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duracellAA: "... I expect capital to sell to be honest."

Capital has invested in Sirius from an early stage and they has a good understanding of the project.
They sold before stage 2, so as to drop the share price and then to pick them up at a lower price in stage 2.1.
They must have made a very accurate/detailed calculation to lower the share price to a level that did not destroy the project so as to allow them to get in again in a successful stage 2.1. Due to the current share price, another placement may destroy of the project as a promising investment, they may not be able to repeat what they did before stage 2.1. Therefore, it makes no sense for them to sell at a loss (although to them the money they had invested in SM is very small percentage in their portfolio, and they could take the loss). This time, they could do something opposite to make another big profit (i.e., to increase their holdings at a price much lower than the stage 2.1 placement they had participated and triggers another RNS to push up the share price). When stage 2 is successful, and when the share price peaks at a certain point, they may loan their shares to the shorters again.

woolverstone13: "I think you have your sums wrong £410 million divided by 85000 investors equals approx £ 5000 each".

£ 5000 seems to be affordable by many of those 85000 investors; there still some not affordable, but some others could take more. The problem with a further equity call is the dilution impact. A placement price at 10p, for each existing shareholders to add £5000, would introduce 4.25b shares. As the placement/open offer price is normally at a discount of the current share price, if the price set lower than 10p, the dilution would be even serious that will destroy an once promising investment opportunity. This should only be the last resort.

Norge bank had been a hero that saved the (face) of stage 2.1 open offer, as without the RNS on their purchasing from the open market; the share price might drop below the placement price and the open offer may fail (in term of the shares taken PIs) or not oversubscribed. Now, if any of the big IIs -- Norge, Capital, Quatar, Jupiter, ... increases their holdings and triggers another RNS on their such positive actions, then confidence may come back and the share price could start to grind higher. JPM/SM may also ask them and those banks interested to invest in the project to bring up a certain amount of H.Y.bond purchases as contingency in case the purchases at the revisit is a lit bit short of $500m.
These big investors, including Gina, would not passively sit there waiting for their existing equity investment wiped out; they hare the power to take some actions and turn it around.

KOH, it is bad, but still has some hope.
Due the change of the market condition, JPM "Really couldn't sell the bonds" on the 9th of August given the offer price range provided in the roadshow. But, the bond may still have a chance to be sold when SM revisit the market in September, when the market calm down and when SM gives up a bit more to the potential purchases, e.g., with some warrant attached to the bond and/or at a slightly high price.

The current share price or the share price just before the revisit would influence the guide prices of the bond and the warrant . However, SM must have been talking with its big investors and the government as a backup (alternative debt, or IPA, or special loan). If the existing big investors are supportive (and they much be due to their existing stakes), they may take some positive actions, e.g., to increase their holding by purchasing shares at this mad price on open market, as Norge did before; or at least they do not sell their shares, stop lending their shares to the shorters or recall their shares from existing share loans, so as to bring the shorts down, stabilize the SP, and then push up the SP - placing the project in a good shape, before their revisit to the bond market.

KOH: on the withdraw "1) Really couldn't sell the bonds which is a really bad news (and looking into alternative options as a matter of urgency now) - probably not a great news for the current shareholders whatever it might be, but better than going bust" ... 2) ...3)

I tend to believe that 1) is the main reason. They have already engaged with many potential purchasers well before the roadshow. Due to the summer holiday starting from August, they had two time-slots to issue the bond before the end of September deadline: either before or after the holiday. At the time they decided to do it in early August, i.e., before the holiday, a number over $500m must have reached up to a specific price (with the given range, i.e., 10%-15%) based on the feedback received. An announcement date (i.e., 6 August) on the guide price (13.5%) made known; SM and JPM might have revealed this date (possibly through a formal notification to the U.S bond market authority) and the guide price to the potential purchasers and news reporters following the roadshow, as otherwise they have nothing to withdraw and have no need to inform all in a RNS). When the sudden Trump event happened, by looking at the impact to other similar bonds in the week and by the feedback from those 'almost certain' purchasers who have chanced their mind as a reaction to the event, SM/JPM realized that the bond could not be fully sold at the guide price; hence the withdraw as its much better than a fail. SM and JPM may give up a bit more to the potential purchasers, especially those interested but still undecided ones, to make sure the issue to be successful. However, they could not afford to give up too much, as this is the starting point (initial tranche) of the high-yield bond funding path (there are still 5 to 6 $500m bond tranches to follow). The first would set expectation (possibly also the potential prices) for the rest - this might be why JPM has set an upper limit at 15% and why CF made the comment on good execution and on avoiding ill wills among potential bond investors.

