Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Sirius Minerals decision to change contractor is a positive step that may bring forward production, say brokers

Polish firm DMC Mining Services is taking over on all four shafts at the North Yorkshire polyhalite project
Mine Tunnel
DMC is a world-leading shaft sinking company with experience in this sort of geology, said WH Ireland

Sirius Minerals PLC’s (LON:SXX) decision to switch drill contractor for its North Yorkshire polyhalite mine is a good move, according to City watchers of the FTSE250 company.

Polish firm DMC Mining Services, part of giant contractor KGHM, is taking over from AMC after the Canadian firm failed to finalise commercial terms despite a ‘notice of award’ being signed last year. DMC is a world-leading shaft sinking company with experience in this sort of geology, said WH Ireland.

READ: Sirius Minerals switches drill contract for Yorkshire polyhalite project to Polish giant

“The design of the shaft has not changed; what DMC brings is a methodology of shaft sinking using the Herrenknecht Shaft Boring Roadheader (SBR) system, which is currently being used at the BHP Jansen Potash project in Canada.

“This [SBR] has the potential to bring forward first polyhalite production by six months to mid-2021.”

Incentives (and penalties) are in place to ensure the quickest possible sinking of the shaft and DMC has an enviable safety record recognised by worldwide authorities, added the broker.

Shore Capital said while the change in contractor was a surprise, the move might see first polyhalite production up to six months earlier than planned.

“Most importantly, from our point of view, Sirius’s contracts with AMC included rights of termination for convenience, so Sirius will not incur any penalties.

READ: Sirius Minerals tweets video showing progress at York potash project

“The notice served by Sirius on AMC includes provisions for transition and novation arrangements around the engineering and design work, on-site activities (including the drilling of SM14B, which we understand is now very close to intersecting polyhalite; and operation of the concrete plant) and winder procurement.”

Shore added DMC expects to deploy ‘next-generation’ SBR systems incorporating significant upgrades from the BHP work for the construction of the vertical shafts at Sirius’s Woodsmith and Lockwood Beck sites.

DMC is also incentivised for early completion versus existing target price and schedule guidance via pain/gain-share mechanisms.

Shore said the opportunities are likely to prove genuine and kept its buy recommendation with a 65-82.5p/share, with the range dependent on the structure of the second round of financing.

Liberum said it too was surprised by the change of contractor, but DMC is known for their SBR technology, which the company expects will allow faster excavation of the shaft. Its price target is 60p.

Shares in Sirius rose 3% to 22.8p.

View full SXX profile View Profile

Sirius Minerals PLC Timeline

Related Articles

Woodsmith mine
April 01 2018
Tracking the readership of Sirius stories, we have seen their popularity wane as retail investors have been replaced by institutions that bought into November 2016’s US$495mln placing and open offer of new Sirius stock

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use