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Seems to be all sorts of wild speculation on here over the last few days about how bad the deal will be for shareholders and the scale of likely 'dilution' ahead. The presentation provided by the Company in November (less than two months ago) highlighted that the revised NPV of the project under the proposed phased approach to the remaining financing is $11.3Bn - and that's with the pessimistic case of 24 month deferral of the deferred phase (the NPV is $12.5Bn with the 12 month deferral). Whether it's done through royalties or convertible instruments, what the Company is effectively 'selling' to a potential new partner (and the thing the new partner will evaluate as a business case) is a slice of that NPV, in return for the investment funding.

The Company has said that it is seeking to raise $600m through the strategic investor / financial investor process. So, they only actually need to raise approximately 5% of the latest confirmed NPV of the project at this point. So the question is, what would be a sensible slice of the Company to give away to the new investor(s) for that?

What about 5% of the project? Well, that just gets the investors their money back, so not very attractive.

What about 10% of the project? OK, that doubles the investor's money - attractive, but probably not attractive enough given the risks.

15% trebles their money i.e. turns $600m into $1.8Bn and 20% quadruples it to £2.4Bn. By way of comparison, it would take a high yield Bond Holder 20 years to make that kind of return on a coupon of 15%.

You can keep on working the sums, but there will surely be a point where one of the multiple parties involved thinks that they are getting a better deal for their money than they can get anywhere else in the world and that the risk is worth the reward (having undertaken their due diligence). I would personally be surprised if we give up more than the equivalent of 3 to 4 times the amount that the investors provide in NPV terms (i.e. if they provide $600m, I don't think we will give up more than $1.8Bn to $2.4Bn in NPV terms, which equates to between 16% and 21% of the Company). But lets say it goes to 25% of the NPV - that's approaching five times their initial investment back for the investor (which is a hell of a return) and still leaves 75% for existing shareholders (including CF of course).

It's not the most scientific way of estimating the premium we're likely to be paying to a new partner, but I think it's the simplest way of thinking about it.

- CF has entered the den with just a little black book in his hand
- He makes his pitch
- He's personally invested everything
- He's spent ten years working on this
- He's got a virtually unlimited supply of a unique and disruptive product
- He's confident about his numbers
- Deborah Meaden wants to probe him about his revenue forecasts
- She heard him say billions, but he obviously meant millions?
- CF tells her she was right the first time
- The dragons laugh, look incredulously at each other and then look dismissively at Chris
- Peter says "that's ridiculous, I'm out"
- CF gets out his order book
- He shows them that he has secured orders of over 13 MTPA already
- He reminds them that the base revenue case is $140 per tonne - NPV between $11Bn and $13Bn
- The dragons glance nervously at each other and start scribbling in their books
- They're all working the numbers (due diligence)
- Peter Jones is chewing a wasp
- But who's going to be the first to move?
- CF's as cool as a cucumber
- Three remaining dragons look at their piles of cash and suddenly realise they don't have enough
- They rush for the lift, heading for the bank
- Deborah's relaxes, looks CF in the eye and says "would you take a cheque?"

Due Diligence usually takes between 30 and 60 days. When did it start? Will the interested parties politely wait for everyone else to complete their due diligence, or will one of them try to preempt the rest and make Chris an offer that he can't refuse?

I've posted previously about what a deal with a strategic investor might look like, but it's worth updating the numbers in light of the knowledge we now have about the next phase of funding. My view remains that the best deal for the company and shareholders (including the influential investors already on board) would be a royalty deal with some equity to help de-risk the investment for the strategic partner. I've set out how this might work below. It's important to note that the real value for the strategic investor in this scenario comes from the return provided by the royalties - the equity provides some additional value for them, but with the SP where it is currently, the purpose of the equity is to de-risk the investment as early as possible for the investor.

Looking at Gina's royalty deal, for $250m she gets a 5% royalty on the first 13m tonnes each year and 1% on anything above that. On the company's base case of $140/tonne, that's $65m in royalties annually at 13MTPA, rising to $72m annually for 20MTPA. So, yes she took a massive risk with her $250m, but if the mine gets to production she’ll receive a whopping 26% - 29% annually.

So, there could be, for example, a $600m capital injection plus $35m of new equity at 3.5p (1Bn new shares issued). If the $600m was on the same terms as Gina’s deal, that would mean a 12% royalty, which would give the new investor a return of $156m (rising to $170m) annually, in perpetuity. In addition, they would have immediate upside on the new equity - let’s say that (conservatively) the sp jumps back to 15p on the news, then they’ve made £115m overnight, which reduces their exposure by about a quarter immediately. As the build progresses and assuming the deferred phase gets financed (which it is now reasonable to assume will be senior debt, as the risks are more akin to civil engineering risks rather than mining risks, so no further dilution), then we would expect the SP to rise progressively. At an SP of 50p, the strategic investor would recoup their entire investment and can then sit back and watch the (very significant) royalties roll in.

