Sirius Minerals (LON:SXX), the British company building a huge fertilizer mine beneath a national park, lost more than half of its market value on Tuesday after it announced it had cancelled plans to raise the $500 million needed to move ahead with the Woodsmith project.
The company has said in August it was “delaying” the bond offering due to turbulent global markets, including Brexit and the UK government refusal to back the polyhalite mining project.
The bonds sale was needed to unlock a $2.5-billion debt package from JP Morgan that would have financed the mine’s second phase of construction.
The decision casts serious doubt on the mine’s future and it could leave Sirius and the town of Whitby, as some analysts have said, with a “huge and useless hole in the ground.”
The London-based firm had said it had enough cash to last only until the end of September. That’s why the miner now has no other option than to slow down the pace of construction and so gain some time to “assess and incorporate optimizations to the project development plan and to develop a different financing structure for the funds required,” as the company’s chief executive officer Chris Fraser said.
The miner noted it had sufficient liquidity — about £180m ($223m) in cash reserves — to explore all of its options during a six-month strategic review period.
It would, however, return the proceeds of a $400m (£322.2m) bond issued in May 2019 to investors, it said.
The company hinted it wouldn’t be in the position it is today had the UK government not turned down a request to guarantee $1bn in bonds. That would have “enabled the company’s financing to be delivered as planned,” it said.
Sirius’ shares fell as much as 63% in early trading to 3.69p, taking the year-to-date value drop to 83%. About 14 years ago, the stock was changing hands at 6.46p. In 2016, it hit 45.23p, and by early afternoon London time, it was at 4.63p, less than half its closing price on Monday.
“Sirius Minerals’ decision to cancel its high yield bond undoubtedly represents a major blow to the company’s plans to develop its ambitious Woodsmith polyhalite mine,” Humphrey Knight, senior potash analyst at CRU told MINING.COM.
“Although the company pointed to challenging market conditions, the high yield nature of the bond demonstrates that the project has numerous risks associated with it, many of which are unique,” Knight noted.
The CRU potash expert highlighted among the Woodsmith project’s unique challenges the fact that the market for the commodity it will produce, polyhalite, remains very small.
“Sirius’ planned production is around 30 times larger than the total polyhalite market size in 2018. The company’s plan to rapidly increase production to over 10 million tonnes only a few years after starting operations also added to concerns of significant disruption to wider fertilizer markets — even with its numerous offtake agreements,” Knight warned.
He noted that while Sirius may come up with new, less risky financing routes, the underlying uncertainties around polyhalite, such as potential market size and pricing, will remain.
Russ Mould, from investment platform AJ Bell, said cancelling the planned bond sale was extremely upsetting news.
“It’s terrible news for a very large number of retail investors who had put their faith in the company,” Mould said. “Many of these shareholders live close to the mine and invested as a show of support in a project that had the potential to greatly improve the local economy.”
Labour Party’s Anna Turley, who represents nearby Redcar, said Sirius’ announcement was “devastating.”
“That the government [is] refusing to step in and secure this enormous project is an absolute disgrace,” she said in a Facebook post.
“This government owes everyone involved an apology. It’s not too late to change their minds and step in to save this huge project and the jobs and livelihoods that rely on it,” Turley added.
The Woodsmith 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. Output is forecast to reach 13 million tonnes in 2026.
The operation involves sinking two 1.5km shafts below a national park on the North York Moors and is expected to create about 1,800 jobs during construction, as well as 1,000 permanent positions once it opens in May 2021.
The ore will be extracted via the two mine shafts and transported to Teesside on the world’s longest underground conveyor belt, via a 37km-underground tunnel. It will then be granulated at a materials handling facility, with the majority being exported to overseas markets.