Sirius Minerals plc (LON:SXX) Strategic Review Progress Update

Chris Fraser Managing Director and CEO of Sirius, comments: Our focus during the first phase of the strategic review has been to reassess the best ways to unlock the value of our project for our shareholders, our community, the UK, and our customers all around the world.

Strategic Review Progress Update

§ Development work across the Project now slowed to allow for a six month strategic review period, funded by existing cash resources

§ Review of development plan and optimisation opportunities has produced a revised two-stage Project development plan comprising:

o  An Initial Scope to include progress of shaft sinking to achieve first polyhalite and Drive 1 MTS, significantly de-risking the construction of the Project. This work is estimated to require ~US$600 million of funding to be raised

o  A Deferred Scope incorporating the remainder of construction activities required to deliver full production

§ Strategic partner and financial investor processes underway with the aim of securing ~US$600m of Initial Scope funding, with various parties engaged and assessing information

§ Strategic review demonstrates robust project values with current project Net Present Values for the 13Mtpa business case ranging from ~US$11 billion to US$13 billion and Internal Rates of Return ranging from 29% to 35% for a range of development scenarios subject to successful financing

On 17 September 2019 Sirius Minerals Plc (“Sirius” or the “Company”) announced that as a result of market conditions impacting its ability to deliver its Stage 2 Financing, it would be slowing the pace of development on its North Yorkshire polyhalite project (the “Project”) and undertaking a strategic review over a period of six months.

The purpose of the strategic review is to consider and incorporate optimisations to the project development plan and to explore alternative financing solutions, including conducting a process with the aim of identifying and securing a strategic investor.  The Company is pleased to provide an update on the progress of this work.

Chris Fraser Managing Director and CEO of Sirius, comments:

“Our focus during the first phase of the strategic review has been to reassess the best ways to unlock the value of our project for our shareholders, our community, the UK, and our customers all around the world.

“Our analysis has identified a two-stage development plan that enables us to achieve the key de-risking milestone of first polyhalite, when the service shaft reaches the polyhalite ore body, with an upfront capital requirement of ~$600 million. The additional works required to reach an installed and ramped up production capacity of 10 Mtpa contemplates up to US$2.5 billion of capital expenditure.

We are in discussions with potential strategic partners and debt investors with the aim of securing the best route to finance our revised initial scope of work and will update the market and our stakeholders on the progress of those when appropriate.

The value of Sirius is unlocked by reaching production and delivering POLY4 to our customers around the world. This approach allows us to achieve that with less upfront capital while retaining the significant return opportunity it presents for our shareholders and stakeholders.

“I would like to thank our employees, contractors and partners for their continued focus and commitment, and recognise that the progress achieved on the ground in recent months remains a source of huge inspiration for the whole team.”


Sirius’ project development and financing strategies to date have been built around two key objectives; first, to achieve first polyhalite as soon as possible due to the transformative effect that this will have on the Project’s risk profile and, second, to be in a position to ramp up to full production as quickly as possible to generate returns for shareholders.  This strategy required the Company’s former proposed Stage 2 Financing to be in place in order to continue to achieve our goals of first polyhalite by the end of 2021, and fully ramped up production in 2024.

As part of the strategic review process this strategy has been reassessed with the feedback and outcomes of the Stage 2 processes.  The primary objective still remains to access first polyhalite as quickly and as efficiently as possible, thereby removing the greatest perceived construction risk associated with deep shaft construction. This will then enable us to explore a wider and cheaper range of debt financing options to fund the development of the remaining Project infrastructure.  In order to reduce the upfront capital requirements, consideration has been given to the rephasing and rescoping of other works required.

The Company has successfully identified a number of development changes and optimisations that, together with a new approach to the phasing of development, are aimed at reducing the initial capital requirement to first polyhalite to ~US$600 million (in addition to existing cash reserves).

The Company believes this balanced approach to development will significantly de-risk the proposition for senior debt providers at a later date and therefore facilitate the raising of senior debt to fund the remaining infrastructure.

Although the Project delivery will now occur on a different schedule of key milestones the effect on the value of the project, when assessed using the measures of net present value (“NPV”) and internal rates of return (“IRR”), is not materially altered.  At the time of the Stage 2 financing the NPV of the 13Mtpa project scope (i.e. not including value for 20Mtpa business case) was assessed as US$11.6 billion.  Using the revised approach to development and subject to successfully financing the Project, the estimated current NPV of the Project for the 13Mtpa business case ranges from ~US$11 billion to US$13 billion across a range of development scenarios.

