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Sirius Minerals reveals its Yorkshire mine will rely less on UK government debt

Less than a week since Theresa May boasted in parliament of her support for the Yorkshire mine, it turns out that the government-backed portion of financing will be significantly smaller than previously anticipated

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The UK government is now expected to underwrite US$1bn, not US$2bn

Sirius Minerals PLC (LON:SXX) told investors it is making progress with the US$3bn debt financing that’s needed to deliver the group’s Yorkshire fertiliser mining project.

The company revealed in a stock market statement that it has made changes to the anticipated format of the debt in order to “modify credit risk allocation” amongst its potential lenders

It effectively means the UK government will play a smaller role in underwriting the project than previously expected.

READ: Theresa May confirms Sirius Minerals financing discussions

Sirius had envisaged receiving project finance in two tranches, one from commercial banks and one tranche guaranteed by the UK government. The expectation, previously, was that the UK government would underwrite some US$2bn of the project loans.

Now, however, it is anticipated that the debt will come in three sequential tranches, with a US$1bn government-backed bond coming last.

In the new arrangement, Sirius expects the first tranche to comprise uncovered debt raised via capital markets, followed by a second from commercial banks and the third in the form of a government guaranteed bond.

The debt tranches will be linked to construction milestones.

Risks to UK taxpayer lower

Sirius explained that the new structure was designed to facilitate a smaller portion of government-backed debt and noted that the risks to the UK taxpayer would be lower as the major construction and commercial milestones will have been reached by the time the debt is drawn.

It comes after Theresa May mentioned the mine development project during last week’s highly charged Prime Ministers Questions in Westminster.

Speaking to parliament, May said: “In relation to the particular discussions … these are commercially sensitive so it would be inappropriate for me to comment on the specific discussions, but this is exactly the sort of project that is what the Northern Powerhouse is all about: driving investment, driving exports, good for the north.”

Sirius, on Tuesday, said that it will be working closely with the group of lenders, the government and advisors to work through the due diligence and the detailed terms of the proposed financing.

The company added that it is working to secure agreed commitment letters as soon as possible.

It noted that, at the end of December, the company had £290mln of cash including some £230mln of unrestricted cash.

Sufficient liquidity to fund the project into Q2

Sirius said it has sufficient liquidity to fund the project into the second quarter of this year, in line with the current project schedule.

"Executing our stage 2 financing plan remains our priority,” said Chris Fraser, Sirius chief executive.

“We continue to make progress towards obtaining stage 2 financing commitments and are working constructively with all relevant parties to achieve this. 

“The process with the lenders is continuing this quarter as we work through the due diligence reports with the lending group and progress discussions on the revised debt structure."

In terms of operations, Sirius highlighted “significant construction progress” during the period and it said that procurement is complete for the major construction packages to support stage 2 financing.

READ: Sirius Minerals shows off latest progress at £4bn Woodsmith fertiliser project

Sirius highlighted that the project remains on track to achieve first polyhalite and commercial production on time and in line with its most recent cost schedule, as announced on 6 September.

It also highlighted the progress made on the sales and marketing side as the company continues to open up the market for the POLY4 branded polyhalite product that will be unearthed from the mine.

In afternoon trading, shares in Sirius Minerals were 6.1% lower at 21.02p.

In a note to clients, analysts at ‘house’ broker Shore Capital commented: “All things considered, while Sirius is currently at development stage and still some years from becoming a cash-generating company, we remain of the belief that an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production.”

 -- Adds share price, analyst comment --

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