GK, I agree. Early stage cornerstone investment (not repaid by interest) is estimated with a more than 25% return; convertible bonds with an 8% interest rate were estimated with a return more than 18%. The Initial H.Y. bonds now become crucial/bottleneck to the stage 2 solution, therefore, it is reasonable to let the purchasers to have a higher return. The cost, as you calculated, is much lower than an equity call (which is difficult to do at this stage). Anyway, this initial bond is a secured and guaranteed one (with the uncompleted mine) and followed up by at least $1b debt fully underwritten by JPM, its risk is actually small that that of those stage 1 and stage 2 CBs. With a 25% return, as you estimated, they would have a profitability nearly as high as cornerstone investors, which should be very attractive to the potential H.Y.bond investors.

GK and Myo, I agree with you and believe at this moment, SM has to respond to the potential high yield investors' concerns and wishes by giving up a bit more to them, e.g., a high yield plus a warrant (in some form as listed by GK); Given the danger, luckily exposed in an early test of the market (rather than at a time near the end of the deadline), SM has met the criteria for government support, in the form of IPA or some special rescue aid, and still has the time to contact, request and negotiate for such an aid from the government before the last try. As if the final attempt at the high yield market unsuccessful, "... the prospectus documents say that these options [alternative funding or a merger or acquisition transaction] are unlikely to yield any results -- making bankruptcy procedures the next step and shareholders being wiped out a strong possibility" (Global Capital, Karoliina Liimatainen 07 Aug 2019).

In an early post, I had also speculated the scenario of an additional equity call, e.g., a one-to-one placement/open offer, but cannot see how this can be done. Obviously, neither many PIs are able to double their holdings; nor many existing II investors. For example, I do not think that Steve Davies at Jupiter could double his sxx holding in his fund given that the percentage of this is already very high in his fund. Even this equity call could be successful, due to a discount to the current share price (9.5p), the dilution would make this originally high risk high reward investment meaningless (due to this reason, what said in the mentioned prospectus documents should be true).

The 0.25% rate cut by U.S. Fed this month was smaller than the market expected.
"Traders are pricing in a more than 60 per cent chance the Fed slashes its benchmark interest rate by 25bp in September, with nearly 40 per cent betting on a more aggressive 50bp cut".
More rate cut by Feb would put down the debt interest rate, including yield rate. This would make a high yield rate offered by SM more appealing. This should be a part of the market condition that SM referred to (in addition to the easing of or focus switching away from of the trade war impact. The first round of the roadshow gave SM lots of useful feedback, which would help them to address those concerns raised by potential investors and to do it better in the second round of the roadshow.

KOH, the following are 18 of them:

Pelham Capital: 353.59m 5.06%
Jupier Asset Management: 327.72m 4.69%
Capital Research and Management 330.46m 4.72%
Qatar Holding 230.28m 3.30%
Norges Bank Investment Mgt 166.52m 2.38%
Legal & General Investment Mgt 109.44m 1.57%
Vanguard Group 154.53m 3.22%
Vanguard Capital 25.83m 0.54%
BlackRock 69.34m 1.02%
Alliance Trust 41.91m 0.87%
Aberdeen Asset Investment 23.05m 0.48%
Van Eck Assoc. Corp 18.14m 0.26%
State Street Global Advisor(UK) 14.90m 0.31%
Northern Trust Investment 20.48m 0.29%
Treachers Advisors 18.35m 0.26%
Royal London Asset Mgt 13.39m 0.20%
Aviva Life International 10.23m 0.15%
Kames Capital 9.04m 0.13%

Total of these top 18 2062m 29.45%

Sources:
https://www.morningstar.com/stocks/xlon/sxx/ownership
https://www.msn.com/en-us/money/stockdetails/ownership/lon-sxx/fi-aoe827?ownershipType=institutional
https://markets.ft.com/data/equities/tearsheet/profile?s=SXX:LSE

JMP in their broker report pointed out that "the market will now inevitably price in an ‘alternative’ funding scenario which could include an additional equity call". What might be a worse case scenario (that is better than wiping out)?

In a Financial Time article, "Mr Fraser insisted that the company would take the time to continue talking to its large investors who are supportive of the project". These talks maybe to ask their help to take up some of the yield bonds, and/or ask their help on alternative funding arrangement (just in case the initial tranche of the high yield bond was not successful).

