Now, eight years since the initial proposal was submitted from York Potash (eventually subsumed within Sirius) to the North York Moors National Park Authority, the project’s proponents can point to what amounts to its most significant endorsement from a commercial perspective.
In March, the miner flagged a conditional proposal that would replace its $3bn (£2.3bn) prospective multi-tranche funding arrangements. Now, we have confirmation that Sirius, in conjunction with JPMorgan Cazenove, intends to raise $3.8bn to fund Woodsmith through to the point at which it generates positive operating cash flows (barring further cost overruns). The funding package will utilise equity, convertible bonds, high yield debt, and a $2.5bn revolving credit facility.
A bookbuild process has been completed, raising gross proceeds of approximately $425m through a firm placing as part of its Stage 2 Financing requirements. Investors have agreed to subscribe for 1,962,432,513 shares at an issue price of 15 pence, representing a discount of approximately 32 per cent to the closing price on the last business day prior to launch. In addition, 218,048,057 open offer shares – representing 3.1 per cent of Sirius’ issued capital on admission - have been placed (on a conditional basis) at 15p a share on a 1-for-22 basis.
Sirius is to offer guaranteed convertible bonds - due in May 2027 - with an implied yield-to-maturity of 10 per cent, and an aggregate principal amount of approximately $644m, of which $244m will be put towards buying an equivalent amount of the company's existing 8.5 per cent guaranteed convertible bonds due 2023. The conversion price is initially to be set at a 20-25 per cent premium to the equity placement price
JPMorgan Cazenove will endeavour to find buyers for a separate release of senior secured bonds in a gross amount of $500m, though the finance house is not under obligation to take the bonds, so the capital-raise is not guaranteed.
If you had bought shares in Sirius at any point of its journey, you would probably have done so under the assumption that your holding would be diluted at some point – it’s not as if banks would have extended any lines of credit (on this scale) if investors hadn’t been willing to stump-up for new equity again. At the time of writing, the interest rate and repayment terms for the bonds have yet to be established, but you would assume that they’re going to be favourable for buyers, regardless of the moribund interest rate environment. And the revolving credit facility, which has yet to be syndicated, is contingent upon the completion of the $500m bond issue, before 30 October 2019.
It’s difficult to estimate the likely degree of dilution on the back of the capital-raise and any subsequent conversion of the bonds, but the company’s full-year figures for 2018 (released in parallel with the Stage 2 financing details) suggest that a sustained share price rise (ergo an incentive to convert) could follow now that the principal risk factor – a funding shortfall – has been eliminated.
Aggregate take-or-pay supply agreements for POLY4 fertiliser (a trademarked fertilizer product comprising the underlying elements: potassium, sulphur, magnesium and calcium) have increased by 30 per cent to 10.7m tonnes per annum. Agricultural heavyweight Archer Daniels Midland is confirmed as its North American POLY4 off-take partner. If all goes to plan, Sirius will start production in 2021 and hit 10m tonnes a year of production by 2024, though investors won’t need reminding that there is still a ‘blue-sky’ element to all this, regardless of the good news on the financing.
