Shore Capital analyst Yuen Low said the key message from Sirius Minerals PLC’s (LON:SXX) latest quarterly update is that the paradigm-shifting North Yorkshire polyhalite project remains “on time and on budget”.
In a note to clients, Low said: “There will almost always delays in projects of such magnitude. To reduce delay-related execution and financial risks, Sirius has prudently been seeking and attempting to capitalise on opportunities to accelerate activities where possible.”
He added: “One such opportunity was diaphragm walling (D-walling). Unfortunately, mobilisation and design delays mean that D-walling activities are starting a bit later than Sirius would have wished, so ‘this opportunity was not able to be captured’.”
But, the analyst said: “On the bright side, because Sirius actually commenced activities ahead earlier than originally planned, this is – we stress - essentially on time as per the original schedule.
“D-walling equipment is now being assembled on-site in parallel with construction of the service shaft guide walls, and we continue to expect the outer (foreshaft) walls to be completed by January or February 2018.”
Low added: “Another potential opportunity lies with the minerals transport system (MTS). Sirius said today that some additional design and logistics works are to be completed over the remainder of 2017 with a view to commencing preparatory tunnelling activities ‘early in 2018’ with the aim of ‘improving the aggregate project schedule and expediting production ramp up’.”
He noted: “We understand that Sirius is looking to take advantage of the fact that the MTS comes to surface at Wilton to assemble and launch one of the three planned tunnel boring machines (TBMs) early.”
Funding negotiations to conclude ‘soon’
In terms of funding, Low noted that Sirius is hoping to ‘soon’ conclude negotiations on additional take-or-pay offtake agreements with which to support Stage 2 debt financing.
Meanwhile, other work on said financing is ‘progressing well’ – there has been ‘increasing engagement’ with HM Treasury’s Infrastructure & Projects Authority (IPA), and Sirius plans to recommence the formal due diligence process with the mandated bank group once an appropriate financing structure has been developed with the IPA.”
The analysts concluded: “While Sirius is currently at development stage and still some years from becoming a cash flow-generating company, an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production, we believe.”
He reiterated a ‘buy’ recommendation on the FTSE 250-listed stock and his risked NPV estimate range of 65p-82.5p per share after the Stage 2 debt commitment.
In late afternoon trading, Sirius Minerals' shares were changing hands at 25.29p, down 0.22p on Thursday's closing price.