Sirius Minerals plc, Scarborough, England, revealed this week that it is pursuing a change to the anticipated structure of its stage 2 debt financing for its polyhalite mining and processing project under development in North Yorkshire. The company said it had done this in order to “modify the credit risk allocation amongst the various potential lenders.”
Sirius is still focused on a US$3 billion senior debt facility, but this will now be put in place in three tranches, each being drawn sequentially and linked to key construction milestones for the project. Sirius previously anticipated securing its stage 2 debt financing in two tranches, one from commercial banks and one guaranteed by the U.K. government, both of which would be drawn in parallel.
Under the new plans, the company anticipates the first tranche to comprise uncovered debt raised via capital markets, with the second tranche coming from commercial banks. The expectation previously was that the U.K. government would underwrite some US$2 billion of the project loans. Under the new plan, the U.K. government-guaranteed bond tranche, should it be provided, would cover US$1 billion, and would be the third and final tranche. The company said the third tranche would come when the project is past major construction risks and sales of Poly4 – the marketed polyhalite product – are underway.
The timing of the stage 2 financing is critical to the delivery of the project on the current schedule, with first polyhalite production continuing to be projected for 2021. Sirius gave an updated estimate last fall (GM Sept. 7, 2018) of the capital funding needed to complete the development of a 10 million mt/y mining project, to US$3.4-$3.6 billion from the previous estimate of US$3 billion, Sirius had anticipated financial close of the senior debt financing by the first quarter of 2019 (GM Oct. 5, 2018).
Speaking on an investors and analysts conference call this week, Sirius Managing Director and CEO Chris Fraser would not comment on when the close of stage 2 financing is now anticipated, but he said the company has sufficient liquidity to fund the project into the second quarter. Sirius noted that as of Dec. 31, 2018, its cash position was £290 million, of which £230 million was unrestricted.
“Executing our stage 2 financing plan remains our priority. We continue to make progress towards obtaining stage 2 financing commitments and are working constructively with all relevant parties to achieve this,” Fraser said. “The progress with the lenders is continuing this quarter as we work through the due diligence reports with the lending group and progress discussions on the revised debt structure.”
The company also highlighted the sales and marketing progress it made last year for Poly4. This included the completion in the fourth quarter of the acquisition of a 30 percent equity interest in each of Brazil’s Cibra Group companies, which is linked to a supply agreement between Sirius and the Brazilian group for the resale of 2.5 million mt/y in peak aggregate volumes of Poly4 into Brazil and certain other South American countries (GM Nov. 30, 2018). Sirius now has total peak aggregate take-or-pay supply agreements in place for 8.2 million mt/y.
Fraser said negotiations are also “well-advanced” in Europe, and that concluding a European take-or-pay supply agreement remains the company’s current sales and marketing priority. He added that the company has other negotiations going on in markets such as India and Africa. Fraser said Sirius is focusing on potentially premium markets like Europe, or growth markets like India and Africa, where good quality penetration and access is needed.