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There is pent up demand for the product, which is an alternative to potash and other chlorine-based fertilisers, according to Bade. Sirius has already signed numerous offtake agreements from clients in Europe, Southeast Asia [India], China, Africa and the Americas that add up to an aggregate volume of 10.7m [11.7m] tonners a year.
More comments from Bade:
Israel Chemicals has been doing 'extremely well' in transforming a potash mine into a polyhalite mine and has had great success building up the sales, but in the grand scheme of things the business is still small, said Bade. 'Sirius is looking to sell 10 times the current output of ICL,' he said, 'It is an unproven entity at the moment which is another reason why the reception may have been weak.'

The RNS is very short, TOO short!

The following provides some explanation and possibilities by others (Aidan Gregory, Karoliina Liimatainen, 1pm):

Sirius 'absolutely' will return to the market in September, clarified a source close to the company. 'The roadshow has attracted good interest in the bond. This is simply about the recent turbulence related to trade cars that started last week and progressed this week', the source said.

The truth may be more complicated than that, suggested Rikin Patel, a Berenberg analyst following Sirius Minerals.
'Volatility in the debt and equity markets in the recent days has clearly had an impact but there have also been murmurings that investors have not been entirely convinced in Sirius on the roadshow,' he said, adding that the timing of the delays puts the company 'on a knife-edge'. 'This is not good for the company. It can still get it done but it will have to rush it through which doesn't bode well'.

...

It is unclear how the delays will affect the pricing of the bond it if braves the markets again next month.

'The bond markets have been very strong', Said Roger Bade, a mining analyst at Whitman Howard in London. 'It does seem a bit odd that it wasn't able to get this cost of funding away'.
'Evidently, Sirus wasn't willing to pay the coupon that the market demanded or it didn't have enough demand', Dade added. ... 'The high yield and credit spreads are quite common as far as mining company finances are concerned,' Said Bade. 'One of the issues they have in the sector is that you have lots of junior companies that haven't necessarily bought into a mine before and, when they go to finance them, have to pay large coupons'. 'In a mining context the spreads and coupons of the Sirius convert and debt aren't extraordinary. They may well be onerous in relation to other industries but in terms of the mining industry we see them all the time', he added.
...
If the high yield bond cannot be resurrected, Sirius may be forced to go back to the UK government - now led by Boris Johnson -- for funding. .... 'The market will fret over the gap in funding for the project and that is before any consideration of cost overruns,' said Bade. 'If it can't raise the basic funding amount, what happens if anything goes wrong and there is a demand for more cash?' 'Perhaps, with a new pro-Brexit Prime Minister, the Government guaranteed debt route might open up again'.
...
https://www.globalcapital.com/article/b1glplp0k2vljv/sirius-minerals-on-knife-edge-as-crucial-bond-offering-postponed

Myo: "wwg.....you were asking about the winding stuff.....don't know if you have seen this before?"

Myo, Thanks for the interesting info. The hoisting systems for the deep shafts in their construction stage are much more sophisticated than what I could imagine. Multiple winders, rope sheaves and complex superordinated electrical and automation systems for each shaft to meet the very stringent demands of the availability and reliability of the shaft hoisting systems during the different operational phases of shaft sinking. "To meet these very stringent demands, practically tested shaft and heavy-duty hoisting systems fitted with the SIEMAG TECBERG group’s own automation system will be used."

It is great to see that SM has identified and used the best equipment produced and operated by the best professional manufactures and constructors in the world.

LITC, thanks for your interesting follow-ups on the topic.
Although the flotation costs of equity (underwriting fees, legal fees and registration fees) are typically higher those of debt, money raised in share sale could be generally cheaper than debt for a company, with a lower financial risk and a good prospects of profitability (i.e., no money to return); while in addition to yearly interests, the money raised from debt has to be returned at a maturity date no matter how tight the funds on hand are. Of course, share sale is very costly to existing shareholders, as the dilution that we had suffered. Sorry for the confusion I made when I mixed different kinds/meanings of costs together, especially when an average capital cost rate was mentioned (without referring to the formal WACC concept).

