viewSirius Minerals PLC

Sirius Minerals shoots above £1bn

“Given said project’s myriad strengths, we are more confident than ever that procuring the requisite funds should not prove overly problematic,” said Shore Capital analyst Yuen Low.

Sirius movement: The share price continues surge and is up 12% today.
Sirius Minerals PLC (LON:SXX) provides a graphic illustration of just what can happen to a small-cap that has a great asset and decent management capable of implementing a fairly complex strategy. 
In June 2010 the shares were changing hands for 1.9p each with the company struggling to fund the development of potash and salt deposits in North America and Australia.
Fast-forward six years and the stock is changing hands for 43p, valuing the business just shy of £1bn-mark.
In that time there has been a total transformation. 
Senior management has completely changed with the company now led by the gritty and driven Aussie Chris Fraser.
Meanwhile, the focus has also shifted. 
Okay, Sirius is still focused on fertiliser. However the sole asset is much closer to home, being smack, bang in the middle of the North York Moors National Park.
In fact the location, in an area of outstanding natural beauty, proved a major planning impediment to the ambitious North Yorkshire Polyhalite Project (NYPP).
It took years of wrangling before this massive underground mine was given the go ahead, which has required no small amount of patience from the legion of small, private
shareholders who supported the business.
And they suffered dilution to their holdings when the company required cash to get through to the stage it is today.
There are a lot of hard yards still to do. 
To paraphrase Churchill, the winning of planning permission and completion of a feasibility study was not the end of the story. 
It was not even the beginning of the end, but perhaps the end of the beginning.
There is the huge undertaking of actually building a mine that will, initially, churn out 10mln tonnes of this polyhalite material that is transported 23 miles underground to a shipping site on Teesside.
The cost of the initial development is put at £833mln (US$1.09bn) to get the company producing its first exports by 2021.
There is the potential then to double capacity for the same sort of cost.
The project financing will come from the debt market, although investors may have to dig in their pockets one last time for the initial phase of the mine development.
Getting the project to the ‘oven-ready’ stage it is today was just one facet of the work carried out by Fraser and the Sirius team.
Polyhalite – the fertiliser that will be mined - wasn’t particularly well understood by the market when the project was first being mooted.
The detractors of the project tried to say it was inferior to the products already out in the market. 
In fact it contains a number of essential macro-nutrients (potassium, sulphur, calcium and magnesium) which makes it a well-rounded additive to promote crop growth.
That then translates to cost-savings and increased farm profits for those using it.
Having put the case for polyhalite, Sirius then had to get potential customers to sign up for shipments once the mine goes live.
An extensive marketing programme secured at least 3.6mln tonnes a year in what are known as take or pay agreements with an option of up to 7.9mln tonnes.
Yuen Low, mining analyst at Shore Capital, described the above deals as “proof-of-the-pudding validation” of the mining project’s potential once operational.
You might think the current valuation is significant given the North Yorkshire Polyhalite Project is little more than a blue-print with some fairly hefty financing commitments.
However a layer of risk has been removed in that the company now knows the mine is feasible, economic and it has been given the green light to begin work (the clock for appeals is
quickly running down).  
Plus, the potential of the asset is huge with mineable resource big enough to last half a century.
The recent definitive feasibility study said it has the potential to generate up to £2.3bn (US$3bn) in operating profits a year. The same report put the project’s net present value at £11.5bn. 
The risk now is that Sirius fails to land the cash required to take its monster deposit into production.
“Given said project’s myriad strengths, we are more confident than ever that procuring the requisite funds should not prove overly problematic,” said Shore Capital’s Low.
In fact the company has begun to appoint the contractors that will build the mine.
Shares have almost trebled in value in the year to date as the pieces of the jigsaw have begun to fit into place – and they show few signs of flagging.
The interim results update last week, which contained little material news, has prompted an 18% rise in the share price.
According to Shore Capital’s Low, the stock, currently changing 43.4p, is worth 75p, which would propel Sirius’ market capitalisation to £1.7bn. 
Even if it doesn’t achieve that target, today’s high watermark represents a remarkable return for investors who bought in at 1.9p.

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