There could, of course, be many variations of the above, but the key thing is that the terms of the deal are focused on the future value of the project, not the current SP, so dilution is kept to a minimum.

When considering the absolute likelihood and terms of the $600m fundraise, I think it's important to recognise that, prior to the Stage 2 financing being pulled, the company already held $400m in convertible bonds in escrow (at a conversion price of c18.75p) and was then given indications by potential investors that the next $500m could have been successfully raised if the offering had included warrants (see Sept 17th RNS). We don't know how many warrants and we don't know what price, but with the sp around 11p at the time, it would almost certainly have been at multiples of the current sp).

It seems clear from the text of the Sept RNS that the only thing that stopped this deal going ahead was JPM refusing to waive the terms of the Revolving Credit Facility. That was, of course, their prerogative, but the important thing to note is that this suggests Sirius have, very recently, had strong indications that they could secure a total of c.$900m in combined bond issuance from the market, with the equity element priced at an average of maybe 13-14p across the two issuances.

In other words, the company has already had a very strong and recent indication that there are lenders out there who would be willing to fund 50% more than the project now needs on terms that were not overly onerous to the company. I think that is important context for both the likely outcome and the terms of the current negotiations.

DHC - CF pretty much did say all of those things at the time, the trouble is that most people on here never took the time to listen to the webcast until the damage was done.

John, I had the same thought a while ago, but when you look at the terms of the bonds (coupon of 5% and conversion price 18.75p, I think), I couldn't see why they would hold on to them - any new issue we get as part of revised finance package would probably offer a lower conversion price. I'm not sure that Sirius could use the money for anything else anyway, as it was all held in escrow pending the withdrawn bond issuance, so probably better off all round to repay, clear the balance sheet and remove the interest charge.

I agree that we are overdue an RNS to confirm the position.

I don't think Citi have sold anything - Sirius have just redeemed the $400m convertible bonds that were issued in May, as they said they would when they announced that a new financing plan was needed. I would expect an RNS from the company at some point to confirm that all the bonds have been redeemed as expected. Worth noting that this also removes about 1.6Bn of possible future share issuance due to the conversion option that was attached to these bonds.

Aubery, I agree, but I don't think it needs to be hugely dillutive - a royalty deal with a bit of equity (same as Gina's deal) would be the best way forward in my view. I posted previously what that kind of deal look like, but it's worth repeating here as I'd be interested in an (informed) discussion about it.

Looking at Gina's royalty deal, for $250m she gets a 5% royalty on the first 13m tonnes each year and 1% on anything above that. On the company's base case of $140/tonne, that's $65m annually at 13MTPA, rising to $72m annually for 20MTPA. So, yes she took a massive risk with her $250m, but if the mine gets to production she’ll receive a whopping 26% - 29% annually.

So, there could be, for example, a $500m capital injection plus $30m of new equity at 3p (1Bn new shares issued). If the $500m was on the same terms as Gina’s deal, that would mean a 10% royalty, which would give the new investor a return of $130m (rising to $142m) annually, in perpetuity. In addition, they would have immediate upside on the new equity - let’s say that (conservatively) the sp jumps back to 15p on the news, then they’ve made £120m overnight, which reduces their exposure immediately.

There could, of course, be many variations of the above, including the strategic investor taking a much higher stake (just double or treble the numbers above and it still looks attractive for shareholders from where we are today), but the key thing is that, once the high risk bit is sorted, all the other finance options come back into play, including potentially the Govt guarantee, so the remaining finance can then be on much better terms.

Not seen that video before DenFos - if you ignore the abject hypocrisy of it, given what ICL were saying about this product pretty much since Sirius started the project, it's a very polished advertisement. In fact, it's very good of them to warm the market up for us :-)

I've said before, but will say it again - whether it's the reason he did or not we'll never know, but the practical effect of CF buying 10,000 shares (the smallest possible number you could imagine him buying) is to place him at the top of the directors buys table on this forum, making his whole 124 million shares visible to all of us. It wasn't visible previously because the table only shows the last five buys and none of them were his, so if he wanted to remind us how much he has riding on this project, that's as good a way as any to do it!

I've been considering what would be the best way forward from where we are now and concluded that anything funded largely from equity just won’t cut it as, quite apart from the impact on shareholders (including CF), it wouldn’t raise enough money to provide a secure way forward. So that means that we’re looking at alternative ways of getting a strategic investor involved that make it sufficiently attractive to them while retaining as much value for existing investors as possible.

