Sirius Minerals enters into royalty financing agreement with Hancock Prospecting

AIM-listed fertiliser development company Sirius Minerals has entered into a royalty financing agreement for its North Yorkshire polyhalite project with Hancock British Holdings, a subsidiary of an Australian mineral explorer.

Hancock Prospecting agreed to provide $300m of the $1.09bn needed for the first stage of the project, which comprises of $250m in royalty financing and $50m in equity funding.

Hancock agreed to buy a royalty on the project of 5% gross revenue on the first 13m tonnes per year of sales produced and 1% for sales volumes above the 13m tonnes in return for $250m.

The Australian miner also agreed to a drawdown of the royalty purchase amount, by subscribing for shares amounting to $50m.

The royalty financing agreement, which will run for the life of the project or 70 years, is conditional on the company completing its $630m stage one financing and two due diligence items.

Yuen Low, an analyst at Shore Capital, said: “We continue to anticipate the conclusion of stage one financing during the autumn of 2016. If all goes to plan, there would be no further need to raise equity thereafter, dilution would cease to be a concern, and we believe the resulting improved clarity on potential equity returns could trigger a significant re-rating.

“While Sirius is currently at development stage and still some years from becoming a cash flow-generating company, an investment in Sirius will become progressively de-risked and should enjoy significant value uplift as it advances towards production, we believe. Our latest risked net present value estimate is 70p per share post-stage one financing, previously 75p per share, we reiterate our buy recommendation.”

Shares in Sirius Minerals were up 4.01% to 35.62p at 1006 BST.