RE: Simplistic arithmetic part 230 Dec 2019 12:10
Sirius Minerals could "get by" with $400mln fundraising, says broker
The house broker said construction risk would be concentrated in stage-one, meaning the deferred stage is “materially de-risked for senior debt providers, which should facilitate raising senior debt”
Low’s note emphasises that the new approach would need significantly less upfront capital in order to advance the remainder of the mine development. This initial or intermediate stage would still give the company “attractive returns”, according to the analyst.
“Most importantly, from our point of view, ‘mining’-type construction risk is now concentrated in the Initial Scope (Stage 1), along with the ‘risk sharing’-style shaftsinking construction contracts,” Low said.
“As a result, the Deferred Scope (Stage 2) is materially de-risked for senior debt providers, which should facilitate raising senior debt.
“We expect that successful fund raises at each stage should catalyse major re-ratings.”
The ‘initial scope’/Stage 1
Sirius estimated that it would need around US$600mln to spend on shaft sinking and to complete the Drive 1 portion of its underground mineral transport system - in order to achieve the ‘first polyhalite’ project milestone by Q2 2022, opening up production and revenue streams.
Sirius needs to land those funds before the end of 2020’s first quarter, Shore Cap noted, and the company is seeking this cash from either a strategic investor, structured debt or equity (or a combination of either).
“Sirius noted that strategic investor participation would likely reduce the perceived credit risk for Deferred Scope funders; intriguingly, ‘various interested parties’ are undertaking due diligence,” Low added.
The deferred project/Stage 2
Delivering the entirety of the Yorkshire mine project requires substantially more funds, estimated by Sirius at some US$2.5bn based on the previously envisaged 10mln tonne per year operation.
Low, in his note, reckoned that cost cutting could lower that burden and potentially also accelerate the expansion of the project beyond its more limited ‘initial scope’.
The analyst said: “work is ongoing on a number of options which we believe to have the potential for significant further schedule acceleration and cost reduction.
“The deferred scope would only be committed to once full financing has been secured (traditional bank based project financing and/or bonds), which Sirius anticipates occurring within 12 to 24 months of Initial Scope commencement.”
The range of potential valuations vary wildlyShore Capital’s own analysis indicates that the potential value of an investment in Sirius may vary wildly, depending upon which development and funding scenarios transpire.
Low notes that the ‘post-tax net present value’ could range from 26.5p to 94.7p per share.
The broker’s base case assumes a two year wait for the ‘Deferred Scope’ or Stage 2 project and with a 26.5p NPV it is the bottom marker on the above
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