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Surinrog, you asked that “why the diameter of the MTS was increased?”. This is also a question puzzling me. I gather that one of the reasons is to strengthen the tunnel wall, as in the current design the conveyor is fixed at the top. The load is very high, especially when reaching 20mtpa. As the belt moves very fast, there also exists a vibration. This requires a strong wall to hold the load and resist the vibration. I am not an expert on the design, but intuitively, I think a better design is to swap the position of the conveyor and the maintenance train, as the load of the small maintenance train is not heavy and as it is not used continuously. 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.

The highest construction risk of the Woodsmith mine is at the deep shafts, rather than the long tunnel; although our recent focus has been on the tunnel due to the latest budget increase on this element.

The whole tunnel (i.e., MTS) sits in the Redcar Mudstone layer. The Redcar Formation is a grey, fossiliferous mudstone and siltstone with low permeability. The geotechnical conditions along the route have been fully assessed along the whole route with many boreholes.

The deep shafts will be dug through many different layers and different measures have to be used to deal with different conditions. The first 120 m, the Ravenscar Group, is composed of poor quality, water-bearing rock. Diaphragm walls were chosen to support this section of the shafts and to control the groundwater. Between 800m and 1,050m lies a challenging Sherwood Sandstone formation, which contains saline water under high (up to 800m) water pressure. Another major challenge is at about 1,206m to 1,230m, a Carnallitic Marl layer, which is an extremely weak formation with very high lithostatic pressure (about 35 MPa). This is the layer that caused three failures in the nearly Boulby mine. Stronger liners than other parts are needed. From 1,260 m to the shaft bottom are salt formations with creeping properties, which may lead to deformations of the shaft wall over time, a flexible backfilled liner is needed. Due to the different geotechnical conditions with different layers, it is not possible to prepare the same liner blocks to be placed automatically by the Shaft Boring Roadheader, as the tunnel boring machine would do.

Now, with a fixed price contract, the risk of the MTS has been shifted onto the contractor (Strabag); while the shaft sinking contract with DMC is a target price one, for which both DMC and SM will share the risk. The two deep shafts may be the place most of the contingency fund is prepared for. I will not be surprised if more contingency fund would be needed after the due diligence process and this will belong to the additional (i.e., the roughly 400 to 600 million) fund outside of the 3 billion debt.

Milothe,
As the production of SM is expected to start in 2021, we cannot use its future cash flow to estimate its valuation at different stages before the production. In the early stages, all the funds raised (including those spent and those to be spent) can provide a minimum estimate of the value of a project. Such an estimate can only be made under the assumption that funds used or to be used will produce a good outcome of the project (e.g., not only the money invested will be returned, very good return will be generated in the not too distant future). It is not merely the more the money spent, the higher its valuation, as if a project is not a promising one, it is unlikely to raise and spend a large amount of fund in the first place.

Analyst Paul Smith, joint house broker at Sirius Minerals (SXX), had also used the cash held by SM as a minimum estimate of valuation after stage 1 financing. He said at the time that "The current share price (18p) in no way reflects the value in the company going forward - currently slightly below the placing price [20p] at which large institutions and hedge funds invested," said Smith, who pointed out that the market capitalisation (£800 million with 4 billion shares) at the time reflected only cash held by the company (i.e., 0.8/4 = £ 0.2 per share), with "little or no value placed on the project itself".

My after-stage-2 minimum valuation (i.e., the Worst: 5.1/7.03 = $ 0.73 per share, 0.73/1.3 = £ 0.56 per share; and the Best: 5.1/5.7 = $ 0.894 per share, 0.894/1.3 = £ 0.69 per share) has been calculated using the same method as mentioned above. The estimate is largely in line with the after-stage-2 target prices projected by Liberum. Such estimate shows that the current SP is too low and it could be more than doubled after the successful completion of stage 2.

Avocet, the original stage 1 plan was to collect $1.6 billion, which might come out from the initial requirement from the bank group arranging stage 2 debt from the banks. SM got $1.2 billion in stage 1. Therefore, it is not particularly surprising that the banks would want SM to get an additional 0.4 billion funding before stage 2 debt arrangement. What surprised people is that the amount is higher than expected, or the expectation of many shareholders was very high (i.e., do not to see any budget increase and project delay). But this 0.6 billion is mainly used to improve MTS. The contingency money will be the focus of the bank group. At this moment, this has not been increased or to be covered by saving from other elements.

Milothe3rd, thanks for your post on a more reasonable valuation. Sure I understand that no sales no value. The simplistic valuation I provided was based on the similar idea behind the calculation of NPV, i.e, to assume that in the following years, the mine will be built and the products will be sold. NPV brings typically the following 25 or 50 years into calculation; I simplified this just to produce the value that people initially invested.

Suppose that stage 2 financing will be successful and the money invested will be returned to lenders and shareholders (by selling the product (Poly4)), let’s have a look the total cost and valuation of the project. The valuation is made using the similar idea behind NPV but (extremely) simplified for easy understanding.

