Sirius Minerals plc, Scarborough, England, this week said it has upwardly revised the capital cost requirement of its polyhalite mining project under development in North Yorkshire to US$4.17 billion (including contingency). The polyhalite developer said in a Sept. 6 statement it probably will now need an additional $400-$600 million in its stage 2 funding, and puts its revised stage 2 capital funding requirement at between $3.4-$3.6 billion, up from the previous estimate of $3 billion.
The cost revision comes as the company finalized procurement and associated risk allocations.
Sirius Managing Director and CEO Chris Fraser said the expected increased funding requirement coming from this process reflects an optimization of the materials transport system (MTS) tunnel design and a significantly improved risk allocation for the company to support senior debt financing.
“The project’s economics remain extremely compelling, and we are confident they support the expected additional funding requirement,” said Fraser.
Sirius said it will present an updated financing plan to lenders in the fourth quarter. It is targeting a maximum of $3 billion in senior debt financing. Options to support the increase in debt funding needs will include selling convertible notes or new shares, or bringing in a strategic partner, the company said.
Sirius’ target for the close of stage 2 financing has also been pushed into the first quarter of 2019, which remains subject to the successful completion of due diligence and receipt of a satisfactory financing plan. Prior to the capital cost estimate increase, the company had been anticipating financial close before the end of 2018 (GM July 6, p. 27).
The City of London’s financial community reacted badly to the news of a rise in Sirius’ polyhalite project costs, with the company’s shares down over 21 percent on the day at 16.42 BST.
The revised project costs announcement came as Sirius reported that it had agreed to design and build contracts with Vienna-based Strabag AG, a subsidiary of Strabag SE, for the construction of Drive 2 and 3 of its MTS to carry polyhalite from its Woodsmith mine, under development near Whitby in North Yorkshire, to a processing facility at Wilton on Teeside. The Austrian contractor already has the contract for Drive 1 (between Wilton and Lockwood Beck) of the MTS (GM March 30, p. 28).
Sirius attributed the higher MTS cost to an increases in the planned internal diameter of the tunnel and in lining thickness, and a decrease in advance tunneling rates, following the company’s increased understanding of the geotechnical characteristics of the strata within which the MTS will be excavated. The higher cost is also due to a commercial risk allocation, which transfers construction and delivery risk to Strabag.
Sirius also said it had inked an engineering, procurement, and construction (EPC) contract for its materials handling facility (MHF) at Wilton with Jacobs UK Ltd., a subsidiary of Jacobs Engineering Group, Dallas, Texas. The MHF is where the polyhalite is brought to the surface and granulated. The plant has been scoped to include 7 million mt/y of Poly4 granule and 3 million mt/y of coarse product in the first phase of development, but with a footprint for up to 20 million mt/y of granulated product.
The polyhalite developer said the target price of the MHF’s EPC contract is consistent with its optimized DFS estimates. The company also expects the cost of the outstanding procurement contracts, which include the MTS fit-out and port facilities, to be in line with these optimized DFS estimates. It said it had identified Strabag as the preferred contractor for the MTS fit-out, and is in advanced negotiations for the provision of port facilities.
Sirius is still targeting first polyhalite production towards the end of 2021 and is working to bring that date earlier, with ramp-up to 10 million mt/y production in 2024. But it has revised its production capacity expansion plan to incorporate the expected senior debt facility terms that would restrict its ability to use cash flows from operations to fund the expansion of the project to 13 million mt/y production. Under the revised assumptions, it now expects to reach 13 million mt/y by 2026 and 20 million mt/y in 2029.