How can Sirius existing large IIs investors help in alternative funding?
If Gina ($250m) and the big IIs (holding 30% of SM shares, around $300m) would agree to double their investment, the $500m can be raised. For example, Gina adds $200, and the top 10 big IIs add $300m (by taking a one-to-one placement), plus some PIs who may affordable to add more shares in the potential equity call.

Are there any other alternative funding approaches?

Chris Fraser, as investment banker at Citigroup, arranged an over $2b high yield financing from capital market for Fortescue in August 2006. At the time, Fortescue project just started with no cashflow. It had some big Chinese TorPs on the iron core to be produced in two years (i.e., the production would start in early 2008). The debt was structured in four tranches, starting with a $250m five-year coupon yielding Libor plus 400bp. The two seven-year tranches, for €315m and $320m, offer 9.75 per cent and 10 per cent respectively. The final tranche, of $1.08bn, yields 10.625 per cent. Fortescue would have to service the debt while it awaited production, with annual interest payments exceeding A$300m. https://www.ft.com/content/fd8fb2e6-2c7f-11db-9845-0000779e2340

Fortescue mines iron core from the surface (without a need to dig deep to reach the core). However, it needed to build a very long railway to a port.

The similarity between Sirius and Fortescue is very obvious:
1) raising high yield debt from capital market (instead of banks); 2) the raised money is used to build of the infrastructure of the mine (minehead, transport system, and a port); 3) a few years from cashflow (2 years for Fortescue and 3 years for Sirius).

The differences are 1) that the construction risk of Fortescue (surface minehead and surface railway) is smaller and easier to understand than that of Sirius (deep shafts and long tunnel); 2) Fortescue's supply agreements with Chinese buyers (for the majority of its planned production of 45m tonnes a year) are better of quality than some of those Sirius;
3) the iron core is well-known product; while polihalite as fertilizer is still relatively new; 4) Sirius is three years from production (cashflow); while Fortescue 2 years.

Due to some of the differences, Sirius needs more effort to help potential high yield investors better understand the construction risk (contingency), poly4, and especially its cashflow starting from 2022 (i.e., on how the debt will be served). Fortescue struggled to raise funds from high yield bonds over a decade ago but now has become a mining giant of a A$21bn market cap. Now, it is Sirius's struggle to raise funds on the same funding path, also helped by a U.S (JPM) banker (plus the former Sydney-based U.S. banker (Chris Fraser) as its CEO). Their experience on the similar financing path and similar projects should help them to achieve similar results.

Itisagame: ".... and by hat time any prospective bond holder wanting warrants as a sweetener just managed to buy the stock in the open market at almost half the would be warrant price. "

True. Maybe they do not want to have any further exposure to the project, but just want some additional profit above the interest (by selling the warrants when the share price is much higher than the set price for the warrants).

Arrowgrass covered 0.21% and Citadel 0.20% on the 6th of Aug.
They earned a quick money in a few days; this may indicated that this has reached their targeted level.

JPM had commented before the investors wanted an equity element that comes with their investment.
In the current JPM solution, equity element was offered in share sale and new convertible bonds. An II may get this element by participating the firm placing and new CB and purchase the bond as well.
Potential bond purchasers that did not participate the first part of the stage 2 may want to get this by attaching a warrant to the bond. In case the continuing negotiation with potential purchasers indicating, the warrants are needed to make the bond sell successful, SM and JPM may lower a bit the interest rate and add a warrant to the bond (hopefully set a much higher price to the current price, so as to make the further dilution as small as possible). This is another option than what I had speculated option combining the JPM and the bank group solutions. After this setback, I still believe the bond will be sold (with more negotiation or adjustment to its terms). Comparing with the warranted bonds, a combined solution would be better for PIs. The project could also be bought. In anyway, SM has not done yet (or the PIs may not be wiped out as many fear), the funding may still be sorted out at the end (before the end of September).

"Not all [high yield bond] investors were sceptical, however. One high-yield bond fund manager said that while the deal should probably have included equity warrants, offering additional upside to bond investors, he thought it could still be done in a stronger market."
https://www.ft.com/content/1911b0e6-b813-11e9-8a88-aa6628ac896c

A bond with an equity warrants allows a holder to BUY a stock at a set price. A warrant can be separated from the bond, and someone else could use it. As a result, it is valued separately from an accounting perspective. These kinds of bonds would be more appealing to bond purchasers. However, such bonds may have a dilution effect, although their dilution effect (when the price is set much higher than the current price) may be much less serious than convertible bonds (whose conversion price is normally set at very near to (or only slightly higher than) the current price.