1. Total cost after stage 2 financing:
0.3 (before stage 1) + 1.2 (stage 1) + 3.6 (stage 2) = $ 5.1 billion

2. Total number of shares:
If no dilution and after conversion: 5.7 billion
If diluted by increasing 1.33 billion shares for $0.4 billion additional funding: 7.03 billion

3. Valuation:
Worst: 5.1/7.03 = $ 0.73 per share; 0.73/1.3 = £ 0.56 per share
Best: 5.1/5.7 = $ 0.894 per share; 0.894/1.3 = £ 0.69 per share

The above valuation has not included any added value of the mine (i.e., it only takes the money invested into the mine as its value). The value of the mine will gradually increase, when it is built and when the product volume starts to increase. If stage 2 will be successful (i.e., SM gets the needed money for building the mine has been), some additional value should already be added to the mine. Therefore, the above valuation is very conservative.

The 300 million cost before stage 1 is a rough estimation, if anyone has a more precise number or if there is any major error in the above computation please let me know.

"The Author, G.A .Chester seems to be a bit of a helmet. ... Motley fool write 'clickbait'"

SXX-Pound-Party: As the negation is true, SXX should be up another 50% :)

not as frequently as

avocet123, I agree, the TorPs and bank process went not as fast as, or the progress updates were announced as frequently as many of us have expected. What I want to say is that the overall progress is still on track and the long term potential is still bright. We should look at the big picture and keep optimistic.

Stage 2 is the toughest one, in comparison to the deep shafts, the long tunnel, and all the rest. Once stage 2 is de-risked, the rest of construction progress should be more predictable. The past milestones set by SM had all been reached; the next few ones, including stage 2, may not be uneventful, but are all still on track.

Liberum has given SM an NPV per share price £1.10. It considers that this can be gradually reached by de-risking the financial risks (mainly stage 2) and construction risks (mostly first polyhalite). Liberum gives a one-year target price or after stage 2 price 60p, i.e., after de-risking half of the risks. However, the construction risks are expected not as high, as the MTS will be dug in the same Redcar Mudstone layer throughout the whole length using the advanced Herrenknecht tunnel boring machine; and the shafts will be dug using the advanced shaft boring roadheader (in all the well-known layers experienced in the nearby Boulby mine). For this reason, the construction risks should be much less than 50%. Therefore, it is very likely that after stage 2, the share price may approach £1.10 much earlier than the first polyhalite coming out of the production shaft.

With a £1.688 billion market cap (£0.36 x 4.7), Sirius Minerals currently ranks 210, i.e., in the middle of FTSE 250 (101 to 350, accessed 3 September 2018, http://www.stockchallenge.co.uk/ftse.php)

The lowest market cap value on the FTSE 100 at the moment is around £4.76 billion (Hikma Pharmaceuticals). To get into FTSE 100, SM needs to have a share price £1 (if the total share number is still 4.7), or 95p (if the total share number inceases to 5 billion). If stage 2 is successful, this should be archieved before 2021 or 2022 (when the financial and construction milestones as well as the Liberum £1.10 current NPV per share price reached). In 2024, when reaching 10mtpa, SM should sit in the middle of FTSE 100.

R, 0.2 mt in 2021, and 1.6 mt in 2022. These are just rough estimates, see the mine schedule image in
https://siriusminerals.com/our-project/woodsmith-mine/mining/

R, 2021 is expected to produce first 0.3 million tonne polyhalite using the roadheader, and 2022 will be about 1 million using a continuous mining machine. I gather the first 0.3mt polyhalite in 2021 should be considered as the commencement of production. If not, then 2022 must be.

Sorry, I divided the NPV by the exchange rate ($1.29 per pound) twice. The NPV per share today should be £2.46 (i.e. 11.6/4.7); and the NPV per share at production would be £4.2 (21/5) or £3.5 (21/6) depending on the total share number at the time.

Fundamental analysis forms the basis of Warren Buffett’s success in stock market. Let’s use some of Buffett’s criteria in this regard as a checklist to have a look at Sirius Minerals.

Long-term potential: Buffett said that "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes". SM’s polyhalite deposit is the world's largest and represents an asset for more than 50 years.

Simple businesses: 100% polyhalite rocks out of its Woodsmith mine will be simply crushed and granulated into a product called Poly4, which will be sold as a bulk fertilizer for direct application or mixed with other NPK products.

Good management in place: Its CEO and board chairman have a very successful track record in financing mining projects and a very good track record in established and managing the company (SM). Its management team (including CEO, CFO, and marketing head) has successfully got the stage 1 funding, brought the company into the main stock market, made excellent progress in construction, and secured a large number of sales agreements well before its production. Its operation manager had been the managing director of a nearby mine of similar geological conditions for over a decade and managed the mining of the world first polyhalite product.