Current construction status

The first phase of the strategic review was to adjust the ongoing scope of work across the Project to preserve sufficient funds for the six-month review period.  This has been effectively implemented with positive engagement and involvement with the Company’s employees and contractors.  Since the start of the review period on 17 September 2019, the Company has continued work across a number of areas on the Project:

·    Successfully driven Drive 1 of the mineral transport system (“MTS”) from Wilton to a distance of 2,250m.  Even at this early stage, over the last one kilometre of tunnelling the tunnel boring machine (“TBM”) has averaged 19 metres per day – this is ~40% ahead of the rate expected for the current ground conditions;

·    Completed sinking of the inner Service Shaft to a depth of 119m using conventional sinking and segmental lining.  This shaft has now been slip-form lined to the current base of the shaft.  Work is proceeding in the foreshaft in preparation for the launch of the shaft boring roadheader (“SBR”);

·    The SBR for the Service Shaft has been delivered to site and has been modularised to the point where it is ready for lifting into the shaft once full development scope recommences;

·    Development work on the Production Shaft has now been suspended.  The foreshaft has been excavated to a depth of 45m.  The inner shaft to 120m has been pre-lined with diaphragm walls, although this has not been excavated.   

·    Lockwood Beck MTS shaft site is being made safe and secure;

·    Woodsmith MTS temporary headframe construction is nearing completion with the Galloway sinking stage installed in the shaft and being prepared for commissioning.  This shaft has been excavated and lined to 115m;

·    The demonstration granulation plant at Wilton, for production of POLY4 granules, has been successfully installed and will be commissioned in December.

Revised development plan

The second stage of the strategic review has been to assess the development options available to the Company.  When reviewing development options, the Company’s ongoing objective has been to protect and maximise shareholder value.  The outcome has been to redefine the Company’s base case development plan to commercial production to incorporate certain identified opportunities (the “Revised Base Case”).

The Revised Base Case development plan has been defined into two phases of work: an initial scope of work (the “Initial Scope”), and a deferred scope of work (the “Deferred Scope”).

Phasing of Development

The Initial Scope will comprise shaft sinking activities for all four shafts until first polyhalite is achieved and the excavation of Drive 1 of the MTS tunnel to Lockwood Beck.  This scope has been selected to deliver the elements of the Project perceived to be higher construction risks (e.g. shaft sinking) and / or of having the greatest de-risking benefit (e.g. establishing clear track-record on tunnelling by completing Drive 1).

The Deferred Scope incorporates the remainder of construction required to deliver 10mtpa capacity ramped-up and operational.  The remaining work comprises a more ‘infrastructure’ style risk framework more consistent with civil construction and more commonly financed in large scale by project finance banks.

The aim of this approach is to materially de-risk the implementation of the remaining elements of required funding and ultimately aim to reduce previously anticipated funding costs of the additional financing required to fully fund the Project to 10 Mtpa capacity.

The two-phase development approach enables the Company to significantly reduce the initial further capital requirement to ~US$600 million for funding of the Initial Scope.  The Deferred Scope, which has estimated capital costs of up to ~US$2.5 billion, will only be committed to once full financing of the Project has been secured.  The Company will target full financing 12 to 24 months from the commencement of the Initial Scope.  The earlier date is to enable time for sufficient track-record on shaft sinking to be demonstrated (i.e. lower the perception of risk and increase cost certainty) and time for the detailed work with the financial providers in terms of due diligence and documentation.  The latter date assumes all of the Initial Scope is completed prior to commencing the Deferred Scope.

Development options incorporated into the Revised Base Case

Based on the work undertaken so far in the strategic review, the Company has identified a number of options with the potential to improve the cost and delivery timelines within the Deferred Scope and intends to incorporate those options into the Revised Base Case.  The cost and schedule estimates incorporating these options are subject to detailed engineering and procurement work that is currently ongoing and will be finalised prior to implementing financing for the Deferred Scope.  The Strategic Review has also identified some further significant opportunities which could potentially benefit the Project through cost reduction and schedule acceleration.  These may be added into the Revised Base Case prior to commencing the Deferred Scope but are not committed to yet.

MTS tunnelling rates

Based on performance to date, the Company is increasingly confident in the capabilities of the tunnel boring machine (“TBM”) to deliver the tunnel at much faster than expected rates of progress and this has been evident in the performance of Drive 1 to date.  The initial three kilometre near surface drive from Wilton was expected to be the most difficult and time-consuming component of the MTS development.  Over the last kilometre of excavation, the average rate of 19m per day is approximately 40% ahead of the expected advance rate for this shallower, wetter ground.

Drive 1 was originally expected to achieve a long-run average of 17.5m per day but this drive is now expected to achieve an average of 25m per day over the balance of the drive from the 3km mark.  As a result, Drive 1 is expected to be complete (reaching Lockwood Beck) by the end of 2020, ahead of the original base schedule.

