Many had hoped the hotly anticipated ‘Stage 2’ financing would be a ‘one-and-done’ debt based deal, with limited or no dilution for equity holders.
Instead, Sirius revealed a phased and partially contingent financing plan, front-ended with US$800mln of equity and convertible debt.
Some US$400mln worth of new shares will be sold imminently at a discounted price of between 15p and 18p each (exact pricing likely confirmed shortly).
This capital injection - call it the ‘Stage 1.5 financing’, if you wish – means Sirius can keep building its Yorkshire mine with the path to production, revenue and ultimately dividends remaining intact.
The project itself is no small venture. In fact, it is one of the biggest civil engineering undertakings in Europe at present.
It comprises the Woodsmith polyhalite fertiliser mine, which is 1.5km deep, along with a 37km-long underground conveyor belt to a new processing facility.
Initial funds are guaranteed
Significantly, the imminent equity and convertible bond raises are being underwritten in the City - effectively guaranteeing Sirius the funds.
However, the subsequent steps in the funding plan are not, and they will rely on ‘market conditions’.
Specifically, the US$2.5bn revolving credit facility (RCF), the final piece - and the most critical - has yet to be nailed down.
The loan is not expected to be drawn upon until June 2021, but, establishing the facility is contingent upon the completion of a separate US$500mln senior bond issue later this year.
Sirius expects to issue the bonds no later than September, subject to prevailing market conditions, and, a deadline of 30 October is set in the commitment letter for the RCF.
In other words, Sirius must close the US$500mln senior bonds a day before the current deadline for Brexit – the UK’s exit from the European Union.
Sirius still needs to secure the remainder of the project financing in the market place, and, whether the bonds are launched in September or October, the most significant acid test looks likely to come at the sharp-end of Brexit.
So, delivering this large scale UK export story now effectively hinges on the liquidity and appetite among bond investors on the literal eve of Brexit.
Given the Brexit deadline date is Halloween, should investors be scared?
Before long term investors see their heads spin over what may yet be, it is probably fair to say that, overall, Tuesday’s funding news ought to be taken positively.
It is definitely good news, in as much as it allows mine construction to keep moving forward.
Sirius is deep in the project execution phase, and, without the new funds it would otherwise be left simply owning a big and expensive hole in the ground.
However, investor disquiet is probably warranted too. It is estimated that Sirius has something like 85,000 small shareholders, of which about a quarter are believed to reside in Yorkshire and the North East.
This ‘long tail’ of private investors will be stinging for some time after the dilutive fundraising news.
That has taken around 17% off the price on Tuesday, but, arguably, the funding also removes important near-term uncertainties.
Once they come to terms with the shock, private investors will all be hoping to see forward operational progress rewarded in the share price.
Nevertheless, a binary element of the financing risk remains and with the current timeline Brexit potentially now looms over the project in a more tangible way than before.