Quarterly progress update for the period to 30 September 2018.
Sirius Minerals Plc ("Sirius" or the "Company") provides its latest quarterly progress update.
Chris Fraser, Managing Director and CEO of Sirius, commented:
"The business made excellent progress during the third quarter of 2018, achieving a number of key milestones. Procurement is now substantially complete for the major construction packages including the STRABAG AG agreement for the mineral transport system.
"The announcement of our largest supply agreement to date with Cibra, Brazil's sixth largest fertilizer distributor, has enabled us to exceed the target peak aggregate POLY4 take-or-pay volumes intended to support stage 2 financing and further agreements are expected to be completed soon.
"During the quarter we confirmed Archer Daniels Midland, one of the world's largest agricultural processors and food ingredient providers, as our North American partner and starch supplier, which serves to underline the confidence that our world-class distribution partners have in POLY4 and its place in the future evolution of the global fertilizer market.
"The coming months are a pivotal period for the Company as we work towards fully financing the construction of our world-class long-life polyhalite project."
The Project's Lost Time Injury Frequency Rate ("LTIFR") stands at 2.4. The LTIFR is a measure of lost time incidents per million man-hours on a twelve-month rolling average basis. The Company continues to work closely with its employees and contractors to continually improve safety at all locations.
On 17 September, the Company announced that it had signed a seven-year supply agreement with OFD Supply Inc. ("Cibra"), Brazil's sixth largest fertilizer distributor, for the supply and resale of POLY4 into Brazil and certain other countries in South America. The volumes under the agreement increase to 2.5 million tonnes per annum ("Mtpa") in the seventh year of production and it represents our largest supply agreement to date. Linked to the supply agreement, Sirius also agreed to acquire 30 per cent. equity interests in Cibrafertil Companhia Brasileira de Fertilizantes and OFD Supply Inc (the "Cibra Group Companies") for a total of 95 million fully paid ordinary shares of Sirius Minerals Plc. Completion of the arrangements is subject to the satisfaction of certain conditions precedent and is expected to take place in the coming weeks.
Supply agreements were also signed on 20 July with two new Chinese customers, Guangzhou Eiliseng Biotech Co Ltd ("Eiliseng") and Yantai Service Agricultural Science and Technology Co Ltd, for volumes of POLY4 increasing to 1.15 Mtpa and 800,000 tpa respectively.
The Company has now achieved peak aggregate take-or-pay contract volumes of 8.2 Mtpa which exceeds the target peak aggregate volume of 6 - 7 Mtpa intended to support the bank due diligence process for stage 2 financing.
The Company continues to pursue near term opportunities to secure additional material take-or-pay volume commitments in Europe and negotiations in this region are well advanced. If successfully concluded, Sirius' initial supply of POLY4 will be diversified across four of the five largest fertilizer markets globally. Opportunities in other regions of the world are also being progressed.
During the quarter, the Company initiated 12 new agronomy trials increasing the total number of trials to 339 on 36 crops in 25 different countries.
Procurement is substantially complete for the major construction packages. During the period, the Company signed a materials handling agreement with Redcar Bulk Terminal Limited ("RBT") to provide port and ship loading services for up to 10 Mtpa of product and a long-term lease of land with RBT for storage facilities adjacent to the RBT port facilities.
On 6 September, a design and build contract with STRABAG was signed for the remaining mineral transport system ("MTS") drives and an Engineer, Procurement and Construction contract was signed with Jacobs UK Limited for the construction of the materials handling facility ("MHF") at Wilton.
Sirius is in advanced negotiations for the remaining scopes of work which includes the MTS fit-out and the port facilities. The Company has identified STRABAG as its preferred contractor for the MTS fit-out. Sirius currently expects that the costs of the outstanding procurement contracts will be in line with its original estimates.
The Project remains on track to deliver first polyhalite production on time in 2021.
During the quarter, the Company revised its capital cost estimates for the Project based on the procurement contracts that have been finalised and the associated risk allocations of the contracts. Based on the revised capital cost estimates, Sirius has estimated that the stage 2 capital funding requirement will be between US$3.4bn and US$3.6bn, an increase of between US$400m and US$600m. The final funding requirement, and consequently the budget to completion, will be determined following the lending group's commercial review of procurement contracts and its assessment of the required capital contingency.
During the quarter, the Company announced an amendment to the Minerals Royalty Deed entered into with Hancock British Holdings Ltd ("Hancock") in October 2016 (the "MRD") in connection with stage 1 financing. Pursuant to the amendment, Hancock has agreed to the drawdown in relation to the US$250m royalty component of the MRD. The US$250mproceeds have now been received and will be deployed as planned in the stage 1 financing solution.
The Company continues to work with both the UK Infrastructure Project Authority and the lending banks, and the stage 2 senior debt financing due diligence process is ongoing. Bank commitment letters are expected to be obtained from commercial lenders in the fourth quarter of 2018.
The Company is preparing its revised financing plan to incorporate the additional estimated capital requirement of between US$400m and US$600m. Sirius believes that US$3bn of senior debt is the appropriate level of debt and will not seek to increase this amount. A number of financing alternatives to fund the increased capital requirement are under active consideration. Financial close of stage 2 financing is expected to take place in the first quarter of 2019.
Construction remains on track to meet 2018 guidance.
At the Woodsmith Mine site, diaphragm walling activities on the service shaft are complete and the excavation of the service shaft foreshaft is now underway and is expected to be completed in the fourth quarter of 2018. Three diaphragm walling rigs are in operation on the production shaft and activities are progressing smoothly. Excavation of the production shaft foreshaft is expected to commence in the fourth quarter of 2018. The Vertical Sinking Machine ("VSM"), which will be used to sink the mineral transport system ("MTS") access shaft to 120 meters, has arrived at site and is preparing to be launched.
The MTS portal construction at Wilton, which will facilitate the launch of the MTS drive 1 tunnel boring machine ("TBM"), remains on track for completion in 2018 ahead of the TBM delivery at site in early 2019. The initial ~125m of MTS Drive 1 will be a shotcrete lined ("SCL") tunnel development section and will be constructed using civil engineering excavation techniques. The SCL section will advance the tunnel to a depth where the geology is appropriate to launch the TBM. Design work for the MHF earthworks is complete, and earthworks are scheduled to commence in the coming weeks.
At Lockwood Beck, construction of the MTS intermediate access shaft is progressing well, with surface and basement works ongoing to prepare for the sinking of a slightly larger diameter shaft that facilitates the launch and operation of the drive 2 TBM.Back to news archive