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duracellAA, unlike the tunnel contract that off-load risk to Strabag, the DMC contract is a target one, the risks have to be shared by DMC and SM. The over 1500-meter deep shafts are more risky than the tunnel. Due to gravity and significant differences between different layers, the shafts sinking cannot be fully automated using TBR with standard building blocks. Two or three towers using difference blocks at different layers need to be built. Although the Boulby mine experience is a great help, Boubly mine was not dug using TBR. More contingency fund may be needed to deal with any unexpected issues in the shaft construction. I still feel not very settled if the MTS still uses a suspension system, which seems to have a danger over the head (if one piece fall out, other pieces may follow). I still prefer the original design in which both the conveyor and the maintenance train are placed on the ground (particularly when now the tunnel is to be wider).

Myo, I know the financing arrangements are to be made and announced before the year of the year; very likely before Xmas. Although the needed additional fund become clear after receiving the combined bank commitment letter; I still believe by the time when an arrangement is announced, it will be an overall arrangement (including the additional risky cushion and the safer senior debt, and including the way to raise the additional funding if a strategy partner has been included in the arrangement and multiple institutions have approached SM for taking parts of the additional fund, as when the major part of the needed funding to complete the mine is sorted out as senior debt, the risky funding become less risky high return investment to the institutions.

duracellAA, we might be better to be prepared for a budget increase that is greater than 600m. The suggested 400m to 600m increase has been largely used for making a thicker and larger tunnel. To be safer, the lenders may ask for a larger contingency component; while at the moment, this component has not been increased (actually being reduced slightly). The deep shaft contract is a target one, which is not increased and still relatively low, this might be due to the competition between AMC and DMC as DMC's offered a lower target price to take over the job from AMC, using more advanced equipment that can dig faster and safer. Once the combined offer from the banks are announced, it is very likely that not only the amount to be added is made clear, but also the way to raise it is also fixed (or even sorted out, i.e., fully taken by the large institutions, with a strategy partner shared a significant part of it). The things left to complete in Q1 2019 might be the formal procedures of the gov guarantee (if still needed and if any) and the formal close of the deal. Before this has been sorted out, the price may keep low. But as long as the st2 raising is successfully arranged, even with a much larger contingency component, the stock should be re-rated and it may increase significantly even before the final close by the end of next Q1.

Budget increase is a norm in mining projects. CF helped Fortescue got 2b in 2006 to establish the project, to fully complete and ramp-up the mine and the extremely long railway, Fortescue raised much more than the 2b since then (the peak of the debt reached 12.7b in 2013 before it reduced quickly using their income). At the end, the stock price still increased from 26p in jan 2006 to over $10 in jan 2008 when the first iron ore product was shipped (and maintained above £5 when the debt peaked in 2013). The key to a mine with a promising product is to raise the majority parts of the funds to complete the mine; as long as this can be achieved, some additional funds to improve it or to be used as back-ups to make the leaders happier would not be a big deal at the end.

Scotman, found your mentioned date stamp on the bottom of the last slide of the document. This document provides the evidence on the favorable properties of both the Poly4 NPK blends using compaction method and the Poly4 NPK compounds produced using either the steam granulation or the chemical granulation methods. It also provides an easy to understand description on the compaction method and the two granulation methods.

Myo, I believe it is quite new. I had read the two spec sheets and the handbook on the page when this document was not there. Thanks for noticing the update.

