Laying out the reasoning for its ‘buy’ recommendation the broker said the North Yorkshire polyhalite mine development will be a ‘paradigm-shifting’ project.
The investment report follows the release of a definitive feasibility study for the project, and comes as Sirius is working to land project finance so that construction can start later this year.
“The DFS results were essentially in line with our expectations, projecting a high-volume (20Mtpa), low-opex (c.US$27/t), long-life (50 years, but we believe there to be potential for >100 years) operation with prodigious cash generation, high margins and attractive returns,” said ShoreCap analyst Yuen Low.
“Key planning permits were received unchallenged in 2015, so the focus now is on raising the requisite construction funds with which to germinate this embryonic fertiliser giant – and given its myriad strengths, we do not expect this to prove overly problematic.”
According to Low, Sirius shares will see a significant re-rating once the first phase of project finance is secured – he notes that a US$1.6bn package is anticipated as a mix of debt and equity, while phase 2 would be more traditional project financing.
“If all goes to plan, there should be no further need to raise equity after Stage 1,” he said.
“Dilution would no longer be an issue, and we believe the resulting improved clarity on potential equity returns could trigger a significant re-rating.”
Low added: “While an investment in Sirius will become progressively de-risked as the company advances towards production, we believe that it already offers a more robust, lower-risk investment with the prospect of better returns than typical of its peers.”