England's $3.8 Billion Mine Project in Peril After Funding Fails - Yahoo Finance

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Sirius Minerals Plc’s ambitious plans to build a $3.8 billion potash mine in the north of England were left hanging by a thread on Tuesday after the company admitted it couldn’t raise the money it needed.

It’s the biggest blow yet to a project that has, at times, seemed like a long shot. Sirius, which doesn’t have any other operations to generate cash flow, has faced a long battle to raise capital. It’s also had to overcome environmental opposition and concerns about demand prospects for its potash.

Sirius’s plans were thrown into doubt after it last month suspended a bond sale, required to unlock a $2.5 billion credit facility from JPMorgan Chase & Co. The company had planned to try again this month, but said Tuesday that it does not believe it could raise the $500 million in the current market. That triggered a collapse in Sirius shares and left the future of 1,200 workers in doubt.

It’s also a body blow for an economically deprived area of the country. Overlooking the seaside town of Whitby, the setting for part of Bram Stoker’s Dracula, the company planned to transport the potash it mined through a 37-kilometer (23-mile) tunnel to the port town of Teesside. Once a key steelmaking region, it’s fallen on hard times as plants closed. Some locals are set to benefit from mineral rights, while others have bought shares in the company.

Strategic Review

Sirius will now slow work on the mine as it carries out a strategic review over the next six months. The company will study options to adjust the construction schedule to lower risk, in addition to exploring alternative financing structures. It’s also planning to look at the possibility of bringing in a partner to buy “a significant part” of the project.

“The only seemingly realistic solutions are that the government guarantees the bonds, which they have rejected, or they bring on a strategic investor who takes an equity stake and is willing to finance it,” said Richard Knights, an analyst at Liberum Capital Markets, one of Sirius’s corporate brokers.

Sirius fell as much as 64%, the most ever, before trading down 46% as of 9:57 a.m. in London. That cut the company’s a market value to just $445 million.

Sirius, backed by Australian billionaire Gina Rinehart, plans to extract polyhalite from a mine more than a mile deep. It had planned to produce the first potash in 2021 and has already started sinking two giant shafts and digging the tunnel to transport the potash.

One of the shafts is already more than 100 meters deep, with 1,200 staff and contractors on site. So far, the company has spent about $1.5 billion, including building a plant to make concrete supports for the tunnel. Once in production, Sirius planned to employ about 1,000 people and export $2.5 billion in potash each year.

Following another review after Sirius pulled the initial bond sale in August, the U.K. government reiterated that it won’t provide guarantees for the bonds. Sirius had earlier been counting on getting loans guaranteed by the U.K.’s Infrastructure Project Authority, but secured the last-minute agreement with JPMorgan after a government deal failed to materialize.

Sirius intends to terminate the revolving credit facility commitment in the coming days, it said.

“Do I think it should get built, do I think the economics are there? Absolutely. Do I think someone will make a lot of money if they do build it? Yep,” said Knights. “But it’s finding someone with access to that amount of capital who is willing to think a bit outside the box. When push comes to shove, who is going to pull the trigger on this?”

To contact the reporter on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Dylan Griffiths, Liezel Hill

For more articles like this, please visit us at bloomberg.com

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https://finance.yahoo.com/news/sirius-drops-64-3-8-071449880.html

2019-09-17 09:40:00Z
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