As NPV takes future cashflow into the calculation, in case of SM, it assumes that the needed money will be raised, the mine will be built and its products will be sold at the expected prices. Therefore, in order to compare it with the current share price, it has to be risk-discounted. Similar to the discount rate in NPV, the discount percentage for de-risking is also quite arbitrary. I like your EV/EBITDA multiplier approach and agree with your conclusion that the current share price is vastly undervalued (particularly when the dates of Initial bond sell and the Senior Debt Event are approaching). I believe that using your another risk-discount analysis suggestion (discount once with a higher discount rate in NPV), i.e., to take the 2019 NPV with a higher discount rage rate, i.e., 12% $3.958b (10% $5.888b) for a more conservative estimate (given the interest rates of the high yield bond tranches might be higher than we had hoped for), the result would still similar (i.e., ((3.958 -0.5)/1.3)/10 = 26.6p and ((5.888 -0.5)/1.3)/10 = 41.4p, both are much higher than the current share price (around 15p). These are in consistent with the results from a risk-discounted NPV analysis (discounted twice) done by Liberum and ShoreCap.

LITC: "... Hence, as per your assertion that all the NPV's are unlevered, one would have to deduct the project debt of $3bn (excluding the equity-type CB debt, which Liberum have treated as fully converted in their calc) of ~30 cents/25p per share. Which gets an equity value of 68p minus = 43p per share.
...
As for discounting for risk when this should already be accounted for in the discount rate used which should reflect the risk premium of the project, ..."

LITC, we all agree that NPV (using unleveraged cashflow) only provides a rough estimate of the enterprise value.
Therefore, if we want to use it to calculate a NPV per share that can be used to compare with the current share price, we need to get its corresponding equity value, i.e., NPV - net debt.

As you have pointed out that Liberum used the $8.812b 2019 NPV (8% discount rate at 10mtpa) for their 68p fully diluted NPV per share estimate (i.e., $8.812b/1.3 = £6.77, fully diluted by 10b shares, 68p, 60% discount = 40.8p). You suggested to get the equity value by subtracting the $3b debt from the $8.812b enterprise value for the 2019 per share price estimate. This is the first point that I may disagree. As net debt is defined as debt and equivalents minus cash,
in 2019 if all the $3b debt is sorted out, say after Senior Debt Event (on the $3b debt), the net debt relating to the £3b debt is still roughly zero as the cash has not been used yet. In 2024, when all cash from the $3b debt used out, SM would turn this $3b debt into net debt; However, the NPV at the time would be much higher than £8.812b.

Another point I want to make is that the discount rate used in calculating NPV may not reflect all the project risk (i.e., financing risk, construction/execution risk, marketing risk). A discount rate may be selected, in the SRK/Liberum case, to reflect the weighted average cost of capital used in the project, including the cost-less capital from share sale and the expensive capital from cornerstone investment and high yield bonds. The cashflow discounting (using the discount rate) in NPV calculation is a reverse of compounding (using the discount rate as interest rate). The interest to be paid to high yield bond purchasers are not compounded interest. Therefore, we can not say that given the interest rate of SM bond is higher than 12%, we may need to use a NPV at a 12% discount rate to get a NPV per share estimate to compare with the current share price.

In the first part of stage 2, "More than 50 IIs take part in the new 2027 CB sale, and the $400m new CB was multiple times oversubscribed".

Many of the 50 IIs that have brought or wanted to buy the new SM convertible bonds may also want to buy the SM high yield bonds. The roadshow would attract more IIs (including the 30 banks/IIs intended to participate the old bank group stage 2 plan). Due to the popularity as reflected in the new CB bidding process, the Initial tranche of high yield bond is also very likely to be oversubscribed. A bidding process, plus the rate cut tendency in central banks, may help to bring the rate down into lower teens, i.e., around 12% as SM expected in their modelling (presented in their roadshow, as reported in the GlobalCapital articles).

The investment grade bonds (with very low or near zero rate) have already in trouble at the moment. When the Fed cuts, those bonds would be even more difficult to sell. As a consequence, quality high yield bonds would become even more appealing.

SlurmsMckenzie, if Fed cuts the rate, all the rates of new debts would be affected, i.e., go down.
Therefore, either the rate of SM bond will be set a bit lower than that without the Fed cut, or the SM bond at a lower teen would become more attractive to potential purchasers (which in turn may bid down the rate). Any cut by the central banks, Feb, European, or U.K. would be good for the SM bond.

