Sirius Minerals tanks after upping capital requirements by $400-600m

6th Sep 2018 08:47

(Sharecast News) - Sirius Minerals has been forced to increase and delay its funding requirements after inking two major construction contracts for the construction of the mineral transport system and materials handling facility at its mine development programme in Yorkshire.Higher than expected costs of the contracts to develop the polyhalite fertiliser mine meant the FTSE 250-listed firm upped the project's stage two capital requirement estimates by $570m to almost $4.2bn, meaning Stage 2 funding requirement is now expected to be $400-600m higher at $3.4-3.6bn.A much higher than expected cost of building the mineral transport system (MTS) was the cause of the capital uplift, due to changes in the design of the tunnel and a "significantly improved" commercial risk allocation which transfers construction and delivery risk to contractor Strabag.The developer told investors on Thursday that having finalised procurement and associated risk allocations it would now review the most cost-effective and efficient sources of capital.Financial close for Sirius' stage two financing was also pushed back from late 2018 to the first quarter of next year, with the firm expecting to receive credit-approved commitment letters from lenders during the last quarter of 2018.First polyhalite remains scheduled for 2021, but Sirius now only expects to achieve 13m tonnes per annum in 2026, pushed back from 2025, due to the company's expectation that senior debt facility terms will restrict the use of operational cash flows in funding capacity expansions.Sirius' chief executive Chris Fraser, said: "The signing of the contracts for the remaining tunnel drives and the materials handling facility at Wilton are significant steps forward for the business with almost all procurement now complete.""The project's economics remain extremely compelling and we are confident they support the expected additional funding requirement," added Fraser.On the upside, Sirius said commercial discussions over more than 3Mtpa of peak aggregate supply volume in the key target markets of Europe and Brazil are "well advanced". While noting that the announcement contained both good and bad news, analysts at Shore Capital said they were "quite encouraged by today's procurement and capital estimate update"."All things considered, while Sirius is currently at development stage and still some years from becoming a cash flow-generating company, we believe that an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production," said Shore Capital.As of 0840 BST, Sirius shares had tumbled 26.52% to 24p."One of the worst things to happen to a mining company and its shareholders is the need to revisit calculations for building a new project," said Russ Mould at AJ Bell. "Constructing a mine can be costly and it certainly isn't unusual for miners to lift their capital expenditure requirements by a million dollars or so during advanced development stages. However, when additional funding requirements are a nine figure sum, you're looking at serious embarrassment and this is exactly the situation facing Sirius Minerals."