Sirius Minerals says Yorkshire fertiliser mine 'on time and on budget'

Sirius Minerals remains on time and on budget as it develops its massive Woodsmith polyhalite fertiliser mine under the Yorkshire Moors.

Activity levels will now "step up significantly", said managing director Chris Fraser, as the FTSE 250 company begins diaphragm-walling activities as part of the shaft-sinking process.

Sirius, which has put additional safeguards and procedures in place after a safety incident occurred in August during drilling activities, has made amendments to near-surface components of the mine with a larger diameter and deeper foreshafts, removal of a series of roadways related grouting programme, which it said have resulted in an increase in the scope of the D walling activity required "but will ultimately result in a cheaper, simpler and more efficient operational environment".

A geotechnical drilling programme has experienced some typical delays over the previous months and management is working to ensure these delays do not impact the critical path of the broader construction programme, though geotechnical and hydrogeological testing work has provided positive data confirming "the conservative nature of some parameters used in the current shaft design and construction methodology".

Although project design work had identified further opportunities to simplify and reduce capital spend, management feel it is too early to recognise any of these opportunities as a reduction in total project cost.

Sirius failed to take advantage of a potential opportunity to accelerate the diaphragm walling process due to mobilisation and design delays, but this has not resulted in any delays and furthermore sees an opportunity to accelerate the start of tunnelling activities “early in 2018” with the aim of “improving the aggregate project schedule and expediting production ramp up”.

Talks with shaft-sinking contractor AMC are continuing to finalise the remainder of the detailed aspects of the contract, while an agreement has been made for Hochtief Murphy "with a view to progressing the engineering and design in advance of negotiating a design and build contract".

There was "good progress" reported gaining permits from relevant authorities related to each work programme, with minor planning amendments due to be evaluated by the relevant planning authorities during the next quarter.

In terms of funding, Sirius is hoping to “soon” conclude negotiations on additional take-or-pay offtake agreements with which to support the next stage of debt financing.

Other work on said financing is “progressing well” – there has been “increasing engagement” with HM Treasury’s Infrastructure & Projects Authority, and Sirius plans to restart the formal due diligence process with the bank once an appropriate financing structure has been developed with the IPA.

Sirius shares fell 5% in early trading on Friday but by midday were almost at parity at 25.4p.

Analyst Yuen Low at Shore Capital said: "There will almost always delays in projects of such magnitude. To reduce delay-related execution and financial risks, Sirius has prudently been seeking and attempting to capitalise on opportunities to accelerate activities where possible."

He added: "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."

For Investec, which has a 60p target price on the shares, the language around marketing and sales contracts was felt to have "become incrementally more positive and some colour was given on the current phase of stage 2 financing discussions".

"The stock seems to have found a level around the convertible exercise price at 25p and moving into the last quarter of the year there is increasing likelihood of positive catalysts coming in the form of further sales announcements which de-risk sage 2 financing and provide additional validation of the product."

WH Ireland was pleased to see the words 'on time and budget', "which we always look out for – especially at these early stages of construction where changes and opportunities can be found for the build", noting that Sirius are still identifying tweaks to the design – some of which may reduce capex – in the MTS, the buried mine infrastructure and the granulation plant.

"We are encouraged also that some of the changes include potential improvements in the operating environment with Sirius having the foresight to think ahead to the commissioning, ramp-up and operational stages of the project, a testament to the strong operational management already in place.

On the sales side, the broker was "looking for news flow on that as soon as possible", but was more encouraged by the beginning of product registration in India "for what could be a large market for Sirius’ POLY4 product".

In all, WHI said: "Another quarter of steady progress and we anticipate a build-up in activity and full scale construction from the start of the 2018"