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Sirius Minerals shares set to end the week on front foot as bond switch advances

The UK mine developer wants an early swap of debt to equity as it continues to advance operations in Yorkshire

Sirius Minerals Woodsmith mine
The invitation to convert is open until Monday April 16, at 3pm.

Sirius Minerals PLC (LON:SXX) shares strengthened on Friday, boosted by the UK mine developer’s pitch to its bondholders.

Having given up ground on Thursday, in light of the pending equity dilution, the London-listed share was up almost 3% today, changing hands at 28.84p each.

Yesterday, the company revealed it was offering holders of its convertible bonds incentive shares as a move to incentivise an early debt to equity swap.

The UK mine developer, in a stock market statement, highlighted that the bonds are trading substantially "in‐the‐money" and said it is seeking to accelerate conversion.

Sirius previously issued US$400mln of convertible bonds, carrying 8.5% interest and due in 2023, and the company said that some US$308mln remain outstanding.

A boost before the next financing

It told investors that early conversion will reduce the group’s outstanding debt ahead of the anticipated Stage Two debt financing, which will be designed to cover the remaining mine development costs in North Yorkshire.

Sirius added that it would be able to release set aside cash, presently earmarked to cover future interest payments, and highlighted that it will help reduce any overhang in the trading of its shares (which are caused by as hoc conversions).

"At Sirius Minerals we are always searching for ways to improve and adapt all aspects of our business,” said Thomas Staley, Sirius Minerals' finance director.

“This Invitation for conversion provides the opportunity to facilitate orderly conversion for bondholders while enabling the company to optimise its capital structure ahead of stage two financing later this year."

The invitation to convert is open until Monday April 16, at 3pm (UK time), the company expects to announce the outcome of the process on April 17 and the settlement for the new equity is expected by April 23.

Shore Capital highlights the miner’s progress

Should Sirius secure the conversion of 85% or more of the bonds, it will have the right to redeem the remaining bonds, Shore Capital analyst Yuen Low noted.

“We see this as the (soft) ‘stick’ to the ‘carrots’ that are the incentive and premium to Parity shares (which would not be received by the ‘last 15%’ bondholders, were Sirius to exercise its redemption option on their bonds),” the analyst said.

“In last month’s quarterly update, Sirius reported that the various workstreams for the Stage 2 financing were progressing well.

“The company was intending to commence re-engaging with potential lenders over the coming weeks, with the reiterated aim of having commitments in place during H2 2018.”

Low also highlighted that the ‘paradigm’ shifting’ North Yorkshire polyhalite project remained “on time and on budget” to deliver key milestones that are first polyhalite and commercial production.

“We have previously opined that there will almost always be delays in projects of such magnitude as Sirius’s, and noted that the company has been doing the right thing in seeking and attempting to capitalise on opportunities to accelerate activities where possible,” he said.

On time and on budget

“Events have thus far borne these out: aside from being essentially still on time and on budget, there are various opportunities available from which might be eked out further cost and time savings.

“Consequently, 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.”

Shore Capital used to have a ‘buy’ rating for Sirius, but now, having been appointed as broker to the company, it no longer makes a recommendation due to its conflict of interest policy.

Separately, Liberum Capital commented: "Whilst the offer is marginal in the context of share price volatility, it may help to shake out loose holders here."

The broker has a 'buy' rating and 60p price target on Sirius Minerals.

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