Investors Chronicle 5 Oct 2018: "Chief executive Chris Fraser told us he was disappointed to raise the capital estimate, but stated that 'In the order of magnitude of project estimates, our team is doing a great job in constraining risk'. Operationally, those risks do appear to be thinning, although investors are now reliant on the diligence standards debt providers will now set. AN"

Indeed, a 600m increase is a very small one, in comparison with many mining projects that had increased a much large amount multiple times (to complete their mine construction) and then still provided a very good return to investors). This 3.6b budget of SM is not simply for a completed mine, it is for a completed mine ramping-up to 10mtpa, i.e., a mine that would have generated income for 4 years (2021-2024). Supposed a smaller budget (3b) is made for a completed mine with a 6.6mtpa output, it would be quite easy to raise 600m senior debt to scale up the output to 10mtpa after reaching the initial goal; and if this 600m is raised by then in open market, it would be taken up easily in a much higher price than 20s or 30s. The key is the ability to raise the 3b to complete the mine, rather than the 600m increase to be raised in whichever way.

There is an article by Liz Campbell today (15 Oct 2018), which says that sxx has a market cap £1.2b; 82% owned by institutions!!!; 14% owned by general public; 43m (i.e., 3.6%) owned by insides.

https://simplywall.st/stocks/gb/materials/lse-sxx/sirius-minerals-shares/news/who-are-the-major-shareholders-in-sirius-minerals-plc-lonsxx/

These must be wrong? as they look very different from our impressions. This might be an automatically generated article from simplywall.st.

Do you know where we can get more accurate information on these?

AscotMatt,
There is an image on “Production ramp-up to 10 Mtpa” at
https://siriusminerals.com/our-project/woodsmith-mine/mining/

It shows that roughly 0.2mtpa in 2021, 0.6mtpa in 2022, 6.6mtpa in 2023, 10mtpa in 2024 (and 13mtpa in 2026, 20mtpa in 2029).

Verde... Based on the published materials on the web, Poly4 has two specs: Poly4 Power (<1mm) and Poly4 granules (bound using ADM binder into pellets 2-4mm). As the Poly4 pellets have appeared prominently on the company website and in the marketing presentations, Poly4 granules must be the flagship product of SM. The previously mentioned price (125-145 dollar/tonne) in the TorPs much refer to this pellet form. The prices for other forms, either power or other sized rock pieces, must be lower than the Poly4 pellets.

Fertilizers are often in either granular or granulated forms. Granulated fertilizer is the most common form. Although both are granules, granular products are a blend of nutrients as individual granules in their own right. Granulated products are where the nutrients are dissolved to a specific ratio, and then reformed into a new unique granule (http://www.proctorsnpk.com/granular-v-granulated-fertiliser-the-big-show-down).

Currently, although in granulated form, Poly4 granules are bound (using ADM binder) from polyhalite powder only. Such pellets have several advantages over the Boulby’s coated crushed rocks (in either granular 2-4mm and mini granular 1-2mm forms). Poly4 granules can be applied alone, or mixed with proportions of other NPK granular products using simple blending equipment.

For distributors/customers with the equipment to produce granulated products (i.e., to bind all the needed component (poly4, and other NPK) powers into pellets, Poly4 powder should be the best product for them. The main advantage of granulated pellets is the even and accurate proportions of their built-in components in each pellet.

SM did also mention that their products may also include crushed chips (that are bigger than powder), however, so far, I have not seen a product specs on them on the SM website. If SM has such product, as mentioned in the news as coarse product, it might be directly in the crushed form without coatings (as SM may not intend to sell it as a fertilizer product to be applied directly or mixed with other components (see publications on why poly4 pellets better than coated chips)). Such a product might be prepared for those having their own granulating and binding equipment to produce granulated fertilizer products. It may also be sold to those using polyhalite as raw materials for other purposes, e.g., making SOP, soap, glass, animal feed products, or building blocks.

MHF EPC sorted out:

https://markets.businessinsider.com/news/stocks/jacobs-awarded-epc-contract-for-sirius-minerals-new-materials-handling-facility-1027608565

Only MTS fit out left.

As I understand, the 600m additional required fund has to be a high-risk element. The wishful thinking of adding the 0.6b to the planned 3b senior debt is unrealistic. It is very likely that this proportion of equity will be taken by a combination of a strategy partner at asset or project level, some convertible bonds, and share investment of institutional investors. I.e., it is very likely that there will be no open placement to all the small PIs.