It seems to me that a royalty-based deal to secure the funds for the high-risk shaft sinking would be the most attractive option for shareholders, as it focuses the deal on the future value of the product, rather than the current value of the project, thereby providing an extremely healthy return for the new investor without much dilution for existing shareholders, or taking much away from future revenues.

So what might that kind of deal look like? Well, looking at Gina's royalty deal, for $250m she gets a 5% royalty on the first 13m tonnes each year and 1% on anything above that. On the company's base case of $140/tonne, that's $65m annually at 13MTPA, rising to $72m annually for 20MTPA. So, yes she took a massive risk with her $250m, but if the mine gets to production she’ll receive a whopping 26% - 29% annually. That is a massively higher return than anything the bond-holders have been looking at and it runs in perpetuity, whereas bondholders have a much shorter investment horizon, so a different attitude to risk. So, it is a VERY attractive proposition to the right kind of investor.

Now, you might say that the market is much more risk averse today, so would want an even higher return than that, which may be true, but of course Gina won't be very happy if someone else gets offered better terms than her when she took the bigger risk by coming in earlier in the project. So, I think we could see something offering similar terms. There could be, for example, a $500m capital injection plus $30m of new equity at 3p (1Bn new shares issued). If the $500m was on the same terms as Gina’s deal, that would mean a 10% royalty, which would give the new investor a return of $130m (rising to $142m) annually, in perpetuity. In addition, they would have immediate upside on the new equity - let’s say that (conservatively) the sp jumps back to 15p on the news, then they’ve made £120m overnight, which reduces their exposure immediately.

There could, of course, be many variations of the above, including the strategic investor taking a much higher stake (just double or treble the numbers above and it still looks attractive for shareholders from where we are today), but the key thing is that, once the high risk bit is sorted, all the other finance options come back into play, including potentially the Govt guarantee, so the remaining finance can then be on much better terms than the JPM deal, as the major risks have been removed.

Just wanted to show that there are ways thro

Pretty noisy on here today and an incredible number of unfamiliar names.

Quite a few posts referencing the current market cap as equivalent to the value being placed on SXX by the market, which is theoretically right but that doesn’t really work in the current situation as there are so many distortions. The sp only actually reflects the price of the shares being traded, not those that aren’t, so it makes no sense to use the current sp to value the whole business. It would be like saying that you could buy the whole housing stock of the UK based on the price of the cheapest houses on the market at the lowest point of a recession. Theoretically true, but in practice, if you tried to do it, the price of the stock that wasn’t on the market would progressively rise as demand would outstrip the supply that was available.

The same is true of SXX - it’s value depends on two things - the underlying asset on the one hand and the company’s ability to exploit it on the other. We have a problem with the latter at the moment, so the former is being discounted to nothing, but find the right key and it all gets unlocked again.

I wondered that too Underlay and concluded that it might simply be to remind PIs how much he personally has riding on this - his shareholding is now very prominently displayed at the top of the list of director buys, so his personal stake is now front and centre of this BB.

So, what CF seems to be alluding to in the webcast is that they look to explore ways of isolating the risk associated with the financing of the main shaft from everything else, so that the funding for the rest of the project can then be assessed separately (on more favourable terms, without being weighed down by the risk attached to the financing of the main shaft). The most obvious way to achieve that is to re-sequence the plan to get the main shaft substantially sorted before any material spend continues on the other aspects of the project. By limiting the funds at risk during the next (highest risk) phase of the project to those needed for the main shaft, the critical path risks are front-loaded and total funds at risk are reduced materially, which should in turn open up a broader range of financing options for subsequent phases (at lower cost). CF also mentioned that the stage 2 financing deal is based on a project plan that’s effectively 12 months old, so it makes no allowance for the construction progress and de-risking that has happened over the last year.

My guess, therefore, is that the BOD will seek to get specialist finance or a strategic partner to fund or share the risk of sinking the main shaft (for a premium return, or equity), which would then allow the rest of the financing to be agreed on terms aligned with the residual (lower) risk that will remain once the main shaft is completed. This would not only allow the company to approach a broader range of issuers for the residual funding, but also improve the terms for that part of the financing, as it will be much lower risk at that point. In an ideal world, this would all be agreed as a single package, with issuance / drawdown linked main shaft completion, to avoid the need to keep going back to the (unpredictable) bond markets every six months.

The obvious downside to this is that re-sequencing the construction of the MTS and everything else to after the main shaft has been built instead of in parallel means that it will take longer to get to first production. However, progress with the MTS has been materially faster than plan and because of this, it may be possible to still hit a similar timeframe to that in the current plan. They are also looking at alternative ways of ramping up to full production and reducing the number of TBMs needed for the MTS, which could materially reduce the overall project costs.

So, while this remains a hugely risky investment, with manifest risks to the downside, if the company do manage to pull something off as CF hopes, it’s by no means right to say that shareholders will automatically lose out.

