Struggling developer Sirius Minerals (SXX) has announced a new fundraising effort for the Woodsmith fertiliser mine after being forced to abandon its $3.8bn (£3bn) package in September. The new approach would see $600m raised in the coming months from a strategic partner, or a new debt/equity package.
The Woodsmith mine has run into trouble in recent months, as Sirius was forced to pull a $500m bond offering that would have unlocked a $2.5bn loan from JP Morgan Chase, which it needs to build the mine. This triggered a share price collapse that cut the developer's valuation from over £1bn at the end of June to £224m as of Monday morning.
Sirius will now attempt a cheaper route to reaching the polyhalite deposit, which it says would go a long way to proving the mine’s viability. The company’s project involves sinking two shafts more than 1500m down to the deposit, which would then be transported to a plant at the Teesside port via a 37km tunnel. Under the new plan, work on the tunnel and shafts will continue, while the company attempts to raise $2.5bn for the full mine to be built. The service shaft is currently 119m deep, the company said.
The cost-cutting plans include using the same tunnel boring machine for the next stage and re-purposing the current conveyor, instead of building a new one, would cut around $100m from the tunnel cost, according to Sirius. The $600m plan would not finish the tunnel – once the remaining financing is found, it would be finished in 2024 or 2025.
The company expects to reach the polyhalite deposit by mid-2022, under the same timeline as the previous plan. Sirius managing director Chris Fraser said getting to the polyhalite and making progress on the tunnel would demonstrate the project’s viability. Mr Fraser has continued to make deals to sell the fertiliser from the mine, despite its future being up in the air - the latest agreement being a 10-year deal with the state-owned Qatari group Muntajat. The gulf state has previously backed the company through an investment via the Qatar Investment Authority.
On an investor call, Mr Fraser said UK Prime Minister Boris Johnson was also supportive of the project, but did not say whether government backing was forthcoming. Local Labour MP Anna Turley was back on the attack after the announcement, saying the government was at fault for job losses linked to the project delays. The project has been held up as boon for employment in North Yorkshire, and many locals have backed the company by purchasing shares.
Away from the politics of the situation, Sirius expressed confidence in raising the cash from investors and institutions once the $600m stage is completed. To get to this point without a strategic partner, the company said it was looking at a debt package which “may incorporate” an equity issue. The company pulled the bond raising in September after prospective partners sent the offering well into junk status.
Liberum analyst Richard Knights said the overall cost savings of $368m would mean the delay to production would not increase the net cost of the project. “This is crucial for preserving the value of the project in the staged financing, as the high NPV relative to share prices and back-ended nature of cash flows mean value per share is highly sensitive to dilution and not particularly sensitive to time delays,” he said.
