RE: Times article on Sirius today27 Jun 2019 23:31
raised by issuing bonds that convert into Sirius Minerals shares. These carry a fairly punitive 5 per cent annual interest, payable quarterly, until they convert into shares at the very latest in 2027.
Next, the group has to raise $500 million through a high-yield, or high-interest, bond issue, which it is aiming to complete by September. The miner is hoping for the bonds to attract a “single B” rating from credit agencies, which should bring down the likely interest rate, but it will be high, nonetheless, and certainly into double digits. The likely lifetime, or maturity, of the bonds is not yet known.
Assuming that happens, in will come JP Morgan, which has underwritten a $2.5 billion revolving credit facility that can be drawn on as necessary for seven years. The American investment bank is charging Sirius Libor — or the rate that London-based banks charge to lend to each other — plus a meaty 5 per cent to use the lending scheme. In addition, for every $500 million that is drawn under the loan, a corresponding high-yield bond has to be issued in order to repay it.
Although the JP Morgan facility far from cheap, it gives the miner useful options and financial flexibility. It doesn’t have to draw on all of the potential loan, but can use what it does take for whatever purpose it sees fit, from funding its capital expenditure to redeeming some of the debts it has built up — whatever proves to be most cost-effective.
At this stage, and having achieved so much, it would be a surprise if the high-yield debt offer failed. However, the uncertainty of it all has weighed heavily on the share price, which is down a third this year and was off 0.6 per cent, or less than ¼p, to 14p yesterday.
This is not the market’s only worry. Even once the financing is complete, there are risks associated with constructing the mine. Also, the group does not expect to begin extracting polyhalite until the fourth quarter of 2021 and doesn’t reckon that it will be generating positive cashflows before 2023.
This means that even though Sirius has secured committed forward orders — in the region of 11.7 million tonnes of the resource — it will be some time before the company starts turning a profit and can even think about paying a dividend.
Shareholders in Sirius have reason to feel aggrieved. First, the $425 million equity placing was carried out at a deep discount of 32 per cent to the price beforehand, fuelling the sense among investors that did not take part that they were left at a disadvantage.
At the same time, while issuing convertible bonds is understandable, the prospect of dilutive new shares coming into circulation when the securities are exchanged — at any time and at the discretion of the bondholders — is bound to worry investors and hold back the stock. With a floor for conversion having been set of 19.54p, though, little is likely to happen while the price is at its present level.
Even with all this to fret about, the shares look ch
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