Sirius Minerals declares 'pivotal' time for the business

Sirius Minerals braced its 20,000 or so small shareholders for a "pivotal" few months today as it gave more details on progress towards funding the mammoth Yorkshire mining project.

The FTSE 250 company dealt a blow to investors earlier this month when it revealed its stage two funding needs had risen by US$400-$600 million to $3.4-$3.6 billion.

Shares had been at a two-year high this summer, only to slump by as much as 30% after the statement. Today, the company published a third quarter update in which it ruled out extending senior debt levels beyond the current $3 billion.

Source: interactive investor (*)      Past performance is not a guide to future performance

Instead, it confirmed it will look at a number of alternatives to fund the increased capital requirement, with the close of stage two financing expected to take place in the first quarter of 2019.

Sirius chief executive Chris Fraser said:

"The coming months are a pivotal period for the company as we work towards fully financing the construction of our world-class long-life polyhalite project."

The company is still working towards a date of 2021 for the first production of polyhalite, which it will transport underground to a materials handling facility on Teesside. It hopes the Woodsmith Mine, located south of Whitby, can reach output of up to 20 million tonnes per annum.

The extra development spend, which is likely to be met through a strategic partner, contingent funding or structured capital, is needed to pay for wider tunnels and thicker lining in the transport system.

The early release of royalty payments worth $250 million from a company controlled by Australian mining billionaire Gina Rinehart is seen as a strong endorsement of the project, meaning that Sirius operations are supported until the middle of 2019.

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However, joint broker Shore Capital points out that the curtailing of discretionary expenditure could still enable Sirius to operate into late 2019 or early 2020 even without any stage two financing proceeds.

In the six months to June 2018, Sirius said £148 million of capital was spent on the project. Fraser added that "excellent progress" had been made during the third quarter, with a number of key milestones reached.

Several offtake agreements have been signed and these will be vital to supporting the phase two financing programme. The company has now achieved volumes of 8.2 million tonnes per annum (Mtpa), which exceeds the target peak of 6-7 Mtpa intended to support due diligence for stage two financing. 

ShoreCap added today:

"All things considered, while Sirius is currently at development stage and still some years from becoming a cash-generating company, we remain of the belief that an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production."

The North York Moors area is believed to be the largest high-grade known resource of polyhalite to be found anywhere in the world.

Polyhalite is an evaporite mineral comprising a natural combination of four of the six macro-nutrients that are essential to plant growth — potassium, sulphur, magnesium and calcium.

*Horizontal lines on charts represent previous technical support and resistance.  Red diagonal line represents uptrend since 2015.