Consistent earning power: Once in production, the earning is expected to grow consistently along with the ramp-up to 10mtpa (in 2024) and then to 20mtpa (in 2026) for over 50 years. It is estimated that its average cash operating costs of Poly4 will about $32 (or £24.8) per tonne at 10mtpa (million tonnes per annual) and $27 (or £21) per tonne at 20mtpa. Poly4 is expected to be sold at a price from $125 to $145 (TorPs price before 2021) and then to over $200 per tonne in above ten years from now. Given the above costs estimated, we can see that its cash margins are around 70 to 85%. This indicates that Poly4 will be a low cost and high-profit product.

Good return on equity: Project net present value (“NPV”) in 2016 was $15 billion (£11.6 billion) at a 10% discount rate, and the NPV in 2021 will rise to $27 billion (£21 billion) upon commencement of production. NPV is calculated by assuming the business will be successfully run as planned in the following 50 years. Therefore, if everything goes with the plan for over 50 years, the NPV price per share today would $2.46 (11.6/4.7), or £1.9; and the NPV price per share at production would be $4.46 (£3.46). If its financial risks (e.g., stage 2 financing) and construction risks (e.g., first polyhalite in 2021) can be successfully de-risked along with continued successful execution of the company strategies, an excellent return on equity can be expected (i.e., the share price may get closer to their NPV per share values.

Alan and scotman, sorry for posting an off topic post;) I am actually also very interested to the Brexit topic. Just at this crucial moment,want to get more information that would increase our confidence, especially after a long waiting for a new TorP

Scotman said “Please refrain from going off topic!”; a very thoughtful consideration and a powerful instruction for all of us!

To generalize your thoughtful consideration: Please also refrain from going off the common interest shared by all (or majority) in this board (i.e., posts related to SM).

Scotman, I read the posts in these few days on BREXIT, some relating to SM and most of them are at a higher or more general level, which can go on and on for months. When will be a day I will be allowed to post a different topic (please let me know)?

If a topic has been evolved into a general, very board, high-level, lengthy discussion involved multiple people, I did not see why it is not good idea as Myo suggested to open a discussion board on that topic.

As the discussions already went on for many days, can someone provide a summary on the impact (advantages and disvantages) of BREXIT to SM? I did read some, such as
- Exchage rate good for SM’s business and good SM stock price
- Selling to EU countries, getting better or worse??
- ….

As I do not know how many people are interested to come here and read all general BREXIT discussions. A summary will help us quickly get the key points in relation to SM.

Poly4 is a multi-nutrient low chloride organic fertilizer. The success of SM relies on its successful selling of Poly4 as a bulk fertilizer (as SM has been doing with their TorPs customers). Poly4 can be marketed as a bulk fertilizer by

1. Expanding the currently limited low-chloride potash (SOP and SOPM) market: there is a significant and growing need for low chloride potash desirable for many chloride-sensitive crops (e.g. fruit crops (almond, apricot, avocado, banana, citrus, grapes, mango, peach), berries (incl. strawberry), vegetables (lettuce, onions, sweet pepper), field crops (potato, tobacco), coffee and flowers). The market share of such fertilizer is currently smaller (10mtpa) than MOP (65mtpa). The main reasons are 1) SOP and SOPM are more difficult to produce (using the Mannheim production process) than MOP, and 2) the prices of SOP and SOPM are much higher than MOP. As Poly4 can be produced at a low cost, it can be sold (initially) at a much lower price than that of SOP and SOPM. Poly4 can be used alone or blended with SOP or SOPM. It can also blend with MOP to reduce the chloride level for many partly chloride tolerant crops, which at the moment due to price reasons were fertilised using MOP products.

2. Substituting part of MOP to produce a NOK blend at a price lower than MOP: such mixtures can be widely used for any chloride tolerant or partly chloride tolerant crops. In addition to a lower price, farmers will get a multi-nutrient fertilizer that meets the growing needs for a balanced fertilization practice.

3. Serving as an organic fertilizer for the ever-increasing demands of organic crops, that many people are willing to buy at a much higher price.

Poly4 can be used as a bulk fertilizer as it can compete with existing products in all types of fertilizer markets as mentioned above. Therefore, the future of Poly4 should be bright.

advanced -> advantage

duracellAA, glad to see that the first polyhalite would be mined by Road Headers (possibly for many months in 2021) directly from the bottom of the production shaft, at a location where the two polyhalite seems meet and form a thick (about 70 meters) polyhalite layer. The polyhalite production districts start directly from the mine-head. In comparison, the polyhalite production districts at Boulby are around 10km from their mine-head. Given the age of the Boulby mine, their underground workings have exceeded 80km in length and extended under the North Sea. Comparing to the lengths of Boulby mine’s underground roads, the 37km tennel of the SM MTS looks not very long. In addition, the conveyor system of the MTS is much more efficient than the truck or train systems on the ground. Such a conveyor system over a relatively short distance and directly connected to the process facilities at the export port gives SM an advanced rarely seen elsewhere in the world.