As part of long-term financing for the company's potash mine - which was granted approval in 2015 after years of political wrangling - six banks have been appointed to market the project to potential senior debt lenders. The arrangement of facilities, worth up to $2.6bn (£1.9bn), will not conclude until 2018 and comes as Sirius finalises details for its 'stage one' $1.09bn financing. It should also provide greater clarity on the total debt package. It is hoped that stage one capital - split evenly between equity and "various instruments such as a royalty, debt plus warrants or a convertible note" - will allow Sirius to begin construction imminently.
This is the latest positive newsflow for the company, which has already this year seen the completion of a defined feasibility study, an increase in polyhalite reserves to 280m tonnes at an average grade of 88.4 per cent from a 2013 estimate of 250m tonnes at 87.8 per cent, a second off-take agreement and the approval of permission for the Teeside port terminal. However, the shares really started to rocket at the end of June, when the company said discussions with contractors had led to a reappraisal of the total capital funding for the project, meaning it would cost nearly a fifth less at $2.91bn. At the same time, analysts highlighted the company's future exposure to dollar sales at a time when many investors were clamouring for dollar earners, conveniently ignoring the difficulty of predicting exchange rates years in advance.
On the surface, the involvement of big financing names - Lloyds, RBS and JPMorgan among them - is another vote of confidence in Sirius. Indeed, the lead arrangers have already indicated they will fund up to $700m of the facilities in conjunction with export credit agencies, funds and commercial banks, while Sirius believes it should be able to access additional capital if needed. For current investors, however, the key question is how dilutive the stage one financing is likely to be to the equity. Shore Capital predicts a fundraising equity price of 35p, or a 10 per discount to the current price, noting that "if all goes to plan, there would be no further need to raise equity".
While the current share price provides a stronger platform to raise equity from, it is harder to imagine new institutional investors paying 75 per cent above this year's average share price. That's because for all the recent de-risking, there is still an enormous amount that can change between now and 2023, when broker Liberum first expects Sirius to hit a pre-tax profit. On a forward earnings basis, Sirius is currently rated at 20 times that year's EPS. Although this drops to seven times earnings three years later, the company is going to need to attract some very patient upfront capital. Until then, the likely volatility of polyhalite and fertiliser prices makes net present valuations highly speculative.
