Sirius Minerals investors shaken by increased fertilizer project costs

LONDON (ICIS)–UK developer Sirius Minerals has rattled investors after announcing that it requires $400-600m additional financing to complete its Woodsmith polyhalite fertilizer project in Yorkshire.

– Additional $400-600m required to finish project
– Share price drops 30% to low of under £24/share before rebounding
– Transport tunnel contract agreed

Sirius’ project aims to produce a polyhalite-based fertilizer, which Sirius will bring to market under the brand name Poly4.

 Poly4 fertilizer includes 14% potassium, 19.5% sulphur, 6% magnesium, and 17% calcium.

In a press release, CEO Chris Fraser attributed the increased costs to fresh understanding of the rock strata surround the project site, and a subsequent tweak to plans for its 37km mineral transport system (MTS) tunnel.

The increase places stage two capital funding requirement estimates to $3.4bn-3.6bn, the company said.

“The expected increased funding requirement coming from this process reflects an optimisation of the MTS tunnel design, and a significantly improved risk allocation for Sirius to support the senior debt financing,” Fraser added.

Sirius’ share price dropped by nearly 30% on Thursday morning to a low of under £24/share, before rallying to slightly under £29 over the course of the day.

The sell-off continued in early Friday trading, with shares dipping 2.6% as of 9:45 BST, to £26.67 apiece.

Sirius offered a number of options to locate the additional financing, including:

– Securing a strategic partner’s financing, to provide capital at either the asset or project level

-“Completion support” from potential stakeholders or investors

– Strategic capital from subordinated debt and leasing providers

– Accessing the capital markets through convertible notes or new equity where the value proposition is appropriate for all capital providers

After receiving updated information on the 37km drive required to dig the MTS from Woodsmith to the company’s future facility at Wilton, near Teesside, Sirius increased the planned tunnel diameter from 4.3m to 4.9m, and added a thicker lining.

Expected daily drilling progress also dropped to 17m/day, from a proposed 21m/day.

“The project’s economics remain extremely compelling, and we are confident they support the expected additional funding requirement,” Fraser said.

In the same announcement, Sirius revealed it has extended its contract with Austrian specialist Strabag for construction of the MTS, assigning drives two and three to the company, on top of its previous agreement for drive one.

Strabag also looks set to be preferred contractor for the fit-out of the MTS, “which includes the supply and installation of the MTS conveyor and the associated power supply, and the port facilities – which includes construction of the outload circuit, wharf, and product storage facility”, according to Sirius.

Meanwhile, Sirius has also contracted Jacobs UK – a subsidiary of Jacobs Engineering Group – to provide an engineer, procurement, and construction contract for the materials handling facility (MHF) at Wilton.

The company’s port facility plans have also been tweaked somewhat, as Sirius “has amended the scope of work to include temporary truck and train transportation of product from the storage facility at Wilton to the port facility”.

Previously, Sirius intended to construct a raised conveyor from the MTS tunnel exit and MHF to its Teeside site.

Now, though, the temporary truck and train logistics “enables the construction of the overland conveyor to be deferred, until such time as it can be funded through operating cash flows, currently assumed to be 2025”.

“The greatest driver of value for the company is successful project delivery,” the company added.

Focus article by Andy Hemphill

Pictured: Strabag tunnelling equipment (Source: Sirius)