Shares in Sirius Minerals (LSE:SXX) tanked by up to 20pc this morning after the fertiliser miner revealed that it will need an extra $400-600m to finance the development of its Woodsmith Mine potash project in Yorkshire.
The additional costs, which bring Woodsmith’s total construction expenses to c.£4.2bn, came after the firm entered a new contract to dig a 37km tunnel between the mine a processing plant in nearby Teeside. The business said it had decided to increase the diameter of the tunnel– in turn, slowing its construction – after learning more about the local geology since November 2018, when costs were first estimated.
Sirius also announced that it now expects to reach 20Mtpa in 2029 rather than 2027 after revising its production capacity expansion plan to reflect expected senior debt facility terms. The company is currently on the hunt for $3bn of senior debt financing, which it expects to restrict its ability to use cash flows from operations to fund the expansion of the project to an initial 13Mtpa production.
The firm said it has received ‘detailed responses’ from lenders who are willing to lend it $1.5bnbut added that they will not release the money unless it can get the UK Treasury to underwrite a further $1.5bn of debt. The business is also looking at several options to finance the increased capital funding requirement. Among these, it listed taking on a strategic partner or issuing convertible bonds or new equity.
Although Sirius was initially floored by the news that Woodsmith’s stage two capital funding requirement will now be between $3.4-3.6bn, shares went on to recover some of these losses. As at the time of writing, the business was down 10.6pc to 29.2p with a market cap of £1.5bn- its lowest level in several months.
Sirius, a favourite of UK investors that has climbed the market ranks over recent years, added that it believes that the potential on offer at Woodsmith will offset the expected cost increases. Indeed, Chris Fraser, managing director and chief executive of the company, said: ‘The project’s economics remain extremely compelling and we are confident they support the expected additional funding requirement.’
Woodsmith is the world’s largest and highest-grade deposit of Polyhalite, a multi-nutrient fertiliser that can be used to increase balanced fertilisation around the globe. The project involved sinking two 1.5km shafts below a national park on the North York Moors to access the large deposits. Ore will then be extracted and transported to a processing facility where it will be granulated and exported to overseas markets.