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Liberum slashes Sirius Minerals price target after miner pulls bond sale

Wed 18 September 2019 13:19 | A A A

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(Sharecast News) - Broker Liberum slashed its price target on buy-rated Sirius Minerals to 9p from 40p on Wednesday a day after the company pulled a $500m bond sale that was crucial to unlocking a $2.5bn credit facility from JPMorgan needed to finance its potash mine in Yorkshire.

Analyst Richard Knights said: "What matters for shareholder returns from here is the structure of any future financing solution and its likelihood of success.

"Clearly the risks have increased, but there are also plausible solutions that could deliver a 40-50p net present value/share (down from 68p) and which we believe look highly attractive to potential strategic investors."

He said Liberum remains a firm believer in the project, but downgraded the target price to invested capital until further progress can be articulated.

"Based on comments made in yesterday's release and on the conference call the company appears to now be looking at ways of re-allocating risk in the financing structure to appeal more to debt capital providers.

"In a nutshell, this likely means annexing the high risk capital items (i.e. the shaft) from the bond by bringing on third party or strategic investors to finance it. This kind of solution could improve credit risk on a couple of fronts; by removing creditor exposure to the shaft which is perceived to be the highest risk component of the construction and possibly providing a level of strategic expertise and/or additional balance sheet strength."

Knights said it could also improve the possibility of re-engaging with the government for support on a lower risk proposition and with more time to assess, although the probability here is low.

"Crudely assuming a $500m raise at 5p, project delayed by a year and a 5% overall capital cost reduction from the initiatives outlined above, our NPV per share for the project drops from 68p to 38p. Under this scenario the strategic would end-up with a 50% beneficial interest in the project."

At 1315 BST, the shares were down 9.4% at 4.23p.

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