This change to the expected schedule does not adjust the contracted rates but does create a number of opportunities for the Company to align other components of the project and make implementation decisions which are detailed below.

MTS – Continuation of Drive 1

With the successful launch and operation of the TBM in Drive 1 and the higher rates of advance experienced, the Company has taken the decision to continue Drive 1 TBM from Lockwood Beck.  This removes the requirement for the Drive 2 TBM as well as the large launch cavern required for that machine.

Once the TBM from Drive 1 reaches Lockwood Beck it will undergo underground refurbishment before continuing on to complete Drive 2 (a further 12 kilometres).  This change is expected to deliver a net saving of approximately US$100million.  This saving is achieved by no longer procuring and assembling the second TBM, reducing the size of the cavern at the base of the Lockwood Beck shaft, and continuing to utilise the infrastructure already installed at Wilton.

MTS – Phased Conveyor Capacity

The idea of better utilising the temporary conveyor infrastructure that is being installed in the MTS tunnel for construction has been investigated.  The plan is to now re-use and upgrade the construction conveyor instead of the original plan of removing that system and replacing it with a new large capacity operational conveyor system.

The conveyor system, once converted to its operational configuration, would then be progressively upgraded and expanded.  Initially the Company is anticipating a capacity of approximately 6.5 Mtpa which could be increased quickly to 13.5 Mtpa and ultimately to approximately 20 Mtpa.

This change is expected to result in a saving of approximately US$100 million and see the MTS commissioned with commercial capacities earlier than the original plan.  Further work on optimising this changeover from construction to operations may further expedite the commissioning of the MTS and accelerate the Company’s ramp-up plans.

Optimisation of the MHF capacity

The Company has decided to change the configuration of the materials handling facility (“MHF”) in Teesside.  By changing the size of the High Pressure Grinding Rollers and associated air classifiers the Company can enable the initial single granulation train to produce up to 13 Mtpa of POLY4 granules and chipped product.  We previously estimated a total cost of US$518 million associated with the MHF, US$309 million relating to the initial development to 10 Mtpa and US$209 million relating to the construction of a second granulation train, which was included in the cost estimate for expansion to 13 Mtpa but is no longer required. This change is expected to increase the cost of the initial MHF installation by US$41 million, but reduces the net overall costs associated with the MHF by ~US$168 million.  As the Company now has purchase commitments that exceed 13 Mtpa the Company is confident in making this design change in the MHF plant configuration now.

Potential additional development opportunities – not incorporated into the Revised Base Case

Rates of progress – deep shafts

The Project’s schedule to first polyhalite is driven by the sinking rates for the deep shafts.  The Company, along with its shaft sinking contractor DMC Mining Ltd, SBR manufacturer Herrenknecht, and external consultants have been working to identify an optimised detailed working plan for the shaft sinking programme.  Significant process improvements and design modifications have been made to the SBRs, building on best practice and lessons learned from previous SBR driven shaft sinking programmes.  The aim of this work was to maximise and crystallise the potential of these machines to sink the deep shafts as quickly and as safely as possible

A series of detailed work programmes have now been developed to identify expected and target schedules for all activities across the construction period.  The original base case schedule was for a total period of sinking to first polyhalite of approximately 23 months.  A revised schedule has now been developed based on changes and initiatives that are expected to reduce this by three months.  Two other target schedules have also been developed – a “reasonable” target that identifies another two months of savings, and a “stretch” target identifying a further two months of opportunity.  None of these schedules change the Company’s conservative position on the level of grouting required through the Sherwood Sandstone but do include varying degrees of process improvements in that part of the work programme.

These schedules, if delivered, would see first polyhalite delivered between three and seven months earlier than in the Company’s Revised Base Case schedule.  Although focussed on delivering on these, the Company’s Revised Base Case schedule will retain the original base case excavation assumptions and the Company will pursue the accelerated schedules to deliver either early completion or contingency in the delivery schedule.  Once a successful track-record has been established the Company will look to adopt a revised schedule.

Potential change of methodology for Drive 3

The Company has identified an additional opportunity to change the methodology used to construct Drive 3 of the MTS from Woodsmith Mine towards Lockwood Beck.  Currently the base case is a segmentally lined tunnel constructed using a similar single-shield TBM to that being used on Drive 1.  This system requires the construction of a large launch cavern to enable the TBM to be assembled underground, launched and operated.