"Swiss cosmetics company Oriflame, listed in Stockholm, is selling a 775m Euro bond, which is expected to be priced at about 7%-7.25 for the euro tranche and 9.25%-9.5% for the dollar.

UK-based Sirius Minerals is expecting to pay a rate in the low to mid-teens for the its $500m bond - crucial to being able to continue its fertilizer mine project.

Both companies finish their roadshows this week."

https://www.globalcapital.com/article/b1gj1fts9xgkd8/punchy-deals-jostle-in-high-yield-crowd
By Karoliina Liimatainen, 31 July 2019

Note that the same bond could be priced higher in dollar in the U.S. market than in Euro in the European market. As the roadshows end this week (including today three days left), the SM roadshow in the Europe and Australia should have completed, and the roadshow in the U.S. should be still on-going. A rate in the low to mid-teens is expected.

SM had expected 12% in their modelling; Liberum thinks it could be slightly lower than this; Berenberg thinks that SM has to get it in whatever price, i.e., even at 15%, or even higher.
Hopefully it will be around 12%.

ffcmember, I guess in the week starting from 5 August, SM will provide a price (interest) range, say 11%-15%, then in the following three days, formal bidding will be entered, and JPM will run the book-building at the end of the process to accumulate the amount of purchases (from the lower interest bid to the higher) until $500m is reached. Finally, an average price is worked out; or the price is to be determined using some other methods, or by negotiation? Due to the lack of details on this process, I am only speculating.

LITC, thanks for your answers to my questions. As Gina's cornerstone investment would get the best (rate of) return than all others, it makes sense for her rank subordinated to the investors of the $3bn senior debt (high-yield bonds and RCF).

Among all the creditors, only JPM and Gina have the highest opportunity to play prisoners' dilemma to their advantage. However, as the potential gain of a completed mine is so big to her, it makes no sense for her to block the funding path for a completed mine, so as to change the ownership of the mine. Given JPM with more power over all other creditors, its reputation would also rule out the possibility for it to intentionally fail its client (i.e., SM and its PIs) for its own advantage. SM has a large number of local PIs, including large number of their employers, founders, and people around its mine, there is also no reason for it to use extreme approach (i.e., to wipe out the first set of PIs with a new mine owner) to secured its needed funding for the mine . Therefore, the chance for any of them to take advantage of others is quite low, while the chance for them to work together is much higher than the opposite. I raised this, as Bryce Elder on ftalphaville has mentioned a potential prisoners' dilemma without any explanation.

Myo, yes, interest rates on further tranches could be get much lower than the initial one. With a less heavy debt burden, SM should be able to start to pay dividend at an early date.

(continue)
This new 7.5-year high yield bond (that matures at 2027) will not be callable (i.e., cannot be redeemed early). Due to this restriction, the possibility to refinance the high yield bond tranches has been largely removed. JMP and SM seem to be determined to go down the high yield bond funding path for all the needed senior debt for a 10mtpa mine.

An equity analyst said that by securing the backing of JPM, Sirius had unveiled a clear path to its project being fully financed. … “The potential returns are significant and this is a long life project. Sirius is using debt to get through to first production, but after that it is highly cashflow-generative”.

The above is a short rephrased version (plus my understand) of the few Global Capital articles on stage 2 financing by Aidan Gregory, Karoliina Liimatainen, and the comments made by Bryce Elder on ftalphaville. Links to all these have appeared on this board in the past few weeks.

(continue)
The $400m new CB, Gina's remaining $50m share subscription, the $500m initial bonds, and the $2.5bn RCF are interlinked and dependent on each other. To avoid a chicken or the egg dilemma in its stage 2 solution, JMP has designed to place the $400m new CB and the $500m initial bond into an escrow account to be released together with Gina's $50m and the $2.5b RCF when the $500m initial bond sold and all the other conditions satisfied (i.e., the Senior Debt Event).

