First phase of Sirius potash mine could cost $3.56 B
The first phase of junior U.K. potash company Sirius Minerals plc’s North York Potash project in northeast England could cost $3.56 billion to deliver the initial targeted 10 million mt/y capacity that could take five years to build, the long-awaited definitive feasibility study (DFS) for the project revealed. However, the report, released early today, showed that the operation has the potential to generate underlying annual earnings (EBITDA) of between $1 to $3 billion, depending upon volumes and price. Sirius said the mine could start production of polyhalite in the next five years and reach the 10 million mt/y target by 2023. There is potential to double capacity.
The net present value of the project, located in the North York Moors National Park near Whitby, is $15 billion today using a 10 percent discount rate, the DFS showed. This figure rises to $27 billion once the mine starts production. The after-tax debt-free internal rate of return is put at 26 percent. The cash margins on the operation are put at 70-85 percent, with average cash operating costs estimated at $27.2 per mt.
Sirius says the financing of the initial 10 million mt/y phase will be done in two tranches, with stage 1 comprising $1.63 billion and stage 2 comprising $1.93 billion. The company says talks with potential funders are “well developed”. As at Feb. 28, 2016, Sirius’ cash balance was £25 million ($35.3 million).
“Work is advancing with our financing partners globally to bring together the pieces of the initial financing for this project,” Chris Fraser, Sirius Minerals’ managing director, said. “This process is expected to take a number of months but certain parts of the early construction activity, such as highway upgrades, are commencing soon to facilitate an efficient start of the project.”
The company to date has secured take or pay offtake agreements for 3.6 million mt/y of the initial output for the first 5 to 10 years of production. It additionally has entered into various other commitments that bring the total volume allocated to customers (including customer expansion options) to 7.9 million mt/y. Sirius says it is confident of securing further commitments during the construction phase.
Late last year, the company secured the final milestone in the planning approval process for the mining and transport licenses for the operation (GM Oct. 23, 2015). The current project schedule comprises 22 months for site preparation and pre-sink activities and 36 months for mine shaft sinking activity; that equates to 58 months or 4.8 years to first production.
The current planning approvals enable the installation of core infrastructure that delivers capability of 20 million mt/y. Currently, however, there is a limit of 13 million mt/y of production – which Sirius wants to achieve by 2024 – imposed by a planning condition of the North York Moors National Park Authority approval. However, Sirius says it is confident that an application to vary the planning condition to allow for the increased tonnage would be granted as required. The York mine will be the first new potash mine in the U.K. for 40 years.