For anyone who remains invested here, if you have not done so already, then I would urge you to spend the half hour that you might otherwise spend reading messages on here listening to yesterday’s webcast from the Company:

https://siriusminerals.com/latest-news/news-stories/sirius-financing-development-update-webcast-september-2019/

The webcast sets out the company’s position very clearly and explains the reasons for the action that the BOD has now taken. As unpalatable as yesterday’s news was, and regardless of what you think of the nature of the stage 2 financing arrangements, it is clearly the only sensible thing that the company could have done in the current market conditions to give themselves some breathing space to evaluate and pursue alternative financing options. The alternative was to simply keeping on going and cross their fingers that the bond markets might open up again, but they could only do that for a month or so before running out of money, which would have been suicide given the current political and economic context, so they’ve opted for the safest option in the circumstances.

While it’s true that the change in approach may still not sort the problem, or may lead to further dilution or a much worse deal for shareholders than what was previously on the table, that is by no means certain. Quite the opposite in fact - the intent/expectation of the BOD is that the re-profiling of the project plans to reflect the progress made to date and look at ways of addressing the key risk that the bond issuers ultimately baulked at (the risk associated with sinking the main shaft) will open up new and different ways of financing the project that could ultimately benefit shareholders.
I know that feels like a very big ask, given where we are, but the problem with the financing isn’t that the money isn’t available, it’s about the degree of risk that the lenders are prepared to take for the return that they get (or even their absolute risk appetite, regardless of the return). The design of the project and Stage 2 package simply doesn’t reconcile that at the moment, but that’s because all of the construction risks are bundled up together, because everything is being run in parallel. So, the money needed for the MTS, surface facilities and port infrastructure etc. is currently carrying the same risk premium as the money for the main shaft (because it carries the same risk of loss for as long as the main shaft remains under construction).

Once the main shaft is completed, the risk profile of all the remaining spend will drop dramatically, but the current construction sequencing doesn’t allow the company to take advantage of this, because of the plans having everything running in parallel. The trade-off is obviously that the parallel build activity gets the project to production quicker, but significantly raises the financing risk (and associated costs).

Those were the days GK - good to see some of the old guard still keeping the faith. Even better to see the mine being built, albeit somewhat later than envisaged back then.

TruroTrader - the shares have never been anywhere near £1.50 - the IPO and conversion price from VIY to NIPT at the point that the reverse takeover took effect was 11p . The shares did well leading up to the launch of the IONA test and peaked at about 32p on the morning that Illumina slapped us with the litigation, after which the shares tumbled and we've struggled ever since.

I'm pretty sure that there was talk on here that a member of the BOD had suggested that £1.50 would be a reasonable takeover price and that we might get that within 18 months (of the launch of IONA) - that comment being made around the margins of a discussion one of TWs' Investor Conferences, so nothing official. We've probably got three times as many shares in issue now, so that would be the equivalent of 50p today (and interestingly an sp of 11.65 today in the equivalent of about 35p back then for the same reason).

For whatever reason, the market seems to be pricing in very little now for future growth - it's looking forward no more than the next 12 months in terms of the numbers, so until those numbers start to exceed expectations (which I think they will) and we get some sensible forward looking numbers that align with the ambition that Lynn talks about , it seems that we're just left waiting for the six monthly business updates. I agree with others on here that this is the most disappointing thing and I can't see any reason why they couldn't issue a monthly or quarterly update on commercial progress. To only hear about the numbers every six months is what you expect for a stable, long established, FTSE 100 company, not a company that claims to be driving its growth forward with the ambition that we're told (and I believe) Yourgene has.

They, quite literally, couldn't tell us any less about commercial progress than they are (which I think is the statutory minimum). From what people on here have been told by the company, that is clearly a deliberate strategy, so we're left wondering why that might be the case.

Don’t disagree on the lack of visibility around commercial progress, but it’s far better to know when the results are being announced than not and it aligns with what TW said last week. We also know they’re keen to attract more institutional investors (open market, not placing) and IIs would expect them to do this, so I don’t think it’s for our benefit.

Nice to see some steady growth in the sp over the past few days. I wonder if it’s the existing institutional investors getting the extra shares they want before the results and the next round of roadshows? Would be nice to see this continue up to July and then some new insti’s showing interest after the roadshows 😀

I agree and like you (i think) I've been in from the Vialogy days, so the lack of any significant sp movement is more than frustrating. I find it hard to reconcile the kind of risk people were buying into at 32p per share (albeit with far fewer shares in issue) versus being able to pick these up at 11p today (the same as the IPO price) with everything that's now been achieved. If you'd said back then that they would have been established in 57 countries by now, people wouldn't have believed it, even at the top of end of the 'land-grab' hype.