As SM, JPM, the bank group, and gov IPA have been working together since 2016 (and undergone the stage 2 DD process together), they should be able to come up with a combined solution in a couple of weeks. The successful sale of shares and new CB, plus a potential successful sale of the initial high yield bond tranche should enhance the confidence of the banks and the government. Two tranches of $500m bonds should be easier to manage and sell than 5 tranches. The $0.5b guarantee presents a smaller risk to tax payers than previously asked larger amount. The bank group had $1.5n loans tentatively committed in the past by around 30 banks. As reported, many of the banks are still interested in the project. They may choose to take part in the RCF and bank loan arrangements. JPM could still be a coordinator of the bank group (if they do not have a hidden agenda to take control/ownership of the mine, a solution sharing some load from them by others should be fine with them). The escrow arrangement and the senior debt event designed by JPM addressed the Chick or the Ege dilemma (i.e., avoided the potential argument on which comes first and addressed the inter-dependency among them).

The potential bond purchasers of the first bond tranche want to see there is a big equity components as cushion and the rest of the funds after it could be raised for sure to have the mine built.

Given the $825m raised in the first part of the stage 2 plus the equity-like money raised before stage 2, the equity cushion is better than that planned for the previous bank group solutions. The difficulty to raise the first $500m bond tranche may in part lie in the fact that it is not very clear at this moment to see all the rest of 5 tranches of $500m could be raised (despite the support of a $2.5b overdraft facility).

Waiting passively on a change (or improvement) of market condition may not be enough to convince potential bond purchasers. One possible solution is to combine the JPM solution and the old bank group three-phase debt solution:

phase 0: $825m equity-like fund (done, with new CB $400m in escrow account);
phase 1: $500m initial high yield bond, which unlocks a $1b JPM RCF (which also unlocks the $400m new CB, Gina $50m, as well as the bank loan and gov guaranteed bank loan)(if 2nd and 3rd tranches of $500m RCF returned, a further $500m RCF would be available to be access at any time)
phase 2: $1b bank commercial loan;
phase 3: $0.5m gov guaranteed bank loan;

If in addition to a JPM RCF, there will be a tranche of commercial loans and a tranche of government guaranteed loan arranged into an enhanced senior debt event, the bond (with a yield higher than the rest of the money in an overall package to make SM fully funded) should become much more easier to sell.

This may convince that Gov that SM has some funding shortfall that is difficult to get from the market, and its support (in a form of guarantee) is needed to make up the shortfall and get the mine built. SM may have a parallel negotiation along its previous funding route as a fallback.

ShoreCap and Liberum both expect the bond issue to be relaunched in September. ...
"The bond was due to price this week, but has coincided with an escalation in the China/US trade war, a devaulation of the RMB through 7 and a smaller than anticipated cut in the Fed funds rate which combined to drive a sharp equity/commodity sell off and risk-off in high-yield markets," said house broker Liberum.
"Its impossible to know how much market weakness impacted demand for the Sirius issue, but the performance of Freeport's BBB bond issued on Friday gives some indication."
Liberum said on Tuesday that it thinks a yield of 13.5% "looks highly attractive in the context of its B rating".
"Cash reserves have been guided to the end of September, although there is likely to scope to extend slightly longer if financing discussions push up against that deadline," it said.
"The convertible bond funds in Escrow and the RCF commitment letter are effectively valid until the end of October, which we would consider a hard stop for Stage 2 financing. "
https://www.proactiveinvestors.co.uk/companies/news/900196/sirius-minerals-slumps-as-it-slams-brakes-on-us500mln-bond-offering-900196.html

He failed to be a role model -- when encouraging others to participate the open offer, he did not take even the basic entitlement (actually he was the only one doing so in the management team). The management then set up large number of share rewards to themselves at zero cost on some other performance measures without setting a share price threshold/target. These may offset quite percentage of their own loss (to their existing shares) in the heavily discount placement, but at the expense of a large number of PIs. Many PIs here had voiced unhappiness on these. Maybe they have some good reason to do so, to the eye of existing shareholders, there were not good examples. They need to show something positive in debt fundraising that indicates they have really placed shareholder value in their mind (as shown in their vision statement).