Depending on the risk and reward, funds to be raised can be classified into high-risk and lower-risk categories. High-risk ones are more costly: e.g., equity (dilutive), cornerstone or strategic investors (25% or more), and convertible bonds(15-18%); Lower-risk ones cheaper: e.g., senior debt (6-10%). When the outcomes of a project are still binary, the project has to resort to high-risk ones. The lower-risk senior debt is only available when there are already enough high-risk ones spent or committed to absorbing the risk.

Let's first have a look at the original two-stage plan in DFS and the current stage 2 plan:

DFS March 2016:
stage 1 (high-risk): 1.634b (45.83%)
stage 2 (lower-risk): 1.931b (54.17%)
--------------------
3.565b (100%)

Update September 2018:
stage 1 (high-risk): 1.2b (25%)
stage 2.1 (high-risk): 0.6b (12.5%; high risk total: 37.5%)
stage 2.2 (lower-risk): 3.0b (62.5%)
--------------------
4.8b (100%)

If adding the additional 0.6b to the lower-risk part, the senior debt will be 3.6b and takes 75% of the total capital requirement and the high-risk ones only take 25%. Such high-risk proportion might be too low for the senior debt lenders.

By adding the additional funding requirement (0.6b) to the high-risk category, the final high-risk to the lower-risk ratio (37.5:62.5) is still lower than the original in DFS (46:54). A 37.5% equity cushion might already be the lowest that the senior debt lenders are willing to take.

In the current stage 2 plan, the 600m equity element only takes about 17% of the total (3.6b), and over 83% would be senior debt. If the plan is successfully implemented, the dilution is relatively small.

CF was the leading investment banker, and RS was the executive director and deputy CEO of Fortescue Metals Group Ltd in the successful (2 billion) funding raising activity in 2006. Fortescue went into production in 2008 and became one of the largest iron ore producers in the world (170mtpa). They have the deep and rich experience on both sides of fundraising activity. The chance of a successful stage 2 fund-raising is very high. All the negotiations (among SM, banks, government) are happening in parallel; they are not one after another. When a deal is successfully arranged, it will be an overall deal, including the high-risk part as cushion and pre-condition and the lower-risk part as confidence guarantee of the high-risk part.

McCrum (FT) mentioned the two Chinese customers again. The following are some more information on the two companies and the direct sources in China (URLs are provided at the end).

1. Guangzhou Eiliseng Biotech Co:

Founded in 2014, Registered capital (1 million yuan), has over 400 employees, general manager (Jing Hai Shan), owner (Zhao Xiongfei 100%); Business Scope (Biotechnology development services; fertilizer wholesale; fertilizer retail; commodity wholesale trade (except for license approval products); commodity retail trade (except license approval products); import and export of goods (excluding special-controlled commodities));

A company with 400 people is not very small for a private company in China (see below for links).

2. Yantai Service Agricultural Science and Technology Co:

Founded in 2017, Registered capital (1 million yuan), general manager (Zhang Yabin), owners (Zhang Tao 60% and Sun Xiaoni 40%);
Business Scope (General freight; wholesale and retail pre-packaged food; food sales; fertilizer, compound fertilizer (composite fertilizer), agricultural film, small and medium-sized agricultural tools, agricultural machinery, agricultural machinery parts, Wujinjiaodian, building materials, steel, coal, daily necessities, Arts and crafts, daily sundries (excluding fireworks and firecrackers), chemical raw materials and products (excluding chemical dangerous goods), agricultural and sideline products (excluding grain purchases), sales of mineral products; information consulting services for production materials; goods and technology Import and export; warehousing services (excluding dangerous goods); provide crop pest control services. (Projects subject to approval according to law may be operated after approval by relevant departments)).

