Nicholas Hyett, Equity Analyst 14 May 2019
This isn’t how it was supposed to be.
By the end of last year Sirius had expected to have raised all the funding required to finish its North Yorkshire Polyhalite mine. And, crucially, that funding was going to be achieved through debt alone.
The reality is that stage 2 funding has only just got off the ground. Sirius has had to raise $425m through issuing shares – equivalent to 31.2% of the market cap, with a further $3.6bn scraped together in debt financing. It’s been a painful experience for shareholders, knocking 30% off the share price.
2018 – was it all bad?
The lack of stage 2 funding makes it difficult to see 2018 as anything other than a disappointing year. But Sirius can claim some significant successes.
Procurement for all the major components of the mine have now been completed, and construction of key elements of the mine are said to be progressing smoothly. Construction is well underway on both the production and service shafts, with tunnelling for the underground conveyor system, which will eventually remove product from the mine, also started.
Equally as important are the sales agreements with suppliers in various countries around the world. These agreements, which now cover up to 10.7 mega-tonnes per annum, mean that Sirius knows it will have buyers when it produces its first polyhalite in 2021. The process has even seen Sirius take a 30% stake in its South American distributor Cibra.
Those relationships will have been crucial to securing the most recent round of funding – underpinning future cash flows.
Looking to the future
The good news is that the completion of stage 2 funding will give Sirius all the firepower it needs to finish the Woodsmith mine.
Sirius’ long running agronomy programme – which seeks to establish the strengths of Polyhalite versus established fertilisers – has continued to expand. Having added 110 new trials in 2018, more than originally expected, the programme now includes 382 trials across 42 crops in 28 countries. Results continue to suggest Polyhalite increases crop yields.
The success of the Polyhalite research programme, along with established offtake agreements, means there should be plenty of demand for what Sirius will eventually be producing.
There are still some funding hurdles to be jumped – not least the successful issuance of several hundred million dollars’ worth of bonds. If that obstacle’s cleared, it should be a relatively uneventful 12-18 months for investors, despite some major construction work going on the ground.
Still one for the patient investor?
Following Sirius’s last full year results we wrote:
“We think all investments should be made with a long term view. But with Sirius that is truer than ever. The shares will be volatile over the years ahead, and price movements are likely to be news driven.”
A little over 12 months later, with final funding still to complete, our views haven’t changed all that much.
The author holds shares in Sirius Minerals.
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