The two alternative methodologies analysed use a different style of TBM, a Gripper TBM, or a mining system primarily utilising a large bolter-miner machine.  Both of these systems incorporate a change in the lining methodology for Drive 3 from a full segmental system to a bolt and mesh system.  This results in a significant saving in cost and is considered possible due to the expected competency of the rock, the depth of Drive 3 and the expected dry conditions.

A comparison of these methodologies with the base case plan shows that the fastest methodology would be the Gripper TBM.  This would result in the MTS being available 6 months earlier than using a single shield segment system.  It could also deliver a saving of approximately US$125 million.  The mining system is the cheapest option (approximately US$215 million less than the single shield TBM and segment lined plan) and could be approximately three months quicker.  This time saving is possible with this methodology, despite having a slower expected advance rate, due to the quicker set up time from the bottom of the MTS shaft.  The Company estimates that incorporating a Gripper TBM into the Revised Development Plan would result in an estimated NPV of US$13.1 billion and an IRR of 35 per cent., assuming a 12 month deferral period and the receipt of funds to fully finance construction of the Project to 13 Mtpa production capacity. The estimated NPV of incorporating a mining system into the Revised Development Plan is US$13.0 billion and IRR 35 per cent.

The potential represented by these two options is significant and the Company intends to continue assessing them during the following 12 months and will confirm the methodology as part of the final development plan integrated into the full debt financing of the Deferred Scope.

Indicative development scenarios – economic analysis

The Company has analysed the impact of the phased development plan scenarios on the capital costs, schedule and economic parameters of the Project.  The Company’s initial analysis indicates that the potential scenarios preserve significant value in the Project, which is outlined in the table below.

Reference Case1

Revised Based Case2

12mth deferral of Deferred Scope

24mth deferral of Deferred Scope

Capital costs




Total capex3




Total cost to complete3




Variance to Reference Case



First 12 months capital




First 24 months capital





First polyhalite

Q2 2022

Q2 2022

Q2 2022

MTS available

Q4 2023

Q1 2024

Q1 2025

10Mtpa ramped up

Q2 2025

Q3 2025

Q3 2026

Economic parameters4

NPV (US$bn)








Production to end 2025 (Mt)




Notes:  1.  Reference Case – assumes development recommences on 1 April 2020 in line with the Company’s previous development plan as set out in the Company’s prospectus dated 1 May 2019 with adjustments related to the impact of delaying certain development until 1 April 2020.  2.  Revised Base Case – assumes Initial Scope commences on 1 April 2020.  Deferred Scope proceeds in line with the Revised Base Case described in this announcement and commences 12 months or 24 months after the Initial Scope commencement.  3. Initial capital expenditure required to achieve full production. Excludes expansion capital expenditure of US$157m to deliver 13Mtpa and US$80m of mobile mining equipment which is assumed to be outsourced. Includes US$243m of costs relating to harbour and ship loading infrastructure which had previously been assumed to be outsourced. Includes contingency and escalation of US$467m, which assumes contingency at a P65 level and of which US$432m remains as residual cost to complete. 4 As at 31-Dec-19. Subject to successful financing of the Project to 13 Mtpa production capacity.

Financing Options

The Company is now exploring pathways for funding the Initial Scope of the Revised Base Case.  The Initial Scope is estimated to require ~US$600 million of new capital (in addition to existing cash resources) which would need to be committed prior to the end of Q1 2020 to recommence development from 1 April 2020, as per the development scenarios outlined above. The Company estimates that this new funding will be sufficient to fund the Project to the point of first polyhalite subject to ongoing discussions with potential capital providers.

The Initial Scope will comprise;

·    progressing shaft construction to deliver completion of two TBM shafts and progress the production shaft and service shaft to achieve first polyhalite on the service shaft;

·    permanent and temporary infrastructure required to deliver shaft sinking including power and concrete supply and other site services;

·    progress MTS Drive 1 to Lockwood Beck and associated support costs;

·    owners team costs; and

·    estimated contingency, subject to ongoing review.

The Company is seeking to have the Initial Scope funded from the proceeds of either the strategic investor process or through a structured debt financing package, either of which may incorporate the issue of new equity or an equity-like component to the financing package. 

One benefit of a strategic investor supporting the Initial Scope funding is that it may reduce the overall perceived risk for the Project from the point of view of potential financers of the additional financing required for the Deferred Scope.  Various interested parties are in the process of undertaking due diligence related to the capital requirements of the Initial Scope.

The Deferred Scope contemplates up to ~US$2.5 billion of capital expenditure which is expected to fund the Project to 10 Mtpa installed and ramped-up production capacity.  The Company would seek to have the Deferred Scope funded by a senior debt financing executed as either a traditional bank-based project financing or a debt capital markets solution (or a combination of the two), similar to the structures of the Company’s previously envisaged Stage 2 Financing.