While small (with at least three people), “It is worth noting that the Yantai offtake for 800ktpa is linked to one of the big agricultural means of production organisations, responsible for getting fertiliser products into farms in the north of the country” ( Liberum).

More information on the two companies (with URL references):

1. Guangzhou Eiliseng Biotech Co (广州埃利森生物科技有限公司)
Mobile phone: 13503060661
Information website:

https://www.qichacha.com/firm_e0559ad0d3fe49c1fad8d411b371e3bb.html
http://www.51sole.com/company/detail_6502543.html

English translation:

https://translate.google.com/translate?hl=en&sl=zh-CN&tl=en&u=https%3A%2F%2Fwww.qichacha.com%2Ffirm_e0559ad0d3fe49c1fad8d411b371e3bb.html

2. Yantai Service Agricultural Science and Technology Co (烟台瑟威思农业科技有限公司)
email: yantaiservice@126.com

Information website:

https://www.qichacha.com/firm_7a501e48f4e0295b3c547bce5af9fa7e.html

English translation:

https://translate.google.com/translate?hl=en&sl=zh-CN&tl=en&u=https%3A%2F%2Fwww.qichacha.com%2Ffirm_7a501e48f4e0295b3c547bce5af9fa7e.html

Fred16, this board is an active and interesting one. You are one of the key contributors to it. When I first attempted to post, I did it like writing a long blog. Chesh pointed to me some good examples, and one of them is yours. Since then I read every post from you. Your posts reveal real personal feeling on investment, including the different views on the stock in your family. They are an accurate reflection of the mode of our ordinary private shareholders. Your use of the language sets a role model for us, no mater long or short, they are so eary to read. Congradulations to your 1000 posts, and look forward to reading more from you :)

Robert Stephens vs Dan McCrum:

Stephens seems optimistic on the project, post promising blogs (on investomania) almost every day by slightly rephrasing the same information. But from time to time, he may also post very negative posts. His seems to focus on getting more clicks. He also posts on Motley Fool, recently with a very negative one. His posts, either positive or negative, seem to contain little interesting information, or often just repeat old information, and therefore, have little impact or usefulness.

McCrum has some doubt on the project and focuses on the negative aspects consistently. Due to the influence of ft, sometimes, his posts may have a big negative impact. Although I am also not happy with the adverse effect on our shares, I did find some new information or some different interpretation from his posts. For instance, he raised some doubt about the two new Chinese customers. Following the clue he provided, I have tried to find more information on the two customers and noticed that it is true that both of them are small private business: one with 100 employees and the other with only two persons listed. The one with 100 people is not very small in China, but the other is really small. Both of them have no company website, and this is rare in our generation. I gather part of the reasons for SM to deliver more high-quality TorPs than the initial 7mtpa target is to address the issues raised in his article, such that even removing one of the two Chinese customers (or the two all together), the TorP is still over the target. I think, we also need someone like him to provide us with some different or contrary views, to remind us of some challenges or risks ahead of us.

Another ftalphaville article from Dan McCrum, who, many people here believe, did a bear attack to SM. This time the heading reads still a bit negative; while the content seems not. He seems to be able to talk to CF and cite what CF says to him again. For this reason, CF must not consider him simply a bad gay. He might just have collected some negative opinions/stories that are eye-catching from the news reporter perspective; rather than being part of the competitors that do not want help SM to be successful.

https://ftalphaville.ft.com/2018/09/17/1537195732000/Sirius-Minerals-buys-its-way-into-Brazil/

Golfer70, thanks for your detailed professional explanation from an engineering perspective. So fixing the conveyor on the ground has many advantages and fixing it on the top is actually more challenging. Let's wait and see what would be the design for the newly widened system (I gather it would still be a suspension system as illustrated in their presentations, and this is why I am asking the question).

