Sirius Minerals plc (lon:sxx)
Sirius Minerals – Revisited As Stage 2 Funding Due Soon

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Title: Sirius Minerals – Revisited As Stage 2 Funding Due Soon
Company: SXX - Sirius Minerals plc
Share Price Then: 20p
Author: Ian Smith
Date: Tue 23 Apr 2019
Comments: I Looked at Sirius in Jun 2017 when the share price was 33p compared to today’s 20p and concluded that it was too long term and too risky for me.

Today it seems that Sirius are looking for $3.6 billion for Stage 2 funding rather than $3 billion an increase of $600 million or 20%, as far as big engineering projects go that’s pretty much so what, normal, if you care about that then you probably don’t understand large projects.

The big but is that at today’s price of 20p the market capitalisation of Sirius is only £1 billion, suddenly an extra $600 million starts to look worrying.

The plan was that stage 2 financing would not include a new share issue, it was only a plan and a new share issue looks to be possible, $600 million once fees are added could easily by 60% of the UK pound valuation of the company.

If the company gets to production and can sell its only product, Poly4 a polyhalite fertilizer, and can sell the volumes it is predicting at the publicly discussed price then it is still a winner.

The latest presentation states that there are already 8.2 million tonnes pa on take-or-pay supply agreements in place, the numbers in the presentation make this $610-$820 million in EBITDA based on a $70-$100 per tonne mark-up.

It is not clear though what the pay price is, is it near the sell price or a notional price only?

The downside is that these large sounding EBIDTAs need to service about $4.2 billion in debt and the terms for much of this haven’t yet been agreed.

Or course the quantity and sales price predictions could be wrong, currently the world-wide demand for this type of fertilizer appear to have been only 1.7million tonnes is 2017 about one fifth of Sirius’s target of 10mtpa

Even so if you are the person putting up the $3bn then things are probably quite rosey, you are likely to get your money and the interest owed.

With full production not scheduled until 2023 and nothing before 2021 it is a long time for a private investor to understand the business based on results not predictions and during this period the loans could be costing something like $200 - $250 million in interest pa, so by the time production is at 10mtpa the company may have added another $1billion to its debt.

If you are a shareholder the future seem much less certain, delays in production or lower than expected prices or demand could easily see all the healthy profit on sales go to operating costs and debt repayment

So buying in today seems to put you are risk of suffering from a major share issue, either soon for the extra $600million or possibly later on if costs rise or funds are needed to make interest payments.

As a share issue is only a theoretical issue I did a quick look at the shorts list and about 7.2% of Sirius’s shares are being shorted, that puts in in the top 15 companies.

Despite the level of retail enthusiasm but because of all of the above and I am still staying away. No matter what the future holds from my perspective investing in Sirius risks tying up money for no return for the next 5 years, that is a lot of lost opportunities, dividends and capital growth in other companies.

I wouldn’t be surprised that if in 10 years time the company is a great success then it will quoted on various forums as proving the benefits of long term holdings, if it fails it will simply be forgotten.
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