The Company believes that the scope-based approach to development ought to significantly reduce the risk allocation compared to the Stage 2 Financing in the areas outlined below:

·    Technical risk (reduced) – funding and progressing the Initial Scope separately removes the higher risks typically associated with deep shaft construction from the scope of the funding provided by the senior debt providers.  As described above, this transitions the construction risk away from a “mining” context and into a more “infrastructure” style risk framework where the main risks are consistent with civil construction.  In addition to this, progressing Drive 1 of the MTS further reduces the uncertainty around execution risk and establishes a clear track-record of delivery for the remaining tunnel scope. 

·    Commercial risk (lower) – Funding the shaft sinking through the Initial Scope removes the amount of “risk sharing” style construction contracts for senior lenders.  In particular, the balance of the scope is predominantly fixed price.

·    Time to cash flow (reduced) – The senior debt financing would be required at a time which is closer to the point where the project is generating operating cash flow.  This could ultimately reduce the funding required to pay interest during construction, subject to the cost of the capital required for the Initial Scope, and a portion of the operating cash flow during ramp-up can be utilised to fund the Deferred Scope.  The amount of operating cash flow assumed will ultimately be subject to discussion with the lenders. 

·    Quantum of debt (reduced) – The Deferred Scope contemplates a capex requirement of up to US$2.5 billion.  The potential to incorporate material operating cash flow into the financing plan combined with the reduction in interest during construction provides significant benefit to the financing plan.  This proposition would remove one of the key challenges of previous debt financing activities (where over US$1.5 billion was required to fund financing costs during construction). 

·    Credit metrics (robust) – The previous Stage 2 Financing was provisionally rated B/B- by Fitch and S&P respectively.  The enhancements to the contemplated debt financing outlined above seek to reduce the total debt required and the perceived execution risk of the Project. 

·    Other enhancements – From a product perspective, the Company has continued to increase the volume of production under long term contract and has now established a global distribution platform with peak contracted volumes now in excess of 13 Mtpa.

Any senior debt financing put in place for the Deferred Scope will be materially shaped by the outcome of the financing pathway for the Initial Scope.  Following the execution of the financing of the Initial Scope, the Company will commence engagement with senior debt providers with the aim of structuring a comprehensive financing plan for the Deferred Scope.

Investor webcast

Sirius Minerals’ CEO, Chris Fraser, will host a webcast for investors and analysts at 9.30 am today. 

The webcast can be listened to live by clicking on the link below.  A replay will be available on the Company’s website in due course

For further information, please contact:

Sirius Minerals Plc

Investor Relations

Jennifer Wyllie, Tristan Pottas

Email: [email protected]

Tel: +44 845 524 0247

Media enquiries


Alex Simmons, Ed Brown

Email: [email protected]

Tel: +44 7970 174 353

Tel: +44 7540 412 298


About Sirius Minerals Plc

Sirius Minerals Plc is focused on bringing large scale volumes of POLY4 to the global agriculture industry.  POLY4 is the Company’s trademarked name for its unique multi-nutrient fertilizer to be produced from the world’s largest and highest grade polyhalite deposit located in North Yorkshire, United Kingdom, which can be used to increase balanced fertilization around the world.  Sirius Minerals’ shares are traded on the Premium List of the London Stock Exchange.  Its shares are also traded in the United States on the OTCQX through a sponsored ADR facility.  Further information on the Company can be found at:

Forward-Looking Statements

This announcement includes “forward-looking” statements within the meaning of U.S. securities laws and the laws of certain other jurisdictions. Forward-looking statements are based on the beliefs of management as well as assumptions made by, and information currently available to, the Company’s management. These forward-looking statements include all matters that are not historical facts and statements regarding the Company’s intentions, beliefs or current expectations concerning, among other things, future operating results, financial condition, prospects, growth, expansion plans, strategies, the industry in which it operates and the general economic outlook. The words “believes”, “estimates”, “anticipates”, “expects”, “intends”, “plans”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology, and similar expressions are also intended to identify forward-looking statements. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and therefore are based on current beliefs and expectations about future events. Forward-looking statements are not guarantees of future performance and actual operating results and financial condition, and the development of the industry in which it operates, may differ materially from those made in or suggested by the forward-looking statements contained in this announcement. In addition, even if the Company’s operating results, financial condition and liquidity, and the development of the industry in which it operates are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Such forward looking-statements speak only as of the date on which they are made. You should not place undue reliance on forward-looking statements and the Company does not undertake publicly to update or revise any forward-looking statement that may be made herein, whether as a result of new information, future events or otherwise.


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