The security behind all the debt (including the initial $500m yield bonds, the 2.5b senior debt, and all the subsequent bond tranches to be used to offset the RCF overdraft tranches) is the incomplete mine itself -- including the land, the work already done to the site and the permits that Sirius has procured for the project. The Senior Debt Event arrangement (i.e., to release all the inter-dependent funds at the same time) may also help to address the potential prisoners' dilemma, as the Senior Debt Event will only happen when all the stakeholders (including all the purchasers of the new shares, new CBs, the initial bond, JPM (2.5bn RCF) and Gina ($50m)) collaborate with each other to put these funds together for completing the mine. The stage 2 solution places all the senior debt providers, i.e., JP Morgan and all the bondholders in the same rank. However, all tranches of high yield bonds will first be purchased by JPM (when JPM has secured end purchasers) and then sell to these identified purchasers. Also, JPM owns the $2.5bn RCF syndicated from many other banks. Gina’s cornerstone investment was also secured on the mine. Up to now, it is not very clear how the inter-credit issue between Gina, JPM, and bondholders have been or will be resolved. Is Gina also on the same rank as JPM and other high yield bondholders? Given the most significant amount of ownership, has JPM more power over all other creditors? Can the potential prisoners' dilemma be fully avoided (i.e., one party tries to take advantage with others’ (especially the PIs) interest at expenses, e.g., let the funding path blocked at some point to grab the ownership of the mine)?

The initial $500m yield bond is crucial, as it is the key to the senior debt event. The equity guarantee may provide the purchasers with a high degree of security; however, they also need to be convinced that supported by the RCF all the subsequent high yield bond tranches can all be sold such that the mine will be built, poly4 produced and sold, and at the end their money can be returned together with the expected high yield (interest). In addition to the promising potential of the SM project, the reputation and smartness of JMP play a key role to make the bond selling successful.

JMP Stage 2 Solution is complex and smart solution that is not easy to fully understand. After three months, I am still trying to understand it better.

The equity-like component (share sale and new CB) of stage 2 package is very similar to that of stage 1; both of them would reduce the SM debt burden in the future and build a thick equity cushion to make a relatively larger senior debt component in the stage 2 package possible.
It is encouraging to notice that both the share sale and new CB attracted strong demand over the offered size:
a) The planned share sale was $400m with the option to increase the size of the deal by up to $50m. The deal was increased by $25m, i.e., in the end, SM raised $425m from the share sale.
b) More than 50 IIs take part in the new CB sale, and the $400m new CB was multiple times oversubscribed. The new 8-year CB is priced with a coupon of 5% (if the CB is converted at a 25% conversion premium (i.e., around 18.5p per share)) or with a yield to maturity of 10% if the CB does not convert into equity.

The $400m from share sale was released immediately after they were raised, this allowed SM to continue its construction in its full speed (without a pause or delay), and therefore kept in a good shape

JPM and Liberum believe that SM has achieved a significant cost saving with the new CB deal because the new CB is designed to convert into equity if SM can successfully build and then monetize the mine by the time they convert in 2027. This can be explained with the following example: If the new CB investors keep their CB still its maturity, they may nearly double their investment (e.g., 400+ 8x400x10% = 720m). However, if they convert at 18.5p (23c) per share (i.e., around 1.74b shares) and if the share price in 2027 is around 50p ($0.625), they will turn their $400m investment into $1087m + 8 x $400 x5% = $1247m (i.e., more than double the profit they would earn with the 10% interest rate). If all goes to the plan, a 50p per share could be achieved much early than 2027, and the share price in 2027 could be much higher than 50p. Both of the old and new CBs are callable: the old CB can be called (redeemed) from the end of 2018; while the new CB can be called from 13 June 2021. These might be the reason why SM and its bankers would believe that all the new CB will be converted, and therefore the 720m debt burden in 2027 has been removed.

In the first part of stage 2, SM has also launched some additional new 2027 CB to refinance the old 2023 CB. However, only $106.4m of old CB has been refinanced into new CB; holders of $137.6m of old CB decided to retain the 2023 CB, which has a coupon of 8.5%, as this small number of IIs may be happy with a higher interest rate and they did not want to add any further risk exposure beyond 2023. This is a slight negative to the new stage plan; However, as out of the $644m CBs (new plus old), $506.4m would be converted into shares, a significant cost saving has been ac

R.H.B, I agree with GK, the TBM has its own conveyor system on a load and speed that meet its own needs and that is much lighter and slower that the MTS conveyor. However, as shown by the recent photos certain fit-out related work did have happened hand in hand with the progress of the TBM: e.g., the five pipes (of different diameters) used for power cable, communication links, water, etc; and the rails for the maintenance train. Myo, has such kind of work included in the planning (approval) document on the MTS?

