Review for listed fertiliser business as $500m financing plan falls through

Scarborough-headquartered fertiliser development company Sirius Minerals has said its proposed $500m senior secured notes offering cannot be issued in the current market conditions.

This means the scope of construction activities on the company’s North Yorkshire Polyhalite Project will now be adjusted, while a strategic review is undertaken over a period of up to six months.

However, Sirius said unrestricted cash reserves of £180m (£117m uncommitted) as of 31 August 2019, will provide sufficient liquidity for the company to explore all strategic options during the strategic review.

Chris Fraser, Managing Director and CEO of Sirius, said: “Due to the ongoing poor bond market conditions for an issuer like Sirius we have not been able to deliver our stage 2 financing plan.

“As a result, we have taken the decision to reduce the rate of development across the project in order to preserve funding to allow more time to develop alternatives and preserve the significant amount of inherent value in this world-class project.

“The company will now conduct a comprehensive strategic review over the next six months to assess and incorporate optimisations to the project development plan and to develop a different financing structure for the funds required.

“This is the most prudent decision to give the company the time necessary to restructure its plans to move the project forward.

“The process will incorporate feedback from prospective credit providers around the risks associated with construction and will include seeking a major strategic partner for the project.”

The company released its financing and development update on the same day as its half year results, which featured a £14.3m operating loss.

The business said this compared with a £10.8m operating loss for the prior corresponding period, mainly attributing the increase to a greater level of corporate and sales and marketing costs linked to the company’s Stage two Financing.

During the six-month period ending on 30 June 2019 the Group, which intends to carry out major potash mining under the North York Moors, made a total pre-tax loss of £3.1m compared to a loss of £95.3m for the equivalent six-month period in 2018.

The firm’s total funds at the end of June 2019 were £713.8m, comprising cash and cash equivalents of £349m and restricted cash of £364.8m.

£240m was deployed during the period to develop the company’s project. Sirius is looking to tap into what is thought to be the world’s largest deposit of polyhalite beneath the Yorkshire Moors National Park. It already has a mine near Whitby in North Yorkshire.

Two mine shafts will be used to help extract the potash, which will then be transported outside the National Park to Teeside via an underground tunnel for processing.

Permission was granted for mining to go ahead by the North York Moors National Park Authority in October 2015

In its half year report, Sirius Minerals said significant progress had been made across all its construction sites, with construction activities to date progressing in line with 2019 full year guidance.

It has signed a 10-year supply and distribution agreement with BayWa Agri Supply and Trade BV for up to 2.5 million tonnes per annum worth of its POLY4 fertiliser product in Europe.

The company has also signed an eight-year take-or-pay supply agreement with IFFCO for the supply of up to one million tonnes per annuam of POLY4 in India

But its update also noted: “On the 6 August 2019, the company announced it had decided to suspend the proposed offer by its wholly owned subsidiary of $500 million of senior secured notes due 2028, due to prevailing market conditions. The offer was to form part of the Group’s Stage two Financing.

“The company has today announced that, as a result of global market conditions, the ongoing uncertainty surrounding Brexit and the political environment in the United Kingdom, the company and its advisors believe a senior secured notes offering in compliance with the terms of the revolving credit facility commitment letter provided by JP Morgan is now unlikely to be achievable.

“The Board considers a reduced pace of development focused on key areas of the project that will ultimately serve to preserve the most value for the project will provide the company with a period of up to six months to review all available options for the company to move forward.

“The Group will need to secure additional external financing in order to allow it to continue operations after 31 March 2020.”

 

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