Sirius Minerals PLC (LON:SXX) dropped out of the FTSE 250 index on Wednesday after an 87% fall in the Yorkshire potash miner’s shares over the past 12 months, while analysts continued to pick apart the company’s “ballsy” plans.
As well as the mine developer’s shares being relegated to the FTSE Small Cap index by compiler FTSE Russell - a consequence of the demerger of M&G by Prudential which saw both financial firms included in the FTSE 100 index, Just Eat pushed down to the FTSE 250 and Sirius Minerals knocked back to the small caps - there were also been reports that the company could go private.
Although chief executive Chris Fraser said he was misquoted by the Daily Mail in its story that said Sirius was mulling leaving the public markets
Last month, Sirius’s plans to build the Woodsmith mine into a 10 million tonnes-per-annum (mtpa) polyhalite producer collapsed when the company failed to raise $500mln in the bond market, meaning the other part of its funding plans collapsed too.
In a note on Wednesday, analyst John Meyer at broker SPAngel, said the bond issue failed for a number of reasons, with one appearing to be the lack of offtake commitments for the Poly 4 product.
“We understand the current market size for this product is around 2.5mtpa so expanding this to 10mtpa is a tall order by any metric,” Meyer said.
He noted that the ninth page of Sirius’s investor presentation at its annual shareholder meeting showed total peak aggregate supply agreements of 11.7mtpa and a footnote indicated 13.4mtpa including customer options.
This, said Meyer, “leaves us wondering how the company fell short on its offtake”.
October has seen the company continue to sign up supply agreements, with a 10-year deal added with Qatari state-backed fertiliser firm Muntajat that will increase Sirius's peak sales volumes to 13.8mln tonnes of polyhalite each year.
The analyst also noted that another slide of the AGM presentation showed “EBITDA sensitivity” at a production volume of 13mtpa, around 10mtpa over the current estimated market size for this type of fertilizer product.
But Meyer said that even if the bond fundraising had been secured “this appeared to be well short” of the original estimated capital cost bill on the bankable feasibility study (BFS) and would have been even further short of the revised BFS capital cost estimate of around US$5bn.
Meyer noted that another page on Sirius’s indicative financing and capex funding in the June AGM presentation highlighted its cumulative capital cost of over $5bn based on the SRK CPR with the exception that prices and costs are nominal, inflated at 2% and highlighting that the expansion to 13mtpa will cost a further $367mln.
“While we have some admiration for anyone who has the balls to present this sort of financing proposal at an AGM to investors we are of the view that the prospect of raising of this level of funding for a single project company with no production is pure ‘fantasy’ and is something that is best left to the likes of Rio Tinto or BHP Billiton which have the requisite cash flow and more importantly the technical ability to construct this type of mine,” Meyer said.
He added that the “killer footnote” was the funding slide, that said the proposal was said to be: “Based on the expectation of US$2,500m facility being available with US$1,000m in further liquidity provided after all high yield bond issuances.”