Banks backstop Sirius Minerals for $2.9B UK potash mine
Plans for a new potash mine in northern England moved a step forward on Thursday when the mine developer announced it has lined up six companies to backstop the project.
London-listed Sirius Minerals Plc (LON:SXX) said that JP Morgan (NYSEARCA:AMJ), Lloyds Bank (NYSE:LYG), Société Générale, RBS (NYSE:RBS), Export Development Canada and ING (NYSE:ING) will supply $2.6 billion in debt facilities to support the second stage of developing the mine such as tunnel boring. The non-binding agreement depends on the ability of Sirius to secure first-stage funding which will pay for higher-risk activities like shaft sinking, The Telegraph reported.
York Potash mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate an initial 10 million tonnes per year of polyhalite – a form of potash that is used in plant fertilizers.
The newspaper said the company is in “active discussions” with companies that could provide first-stage financing which will be a mix of debt and equity. In June Sirius said it will use Associated Mining Construction UK (AMC), known for its expertise in shaft sinking for potash projects, for the design-build of the mine, as well as for site development works; and appointed Hochtief Murphy Joint Venture for the construction of the mineral transport system, specifically the tunnel that will link the mine with the materials handing facility.
Sirius’ mine, poised to be one of the world’s largest in terms of the amount of resources extracted, is set to generate an initial 10 million tonnes per year of polyhalite – a form of potash that is used in plant fertilizers – before it enters a second phase that will double that production to 20 million tonnes a year.
York Potash mine is expected to create about 1,800 jobs during construction and 1,000 permanent positions once opened. The project has attracted some controversy because it lies under the North York Moors national park, but defenders of the mine say that construction will be underground and include a 25-mile-long sub-surface conveyor belt that will carry the ore to port.
Sirius had originally expected to begin production in late 2016, with initial output of 5 million tonnes per year, and had signed a few future supply agreements. The current development schedule, however, points at 2018 as the most likely time for production to begin.
Investors in Sirius Minerals have been rewarded this year for their staying power, with the equity advancing an impressive 154% year to date.
The stock surge comes despite seemingly unfavourable conditions for a new potash mine. A global oversupply of the fertilizer has caused prices to tumble in the past year, leading to layoffs and mine closures across the sector.
Prices for the fertilizer ingredient began their decline four years ago, as weak crop prices and currencies weakness pinched demand. Potash has also suffered from increased competition following the breakup in 2013 of a Russian-Belarusian marketing cartel that previously helped limit supply.
Potash's collapse picked up speed in the past year, putting additional pressure on producers, whose profits have been hit by falling prices, largely due to weak currencies in countries such as Brazil and low grain prices.
In August the world’s largest miner BHP Billiton (ASX, NYSE:BHP) (LON:BLT), revealed it may place its Canadian Jansen potash project in the back burner if prices for the fertilizer ingredient don’t pick up by the end of the decade. A major potential consolidation is also underway, with Potash Corp. of Saskatchewan (TSX:POT), the world’s largest producer of the fertilizer by capacity, and rival Agrium (TSX:AGU) revealing recently they are in preliminary merger talks.