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Sirius Minerals making encouraging progress with ‘default’ mine development, but analyst sees significant upside in Redcar

The UK mine developer is making progress with the Yorkshire mine, though there are further opportunities to enhance the project

Sirius Minerals mine
Sirius hosted analysts earlier this month

Shore Capital analyst Yuen Low continues to be encouraged by the apparent progress being made by Sirius Minerals PLC (LON:SXX) as it advances its mine development project in North Yorkshire.

This second piece of positive broker commentary follows an analyst site visit earlier this month as well as Thursday’s AGM.

With something of a status report following the visit, the Shore Capital analyst said: “Sirius remained on time and on budget to deliver the key milestones that are first polyhalite and commercial production.

READ: Sirius Minerals shares set for a re-rating in the coming months

“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.”

Low highlighted that whilst Sirius is advancing its ‘default’ development plan in parallel with potentially significant alternative initiatives that could have positive impacts for the project and its economics.

Specifically, the analyst detailed potential enhancement to the project tied to existing but under-utilised facilities at the Redcar Bulk Terminal (RBT) which is located adjacent to Sirius’s proposed Bran Sands harbour development site.

“If RBT’s facilities were used, the initial river frontage-related capex could potentially be cut very significantly, we believe,” Low said.

The analyst noted work (mainly related to planning) that has been going on in the background in regards to the potential use of RBT. “We find these developments encouraging in that they suggest to us that RBT and its owners presumably proved well disposed in discussions with Sirius.”

RBT ownership and possible partnership

RBT is presently jointly owned by British Steel and a group of Thai banks though the latter interest is being acquired by the South Tees Development Corporation (STDC), with the deal due to complete later this year.

“We see the STDC’s involvement as positive in that we believe this entity is likely to prove supportive of Sirius’s efforts,” Low said.

Low cautioned that Sirius is being wise by continuing with the default project timeline in the meantime.

“A QUANGO, the STDC was launched in August 2017 to promote economic growth in the Tees Valley through the regeneration of a 1,740ha area (including the Redcar Steelworks) by attracting private sector investment,” the analyst added.

“Indeed, it was reported by the press in May 2018 that Sirius had signed a provisional agreement to lease part of the site from the South Tees Development Corporation (STDC).

“However, we cannot discount the possibility that the closing of the STDC’s transaction with the Thai banks could take longer than expected. Additionally, even if the STDC and Greybull do prove receptive to an RBT deal, negotiations could nonetheless prove protracted.”

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