Myo, I agree with your explanation, the vision is better and a mobile maintenance platform is convenient . However, the tunnel is about 4 meter high in its original design and will be a bit higher in the new design. Intuitively, if I am going to do the maintenance and repair work, I would prefer to stand on the ground to fix things lower than 2 meters, rather than to fix things at 3 to 5 meters high. Frames or parts reachable on the ground might be easier to fix than those attached to the roof 4 meters above the ground; i.e., maintenance might not be the only consideration in their design; there must be some other reasons, but not sure if those benefits would worth more than 600m.

Scotman, the tunnel wall has to withstand the pressure from the redcar around it. The conveyor if on top would add more to it, than its fixed on the ground (where the weight is passed on to the redcar rock at botton directly).

DGR1980,
Yes, I posted it before and no one answered. I know the question I asked might sound stupid for the clever, who does not bother to answer. Intuitively, I feel that a stronger wall is needed if the heavy things are to be hung on it; however, the ground can withstand heavy weight easily. This may be true even for the tube that may distribute weight better. If there is a simple and obvious answer, would you please kindly explain.

Myo, thank for your explanation.

One possible way to remove the need for the additional 400-600 million dollars is to keep the original diameter and the thickness of the MTS tunnel and place the conveyor on the ground of the tunnel rather than on top of it (as in the current design).

As the load and the vibration of the conveyor are very high, if the conveyor is hung on the top of the tunnel, the tunnel wall has to be very strong. This might be one of the reasons for the additional budget to strengthen the tunnel. However, if we swap the position of the conveyor and the maintenance train, the tunnel wall in its original design should be strong enough to hold a small maintenance train (e.g., a small hanging train where a few people can sit, as we sit in the car); while the weight of the fully loaded conveyor would be directly applied on the solid ground.

In this way, we may keep the original diameter and the thickness of the wall without the need to increase the budget by 600 million.

Gina’s money is conditional: “The Royalty Financing Agreement is conditional upon the Company completing its Stage 1 financing (taking into consideration amounts received under the Royalty Financing Agreement) and two confirmatory due diligence items which will be satisfied prior to the Stage 1 financing being finalised. “. The conditions and the “two confirmatory due diligence items” must relate to the arrangement of the stage 2 debt financing (i.e., the tentative commitment of the bank group).

Before (25 Oct 2016 RNS):
1. “drawdown of funds under the Royalty Financing Agreement is conditional on, inter alia, notice having been given to Hancock that the Company has expended US$630 million of the total amount of its stage 1 financing; creation of the royalty interest including the granting of certain obligations and arrangements to secure such obligations in favour of Hancock, to ensure that the Royalty attaches to certain assets which comprise the Project; all material permits, commercial arrangements and authorisations for the Project remaining in place; and other drawdown conditions typical for an agreement of this nature.”
2. “upon drawdown of the Royalty purchase amount, Hancock will subscribe for new ordinary shares in the Company in an amount of US$50 million subject to certain conditions”
3. … (no mention of board governance)

After (14 September 2018 RNS):
1. US$250 million royalty investment proceeds to be received no later than 19 September 2018 (this change is good for SM as no date was given before; and this seems quicker than expected.
2. The US$50 million equity component of the MRD will be provided once stage 2 financing commitments are obtained (essentially no change, as the “certain conditions” implied this)
3. Hancock will have the right to observe the board meetings of Sirius upon funding the royalty component. (involvement in the governance of the company)
4. Upon funding of the equity component, Hancock will have the right to appoint a Director to the board of Sirius. (play a role directly in the SM strategic governance)

The drawdown (of the conditional money) indicates that all the conditions (including those relating to stage 2 financing) have been met. Now, Hancock becomes not only an investment strategy partner (at the asset-level), but also a business partner directly involved in the strategic governance of the company. Such an influential and experienced strategic partner should help increase the confidence of the lenders of stage 2 financing.

Many people here mentioned that Gina’s royalty investment is expensive to other shareholders; However, if we consider her as one of the founding partners (only next to CF and RS) of the company, then their shares of the benefits would seem fair and reasonable.