future.
So thanks for listening. Over to Paul.
Thanks, Mark and Duncan. We'll open the lines now for Q and A. But just to remind you once again please that we are very limited in what we can say due to the offer. Also can I ask each analyst to only ask one question so we can get as many people on the call as possible? Brynn, can we open the lines and kick off the Q and A, please?
Thank you.
Thank you, sir. Your question and answer session is open. Your first question has come through and it's from the line of Jason Fairclough of Bank of America. Please go ahead. You're live in the call.
Good morning, gents. Thanks for the call today. Look, just a question, I guess, on pricing. I mean, buying an asset does often imply taking a bit of a view on commodity prices. Duncan, you've showed us the cost curves.
You've highlighted the low cost position. So would it be an overstatement to say that you don't care on pricing? And I guess I'm asking in the context of BHP's apparent drive to make sure the potash market is very, very well supplied and the fact that we still have latent capacity in the existing legacy producers of potash. So do you just not care because this thing is so low cost?
Jason, look, I mean, I can't really say much more than what I've already told you in terms of how thinks about setting up an analysis around the value and used price. I've also pointed quite clearly to at current market prices today what the implied contract offtake prices would be. The most important thing I think in all of that is in fact the position on the cost curve.
Okay. All right. Thanks, John.
Thank you. Your next question is coming from the line of Alan Gabriel of Morgan Stanley.
Just a follow on on Jason's question on the pricing. If I compare the prices on Slide 13 and 14, clearly the current offtake agreement on today's market terms is around 140 compared to the value of 200. I'm not well on top of that market. So if you don't mind explaining to us a little bit more about the value sharing with your clients. Is the 140 reflective of the value sharing?
And should we expect the permanent discount to the value in use as a feature of the contract that you have in place? And how much scope do you have to review those offtake agreements? Thank you.
Alan, thanks for the question. I think the key point to make is Duncan's articulated based on the markets today what the value in use on the product is. We have to remember that this is a new relatively new product to the market and the market price today may not reflect how it will trade in the future. You'll have to make your own judgments on that going forward, because we still are in the period we're in. So we're restricted by what we can say.
We have our views. But where we are today, we have all the information that we can provide to you. You have to make your own judgment on what that might mean.
Thank you.
Thank you. Your next question is coming from Myles Alsop of UBS. Please go ahead.
Great. Thanks. It's a very helpful presentation. What I don't quite get is that none of the sort of incumbents talk about this as a Tier 1 asset. None of the incumbents are concerned about this project.
There's been very little exploration into polyhalide. ICL hasn't expanded the Boulby Mine. So why do you think everyone is so far behind the curve with Sirius? And it sounds like a fantastic opportunity, but it just was that nagging doubt, I guess, because of the way the other fertilizer companies are behaving with relation to this?
Thanks, Myles. Duncan is chomping at the bit.
Hi, Myles. Listen, I think Mark said and I pointed out that it's Tier 1 or has potential to be Tier 1 from our perspective because of the nature and the style of this deposit, which in and of itself makes it quite unique compared to others that are around there. It is extremely large, but not just in terms of total volumes, in terms of how it presents itself. Some of that the same with Sierra are up to 20 meters and more potentially in certain areas. And so offers a whole bunch of flexibility that existing or known deposits of polyhalides today don't offer.
And that impacts, I think, some of the thinking in terms of where the market is today.
Myles, the cost structures are pretty straightforward when you look at the technologies being applied. And the Sirius team has done really good work on applying the technologies, particularly in terms of producing a product and producing the form of the product. And there is a real elegance in that work from our point of view and how it presents to the market. There is no doubt that the market will take time. It is relatively new, but the nutrients aren't.
And low chloride is known to be a real positive. And our assessment of value and use is pretty clear as well. So again, how it will trade, that's something that people will have to make a judgment on. But certainly from our point of view, we've given this a lot of thought and we've done our homework and we believe that what we put on the table is fair reflecting the risks still going forward. And from our point of view, it's an appropriate offer in terms of where that project is today.
Okay. Thanks.
Thank you. Your next question is from Sergey Donskoi from Societe Generale. Please go ahead.
Yes, thank you. I have just one maybe technical question. When you on Slide 11 put Poly 4 on cost curves, I guess this requires some sort of adjustments because this product is very different from MOP and SOP in terms of potassium content and other nutrients. So basically, what adjustments do you make when you achieve this comparison? Do you divide the cost by potassium content and then subtract the value of other nutrients?
