Sirius Minerals losses widen as its steams towards production

Sirius Minerals announced its results for the year ended 31 December on Tuesday, with the pre-revenue company’s loss before tax widening to £79.25m from £23.42m due to non-cash items as it begins to develop the world's largest polyhalite fertiliser deposit.

The FTSE 250 company said it had cash resources of £468.5m at period-end - comprising bank deposits and cash equivalents of £394m and restricted cash of £74.5m - compared to £665.3m at the end of 2016.

Due to IFRS accounting rules, fair valuation requirements relating to elements of the stage 1 financing, the 22% increase in the company's share price over the course of the year caused a total loss of £78.9m being recorded for the year, the board explained. It said £53.6m of the loss was fair valuation adjustments that were non-cash in nature.

As the convertibles are converted and royalty financing is drawn down, the associated liabilities will be reclassified to equity.

Total funds deployed in developing the project during 2017 before financing costs were £197.3m.

On the operational front, Sirius said enablement works were completed for the Woodsmith Mine in the North Yorkshire Moors during the year, with the formal commencement of development notice was by the local planning authority.

Site preparation and establishment works at the Woodsmith site and Lockwood Beck were also completed.

Sirius said the optimisation of shaft construction and design resulted in a simpler design and construction methodology, and a reduced surface footprint, with shaft-sinking activities now started, and diaphragm walling activities said to be progressing smoothly with three rigs operating on the service shaft foreshaft.

Looking at its sales and marketing efforts, Sirius said it expanded the breadth and depth of its global agronomy programme, and had initiated 80 new agronomy trials.

The overall programme now encompassed over 260 trials on 32 crops in 17 different countries, which the board said demonstrated POLY4 delivered “greater nutrient uptake” and increased both yield and quality.

A binding take-or-pay supply agreement was signed with Wilmar International, one of the largest and most established fertiliser buyers and distributors in South East Asia, for the use and resale of POLY4 exclusively in the region.

Sirius Minerals, which was promoted to the FTSE 250 index during the year, more than doubled the number of employees, and established a new corporate headquarters in North Yorkshire as it ramped up construction and development.

“Our world class project based in North Yorkshire has the potential to disrupt the global fertilizer market and contribute substantially to the UK economy,” said Sirius Minerals CEO Chris Fraser.

“We achieved a number of important performance milestones in 2017, with commencement of construction, incremental supply agreements signed, bringing the total to 4.4m tonnes per annum, a move to the London Stock Exchange's Main Market and inclusion in the FTSE 250 amongst the highlights.

“We continue to innovate and work hard on all aspects of our project to secure value for shareholders and are focused on ensuring 2018 will be another year of significant progress on all fronts, as demonstrated by our recent shaft sinking contract.”

He said 2018 was expected to be another year of significant progress, with the anticipated ultimate culmination of a successful completion of the stage 2 financing, to whit chairman Russell Scrimshaw added that was “essential” for the government to finalise a Treasury debt guarantee for $2bn of the $3bn funding Sirius needs to complete mine's construction.

Sirius aims to complete the initial $1.2bn financing round by completing the second phase this year, which will lock-in up to $3bn funding it needs to complete the project. Sirius needs the Treasury to guarantee $2bn of the $3bn financing needed.

"In order to fully realise this transformational opportunity for the UK, a partnership with the UK Government, in the form of a Treasury Guarantee under the Infrastructure Project Authority's scheme, is essential," Scrimshaw said.

"Securing this guarantee and our stage 2 financing will be our core focus for the year ahead and I am comforted by our excellent progress made to date. With preparations well underway to secure commitments for financing, we are confident in our ability to deliver these goals and look forward to taking on the challenges which lie ahead."

House broker Shore Capital noted that in January, Sirius reached an in-principle agreement with the IPA in relation to structure and financing process.

Analyst Yuen Low said: "We have previously opined that there will almost always be delays in projects of such magnitude as Sirius’s, and noted that the company has been doing the right thing in seeking and attempting to capitalise on opportunities to accelerate activities where possible.

"Events have thus far borne these out: Sirius is essentially still on time and on budget, with various opportunities available from which might be eked out further cost and time savings. Consequently, while Sirius is currently at development stage and still some years from becoming a cash flow generating company, an investment in Sirius should become progressively de-risked and enjoy significant value uplift as it advances towards production, we believe," he said, pointing to his risked net present value estimate range of 65-82.5p/share post the stage 2 debt commitment.