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Sirius Minerals: Liberum says financing will be largest catalyst yet

Clarity on the financing for the North Yorkshire polyhalite mine can unlock the multi-billion dollar potential of the major UK project, according to City broker Liberum.

A picture of polyhalite granules, the anticipated fertiliser product of the mine in North Yorkshire.
With a 40p price target Liberum suggests Sirius shares should more double.

Sirius Minerals PLC (LON:SXX) is set for its biggest share price catalysts yet, according to City broker Liberum Securities.

Securing project finance for the North Yorkshire polyhalite mine is the ‘final hurdle’ in the way of unlocking a possible US$7bn valuation, says Liberum analyst Richard Knights.

First though, there’s the not so small matter of finding US$1.6bn of finance to build the first phase of the mining operation.

Liberum’s Knights says the financing will likely come in the form of high-yield debt and equity. Clarifying the quantum and nature of the funding will in itself remove risk from the Sirius investment proposition, he explains.

Knights added that a 50:50 mix of debt and equity would see an 80p per share valuation for the mine's first phase. 

Plainly a lot has to be done before Sirius investors can start spelling million with a B, nevertheless Liberum sees substantial upside in the nearer term.

With a 40p price target the broker suggests the AIM quoted share should more double in value from the current price of 18p - a move that would see the market capitalisation close to £1bn.

For context, the share is already up 140% from around 7.5p in just over a year.

Liberum’s target is based on a number of assumptions, including a polyhalite (POLY4) price of US$125 per tonne.

But, Liberum has also created an interactive valuation model, which allows investors to tinker with many different variables - including funding terms, debt-to-equity splits, capex costs and currency rates.

A key point to be highlighted is that Knights sees significant upside in important areas including price, demand and the mine’s potential capacity.

“We believe there is up to a 100mt addressable market for POLY4, enabling Sirius to ramp up to 20mtpa over time,” he said in a note.

“We model Sirius producing 10mtpa and delivering >$800m of EBITDA by 2023, and 20mt delivering $1.2bn EBITDA by 2027.”

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