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Sirius Minerals slumps as it slams brakes on US$500mln bond offering

“Sirius is now at the crucial juncture of its US$3.8bn Stage 2 financing package for the construction of its paradigm-shifting North Yorkshire polyhalite project in England,” Shore Capital said.

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The company's fertiliser will be exported worldwide

Sirius Minerals PLC (LON:SXX) has slammed the brakes on its planned US$500mln bond offering due to “current market conditions”.

The potash miner, which announced plans for the bond issue in July, said it intends to revisit the offer “when conditions have improved later this quarter”.

In reaction, shares plunged 23% to 11.2p in late morning trading.

"The bond was due to price this week, but has coincided with an escalation in the China/US trade war, a devaulation of the RMB through 7 and a smaller than anticipated cut in the Fed funds rate which combined to drive a sharp equity/commodity sell off and risk-off in high-yield markets," said house broker Liberum. 

"Its impossible to know how much market weakness impacted demand for the Sirius issue, but the performance of Freeport's BBB bond issued on Friday gives some indication."

Sirius has said it needs to find enough buyers for the bonds in order to unlock a US$2.5bn revolving credit facility from JP Morgan.

If Sirius is able to secure that financing, it will have enough money to complete the development of its Woodsmith polyhalite mine, in North Yorkshire.

Bond offering to catalyse a major re-rating of the shares, says ShoreCap

 “Sirius is now at the crucial juncture of its US$3.8bn Stage 2 financing package for the construction of its paradigm-shifting North Yorkshire polyhalite project in England,” analysts at Shore Capital, joint broker of Sirius Minerals, said.

The analysts added: “We expect the senior debt event to catalyse a major re-rating of the shares, as it is in our view effectively the key to unlocking Sirius’s vast value potential.

“Beyond that, while Sirius would still be some years from becoming cash generative, an investment in the company should become progressively de-risked and enjoy significant value uplift as it advances towards production, we believe.”

ShoreCap and Liberum both expect the bond issue to be relaunched in September. 

Yield looks highly attractive, says Liberum 

Last week Bloomberg reported provisional guidance for a coupon rate – the interest paid over the life of a bond – of 13.5% for the bond issue, above the 10-12% that Sirius Minerals had estimated.

Liberum said on Tuesday that it thinks a yield of 13.5% "looks highly attractive in the context of its B rating".  

"Cash reserves have been guided to the end of September, although there is likely to scope to extend slightly longer if financing discussions push up against that deadline," it said.

"The convertible bond funds in Escrow and the RCF commitment letter are effectively valid until the end of October, which we would consider a hard stop for Stage 2 financing. "

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