"Sirius is likely to issue more high yield bonds at a lower coupon [than the initial bond] if the mining project advances, Patel said. However, this 7.5 year bond issue will not be callable. This was done to entice the investors with long-term high yield returns.
...
According to Fitch, JP Morgan, which provides the $2.5bn revolving credit facility (RCF), ranks equal with the bondholders.
...
If everything goes according to plan, Sirius should dig up the first polyhalite in 2021 and generate positive cashflow in 2023, reaching 10 million tonnes in production the following year."

https://www.globalcapital.com/article/b1gd4z5bj8lf2k/sirius-minerals-bets-on-$500m-bond-to-fertilise-project

A noncallable bond is a bond that cannot be redeemed early by the issuer (or may still be redeemed but with the payment of a penalty if such term is included in the contract).
As a result, noncallable bonds tend to pay bond purchasers a lower interest rate than callable bonds. When the central bank interest rates drop, the interests of new debt (including bonds) would also drop. However, as noncallable bonds cannot be redeemed early by the issuer, it is more difficult for the issuer to refinance the bonds into other debts with a lower interest rate. However, in most cases, bond investors would be happy to have their bond notes bought out after a few years; a refining might still be possible, but at a high cost than that of callable bonds.

For SM, the key is to speed up the construction and start production (to generate cash) as early as possible, so as to becoming a rising star in the bond market - with continuous upgrade of its credit ratings and a lower (and lower) interest rates on its subsequent bond tranches.

When the construction and marketing is further de-risked, for example after the first shipment of poly4, SM may choose to continue on the high yield bond path, or to raise funds in other debt forms. RCF can be refinanced into high yield bonds; it may also be refinanced into other forms of debt as long as the overdraft returned? or all the RCF and high yield bonds are not needed by then when cheaper debt (that added up to the same needed total amount) becomes available?
(The question mark is added on the refinancing related issues, as we do not have access to the SM bond document/roadshow presentation and the detailed RCF paper work, and therefore do not know the details relating to such issues).

"Rikin Patel, a Berenberg analyst following Sirius Minerals, expects the bond to reach 'a reasonably high coupon of 12-13%'.

Because Sirius is betting its whole future on this issue, the company is unlikely to get very sensitive about the price, Patel said, adding that even the range of 14%-15% would still look doable.
...
The security behind the senior note is the incomplete mine itself -- including the land, the work already done to the site and the permits that Sirius has procured for the project ...

The bond is being marketed globally with the roadshow currently touring Europe, before moving to Australia and the US. The pricing is expected to be announced in the week starting August 5.
...
Regardless of the high risk, Patel from Berenberg expects investor appetite to be sufficient. 'Expecially in Europe and the US, high yield investors know Sirius very well, and there's likely a lot of interest for the bond.' ..."

https://www.globalcapital.com/article/b1gd4z5bj8lf2k/sirius-minerals-bets-on-$500m-bond-to-fertilise-project
By Karoliina Liimatainen 22 Jul 2019

Yes, Myo, it is very odd. We have seen the link on this news in German and then in English a month ago.
I gather that the 1 billion Euro as mentioned by Stratag has not been paid as SM is still to get access to the fund for the payment after the senior debt event. This might be the reason?

Yes, this should appear on SM Tweets soon:

Thomas Birtel, CEO of STRABAG SE: “We are proud of the commencement of the extensive tunneling contracts for Drives 2 and 3 and expect to continue working well with the customer. Sirius Minerals and STRABAG have partnered to find efficient solutions to the project’s technical requirements. This contract also proves that, despite the unclear Brexit situation, significant investments in the UK are still being made and we were right in our decision to continue to see this market as a European market.”

https://tunnelingonline.com/strabag-commences-expanded-contract-uk-mine/