Uncertainty dogs Sirius

One year on, and nothing very much has changed with Sirius. The company is still waiting to receive the approvals needed to build a mine in the North York Moors National Park. In fact, it has yet to even apply for them. Sirius had an application in last year but withdrew it after third-party consultants for the park authority said more environmental studies were required.

Last month, Sirius was supposed to re-apply but decided to delay handing in its mining permit application until the end of September, when the company will simultaneously apply to build a roughly 38-km-long mineral transport system underneath the park’s vast tracts of protected moorland. Sirius must also apply separately for a materials handling facility, as well as a berth at a nearby port. Because the sites straddle multiple local authorities, some applications must be made to both the park authority and the Redcar and Cleveland Borough Council, while the port berth is decided by the Planning Inspectorate.

Even if this all goes swimmingly, which we doubt, the lengthy permitting and construction timelines mean first production from the mine wouldn’t be for another four years in the best case. It’s a safe bet to assume powerful environmental lobbying groups will raise enough objections along the way to delay the project for several additional years.

All this assumes, of course, that Sirius can actually raise the more than $2.3bn (£1.4bn) needed to build the mine and its associated infrastructure. It had just £48m in the bank as of March and burned through nearly £26m of cash in 2013 alone before financings. Unfortunately, the resource boom is over and banks are no longer lending huge sums of money to small mining outfits. Moreover, the price of potash is in the dumps after a long-established trading cartel disintegrated. So chief executive Chris Fraser has come up with a risky plan to tap into the high-yield junk bond market in America, as he did when he helped Australian iron ore miner Fortescue Metals raise $2.5bn in initial development capital. Nevertheless, Fortescue almost went bust a few years later and had to ask lenders to waive debt covenants after iron ore prices slumped when the company was over-leveraged. A similar structured deal for Sirius comprising debt and equity would see it potentially pay hundreds of millions of dollars in interest payments per year for several years.

True, Sirius recently alleviated one of our previous main concerns that it would have trouble selling its product, polyhalite, at a decent price because it is an unconventional type of potash. The company has since penned agreements with multiple blue-chip customers to take up over 5m tonnes of polyhalite when production starts. Pricing terms are unclear, though, and the majority of the deals are non-binding “letters of intent” or “memorandums of understanding”.