Sirius Minerals Plc has suspended a planned $500mn bond sale that is central to the funding of its polyhalite mining project in northern England, sending shares in the fertiliser maker down more than 30%. The bond is part of a $3.8bn financing plan for the North Yorkshire-based project, which will allow it to extract the mineral salt from what it said was the world’s largest known high-grade polyhalite deposit. Inability to place the deal could be a serious setback for the project, which has been beset by funding problems from the outset, after expected financing from the British government did not come through. Sirius was forced to tap the financial markets for a more complex and expensive funding package to avoid a longer wait for UK government-backed financing. The mine had been touted by the then British Prime Minister Theresa May as chiming with the Northern Powerhouse project, a government scheme to boost the economy in the north of England.
As part of the terms of the financing, the company must issue the bond by the end of September in order to gain full access to a $2.5bn revolving credit facility, but with most investors out for August, and no end in sight to the market-roiling trade war, time is short. “If they don’t get bond through, they will run into cashflow issues and would have to slow down construction of the mine,” said Rikin Patel, analyst at Berenberg. “Everyone knew this was a high-risk project.” Sirius shares were down 25%, having fallen as low as 8.85p, their lowest in four years. The $500mn 7.5 year secured note was expected to price early this week having been marketed globally at yield of around 13.5%. But the company yesterday said it would not proceed with the deal, citing adverse market conditions. It plans to return to the markets in September.
“It is a very unique deal for the high-yield market, which doesn’t typically see project financing,” said a source close to the deal. “The structure, the price point, led to very good engagement with the market, but yesterday was a pretty brutal day.” Risk markets have taken a hit after US President Donald Trump escalated a trade war with China. The spread between high-yield bonds and US Treasuries spiked 34 basis points on Friday, according the Bank of America High Yield Index. “Here we were looking to sell construction risk for a company that was selling fertiliser which goes into agriculture,” the source said. But both equity and bond investors have serious concerns about the viability of the project, citing both product and construction risk.
Polyhalite can be used as a fertiliser but it is largely untested and so far Sirius’s rival Israel Chemicals (ICL) is the only company to have begun mining the mineral. But the source said ICL had built in a fairly large contingency on the construction side, and had signed an offtake agreement for around 90% of future polyhalite production. Analysts at Liberum said in a note to clients that despite the risk of delay, there was likely scope to extend the financing discussions: “Progress will continue at site.”
Sources and photo-credits: Bloomberg, Gulf Times