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Sirius Minerals has changed the $3 billion financing plan for its potash project in North Yorkshire following talks with prospective lenders.
The funding package for the Woodsmith mine will now comprise three rather than two tranches, which will be drawn sequentially and linked to construction milestones.
The first portion is expected to be a $500 million to $700 million high yield bond, according to analysts, followed by $1,5 billion of bank debt and a further $800m to $900 million of loans guaranteed by the UK government’s Infrastructure Project Authority.
Sirius said the new structure had been designed to reduce the risk to the UK taxpayer because the IPA debt would only be drawn once sales had started and the main construction risks had passed.
However, analysts said the plan would result in higher financing costs, at least in the short term. Sirius has previously been looking to raise $1,5 billion from government-basked loans.
“Each tranche of this new structure will be fully committed from the start and, whilst it may raise the cost of the debt for the high-yield bond, this could be possibly offset with lower rates for the IPA at the end of the construction period,” said Liberum analyst Ben Davis.
Shares in the London-listed fertiliser mining group dipped 4 percent to 21,5p, giving the company an equity market value of £1 billion.
Woodsmith is the largest mine to be built in the UK for a generation. The highly ambitious project involves sinking two 1,5km shafts below a national park on the North York Moors to access a massive deposit of polyhalite.
The ore will be extracted via the two mine shafts and transported to Teesside on a conveyor belt system via a 37km underground tunnel. It will then be granulated at a materials handling facility, with the majority being exported to overseas markets.
Its shares fell sharply in September after the miner said it needed to raise a further $400 million to $600 million of equity to cover extra costs associated with the tunnel.
Sirius, a favourite of UK retail investors, has yet to secure the extra funding but supporters say Woodsmith is exactly the sort of project needed to make a success of the government’s Northern Powerhouse policy and was discussed during Prime Minister’s Questions last week.
“The Treasury department that is working on the investment guarantee does not have a Brexit mandate and is not being distracted by the unstable political landscape,” noted Mr Davis. “The collapse of two proposed nuclear plants, whose financing requirements are longer dated and more complex, only drives government harder to deliver investment in the North.”
Although polyhalite is a relatively unknown product, Sirius has secured commitments to purchase up to 8.2 tonnes a year of output from the mine, scheduled to open in 2021.
The company did not announce any further offtake deals on Tuesday but said it was in advanced negotiations with a European partner.
“Progress at Woodsmith appears to be largely in line,” said analysts at Numis.
“However, the challenging elements of this very large-scale build remain ahead and, over the short term, securing funding remains the key catalyst.” — Online.
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