Or is it something else that you do to make these things comparable? Thank you.
Hi, it's Frank. I mean, quite simply, I mean, you're quite right. We did make adjustments to try and represent it on those curves. And just very simplistically, those as I pointed out, the adjustments are already based on analyzing the value of the cost of Polyfor on a co product basis. So applying the same margin through all of the products really.
I see.
Okay, thank you.
Okay.
Thank you. Your next question comes from Richard Hatch of Berenberg.
Can I come at it from a different way? You talked a bit at the end about how you can scale up project should you wish to. On the assumption that you bring it on 10,000,000 tons, market kind of understands what it's all about and then you feel that there's a potential to increase the size of it. Can you just talk about what the options are in terms of increasing production, should you say, wish at some point in the future?
Sure, Richard.
Look, let me just say that there are no immediate intentions at all to expand materially beyond 10,000,000 tons per annum. That's a big slice of a 65,000,000 ton market as I pointed it out pointed out earlier. But to the extent that there is a market for more of it, it is currently permitted to 13,800,000 tonnes per annum. And then I think that logistically, the ore body would support somewhere closer to 20,000,000 tons per annum if it was ever needed. That would I think require additional permitting to go from 13.8 to 20.
So that really is the flexibility that it has. But I think more important to us certainly in the short run is the flexibility that the ore body offers in terms of being able to mine effectively on a consistent and reliable basis the right quality product to get it to the market.
Thanks. Thank you. Your next question is coming from Tyler Broder of RBC. RBC. Please go ahead.
Great. Thanks very much for the call. And apologies if I missed the first couple of minutes, so apologies if you touched on this. But I guess just in terms of Kiaveco, that was a pretty philosophical decision around moving to a 60% holding. Can you discuss what your sort of your thoughts are at the moment, Mark, about where this fits from an equity stake perspective?
Thank you.
Yeah. Thanks, Tyler. From our point of view, as you would have seen with Quellaveco, we spent time, a bit of time, making sure we had the project right, optimizing, understanding all the elements of the project and then deciding to syndicate once that work was done and we could see where the value was. We still think there's more value we can add in the next year to 2 years. And if we were to consider syndication, I think we'd get a lot more bang for our buck in doing that work first.
Now that's not saying we will syndicate, certainly from our point of view, we've demonstrated a preference to do that. But from our point of view, we'll do the work and see where we end up. So today, we're still in a takeover conversation. It's not done yet. Our intention is to complete.
And once we've then done the work that follows, we'll make a decision on how we set the long term capital structure up as part of the project development.
Great. Thanks very much.
Thank you. The next question is coming from Efraim Ravi of Citigroup. Please go ahead.
Thank you for the question. From what I understand, the polyhalide market today is around 500,000 tonnes. So it will require a fair deal of market development. So coming at it sort of in 2 separate ways, 1, how much of those 10,000,000 tons of offtake is essentially take or pay? If you can shed some light on it.
And secondly, if you can't sell 10,000,000 tons from day 1, what would be the breakeven volume that you would require to get to your sort of $30 to 40 dollars per ton sorry, that kind of volumes if you can't sell all the 10,000,000 tons from the time the mine comes into production? Thanks.
From the so 200 kilotons is probably closer to 400 kilotons actually, which is the product that's going into the market today. It's a function of supply, not necessarily demand at this point. So absolutely appreciate that there's lots of wood to chop in terms of making the market. But as we pointed out earlier, we believe the characteristics of the product are such that it should be in demand in terms of the form and nature of its application. And secondly, we think that the Sirius team have thought very well and strategically around how they would make that market with the partnerships that they've engendered in those offtake agreements.
The offtake agreements themselves are all legally binding. I don't want to really say much more than that. I mean, I don't think we need to rely on any take or pay kind of nature of those agreements, because they're designed effectively to be flexible enough to be able to create the market itself. But they are absolutely legally binding as they are set up today. On breakeven volumes, Stephen, do you want to give us a little bit?
