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JP Morgan positive as Sirius Minerals continues to advance Yorkshire mine

JP Morgan also sees the financing as a key ‘de-risking’ near-term catalyst for Sirius Minerals
Woodsmith Mine
JP Morgan has an 'overweight' rating for Sirius

JP Morgan has repeated it’s ‘overweight’ stance on UK mine developer Sirius Minerals PLC (LON:SXX) and analyst Luke Nelson has noted a number of potential share price catalysts.

Sirius on Wednesday released its results statement for 2017 in which it told investors that it expects to build on a year of “meaningful progress” with plans to significantly advance its fertiliser mine development through 2018.

READ: Sirius Minerals shares tipped to double in value as UK fertiliser mine progresses

The operational and boardroom efforts are expected to culminate in the completion of the project’s Stage 2 financing later this year, which once reached, would be the stand-out achievement of the year.

The JP Morgan analyst also sees the financing as a key ‘de-risking’ near-term catalyst.

Nelson also highlighted the possibility for incremental take-or-pay commitments product sales, the completion of procurement activities and lender due diligence as steps towards the final funding.

Liberum retains a ‘buy’

Yesterday, Liberum Securities also repeated its ‘buy’ recommendation for Sirius, with a 60p target price, and analyst Richard Knights says there’s further potential for the shares to re-rate.

“Sirius 2017 results reviewed key milestones achieved during the year but for us, the key takeaway from the statement and the last couple of weeks has been more granularity around financing,” Knights said in a note.

“Management are clearly stepping up the pressure on the government to deliver a guarantee over up to $2bn of debt - in the chairman’s statement, Russell Scrimshaw described it as “essential”.

“If offtake and financing can be delivered in the next six months we see scope for a material re-rating in the shares.”

Spend will accelerate through 2018

The analyst added commentary around the group’s spending as it advances the Woodsmith mine.

“The company reported a cash balance at £468m including restricted and unrestricted cash. £197m was spent on the project, of which £118m was capex.  This spend will accelerate in 2018 with management noting on the investor call that it expects to draw the Hancock royalty cash in Q3, which can only be accessed after $630m has been spent on the project,” he said.

“The reported loss of £78m was largely a function of the fair value adjustments on the convertible and royalty, with reported operating costs for the period £24m and underlying operating costs just £16m.”

WH Ireland highlights ‘considerable progress’

“Considerable progress has been made, but more needs to be done,” said Paul Smith, analyst at WH Ireland.

“Sirius has a credible plan for the future and has set itself targets which we believe are achievable on both the construction and corporate side of the business.

“The ultimate prize is a large cash generating mine in North Yorkshire delivering financial benefits regionally and nationally.”

A number of performance milestones

In Wednesday’s full year results statement, chief executive Chris Fraser said: “We achieved a number of important performance milestones in 2017, with commencement of construction, incremental supply agreements signed, bringing the total to 4.4 million tonnes per annum, a move to the London Stock Exchanges's Main Market and inclusion in the FTSE250 amongst the highlights.

“We continue to innovate and work hard on all aspects of our project to secure value for shareholders and are focused on ensuring 2018 will be another year of significant progress on all fronts, as demonstrated by our recent shaft sinking contract."

Sirius ended the year with £468.5mln of cash resources, comprising bank deposits and cash equivalents. It noted that during 2017, it deployed some £197.3mln (before financing costs) to the mine development project. The pre-revenue group made a £78.9mln loss for the year.

Outlook

Giving his outlook statement for the remainder of 2018, Sirius chairman Russell Scrimshaw described it as a “pivotal year” for the company.

“The construction of the first new fertilizer mine in the UK for a generation is an opportunity to create thousands of jobs and bring significant economic benefits to both national and local economies.

“In order to fully realise this transformational opportunity for the UK, a partnership with the UK Government, in the form of a Treasury Guarantee under the Infrastructure Project Authority's scheme, is essential.

“Securing this guarantee and our stage 2 financing will be our core focus for the year ahead and I am comforted by our excellent progress made to date.”

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