Yes. Just to say, yes, there's nothing special about this project. Obviously, we've allowed ramp up over a couple of years, as Sirius have done. And obviously, you'll get the cost of production per ton of product produced will settle itself over that ramp up timeframe. So nothing special to note here, but it will do it over that ramp
up period. Efraim, I think the other point to add here is the mining and the process are relatively straightforward in terms of technical applications. So from our point of view, Tony and the guys have gone through every part of the project and are very happy with what the guys have done. The beauty of this project is its simplicity on the front end and the flexibility that you can then introduce in terms of the products that you produce by adding micronutrients as well, which is something is a little more difficult with the more technically complex SOP and MOP product. So we think this fits into that really surgical approach to adding fertilizer in the future And it's also a great blending product as well.
So from our point of view, the flexibility that we have in the contracts reflects the flexibility and the nature of the product and what we can do with it. And so we believe that is certainly an advantage and something that was very interesting and really only became apparent to us as we work hard at understanding the project and the market potential. And this is very important.
Thank you.
Thank you. Your next question is coming from Sylvain Brunette, Exane S. A. Please go ahead.
Hi, good morning gentlemen. One quick one on the offer itself. Actually on convertible bondholders, the offer, unless I missed something, it doesn't say that Anglo American would assume liabilities for holders who would choose to continue holding convertible bonds. If you could maybe help us with that?
Yes. Thanks. So we'll make the normal sort of offers to the convertible holders as we're required to under the takeovers process. Obviously, they will then have different options and choices to make as to how they accept those. So apart from that, it will just be a normal standard process to make certain elections.
And we will take non absorb it as required.
Okay. Thanks.
Thank you. And your next question is from Daniel Major of UBS. Please go ahead.
Hi. Thanks so much. Follow-up question on, I think, Sergey's question around the cost curves and about the assumptions around the co products pricing. Clearly, your expected cost position is therefore dependent on your realized price for the other elements within
the Poly four. Can you give us a sense of the size of the market and potentially disruptive nature for calcium, magnesium and sulfur that go into fertilizers as a consequence of adding 10,000,000 tonnes of polyhalide into the market? So Daniel, you're right about the fact that it's a copart basis and it's a function of the price that you get for those things. As I pointed out, earlier, we don't our business case did not rely on us achieving absolutely full value for each one of those things and that's also not implied in the position on the cost curve as I represented them to you. So different crops in different jurisdictions our our expectation is that it will be somewhere and that's why we've ranged the position on the cost curve as opposed to pick a specific point for
it. Okay, guys. I think that's it, Paul.
Yes. Corinne, thank you very much for that. Mark, do you want
to have a final wrap up?
Yeah. Just to say make a few points. Firstly, again, I do want to acknowledge the good work the Sirius team have done. From our first exposure to the team late in 2018, we've been impressed with the work that's been done with the base that's been established and with the professionalism of the team. So from our perspective on the basis that if we are able to close the transaction, we're very pleased to be able to work with them to take the project forward.
And certainly from our point of view, a very good position with licenses and the technical loans have been very well done. We still have work to do or we would still have work to do. And obviously, as the questions market. But at the same time, from our point of view, we do see value in the market in the way the product is presented to the market. The world fertilizer industry is changing, as you'd expect it to be given the world climate change and all the other factors and the importance of the global agricultural industry to improve its intensity of production from available land, because in the long term, we're probably going to have to reduce land available to agriculture if we're going to balance off carbon generation.
And so the surgical application of fertilizers being used in the right places and the multi nutrient nature and the low chlorate nature of this product, we think sets it up well for the long term and we've given that a lot of thought and hence we've taken quite a bit of time to make sure that this is a product for today and the future. And I think our team has done exceptional work in making sure that we understand all the critical issues and we've been able to answer and work with external inputs as well in making sure we've got this right. But at the same time, we think taking the fact that we still got a lot of work to do on the project that the offer is there and certainly is fair to all the key players as we think our involvement does also bring more certainty to the project and we hope that the serious shareholders see that as does the local community and the other stakeholders in the business. From our point of view, they're all important points that we have to make sure are done the right way. That's who we are.
That's what we're about. And we think this is absolutely consistent with value from a shareholder perspective, but also value from a key stakeholder perspective and that includes employees as well. And so with that, ladies and gentlemen, thank you for the time. We're open to what? That was it, Paul?
That's it. So we're finished and thank you very much for your time.
Thank you. So ladies and gentlemen, that concludes your conference call for today. You may now disconnect. Thanks for joining and have a very good day.