# Sirius Minerals Plc A year of significant progress

- Link: https://www.directorstalkinterviews.com/sirius-minerals-plc-a-year-of-significant-progress/412765050
- Published: 2019-01-22T07:51:36+00:00
- Author: Charlotte Edwards

**Sirius Minerals Plc** (LON:SXX) provides its latest quarterly progress update.

> **Chris Fraser, Managing Director and CEO of Sirius, commented:**
> “2018 was a year of significant progress for the Company. Completion of procurement
> to support the stage 2 financing and the signing of an additional 4.8 Mtpa of 
> take-or-pay supply agreements, have been substantial achievements. Considerable
> progress has been made across all our construction sites and development activities
> are advancing at pace. More than 800 people are now employed on the Project, demonstrating
> the transformational potential for jobs and growth in the local area.
> “Executing our stage 2 financing plan remains our priority. We continue to make
> progress towards obtaining stage 2 financing commitments and are working constructively
> with all relevant parties to achieve this. The process with the lenders is continuing
> this quarter as we work through the due diligence reports with the lending group
> and progress discussions on the revised debt structure.”

**Safety**

The Project’s Lost Time Injury Frequency Rate (“LTIFR”) stands at 3.54. 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. To date, the total Project working
hours exceed 2.5 million.

**Stage 2 financing**

The Company is making progress with the US$3.0 billion (£2.4 billion) debt component
of the stage 2 financing.

The Company has been engaging with prospective lenders throughout the process and
has revised certain aspects of our proposed US$3.0 billion stage 2 senior debt financing
to modify the credit risk allocation amongst the various prospective lenders. The
original structure contemplated two equal tranches of debt, one commercial bank 
tranche and one IPA guaranteed tranche, which would be drawn on a broadly pro-rata
basis and also rank senior secure, pari passu. Our new structure contemplates three
tranches of debt, totalling US$3 billion in aggregate, that will rank senior secure,
pari passu, but will be drawn sequentially linked to key construction milestones.
The first tranche will be an uncovered debt capital markets tranche, the second 
a commercial bank tranche, followed by the third being the IPA guaranteed bond tranche.
This structure is designed to reduce both the risk and the quantum of any IPA guaranteed
bond tranche to the taxpayer as by this time we will be past the major construction
risks and POLY4 sales underway.

A group of lenders and the IPA will be working closely with the Company and the 
lenders’ advisors to work through the due diligence reports and the detailed terms
and conditions of the structure and the financing. The Company is working towards
having agreed commitment letters as soon as possible.

Due diligence reports have been prepared by the lenders’ advisors and the Company
is engaging with prospective lenders and their consultants to address the due diligence
matters that have been highlighted. The Company believes that the due diligence 
undertaken by the lenders’ advisors supports the Company’s Project cost estimates
announced on 6 September 2018.

The Company is confident of being able to address the due diligence items highlighted
by the respective consultant reports through negotiation of the detailed terms of
the finance documents.

In relation to the additional capital the Project requires, the Company continues
to progress all options previously outlined with a view to securing the additional
capital in a manner which complements the senior debt financing and meets the liquidity
requirements of the Project.

The Company’s cash balance as at 31 December was £290 million, of which £230 million
is unrestricted, which provides sufficient liquidity to fund project progress in
line with the current Project schedule into the second quarter of 2019.

**Project schedule**

The Company remains on track to achieve first polyhalite and commercial production
on time and in line with the cost schedule announced on 6 September 2018.

**Construction progress**

Considerable progress has been made at the Company’s construction sites in the quarter.
At the Woodsmith Mine site, the service shaft foreshaft excavation is now complete
to 44m and is expected to reach the final depth of 45m in January 2019. The service
shaft winder house basement is complete, with the connecting walls to the shaft 
and upper floor currently being installed. The service shaft permanent winder has
been fabricated ready for delivery to site.

The production shaft D-walls have been installed and excavation of the main production
shaft foreshaft has commenced in line with our 2018 milestone. A total of 7.2km 
of D-walls have been installed across the production and services shafts.

The Vertical Sinking Machine (“VSM”) being used to construct the Mineral Transport
System (“MTS”) access shaft was launched in October 2018, consistent with the Company’s
milestone for 2018. The MTS access shaft has been sunk to a depth of 63m and sinking
activities are progressing smoothly following some initial commissioning issues.
Since late November cutting rates have increased by 25 per cent. and improvements
are ongoing. The current VSM operational performance has provided the Company with
further confidence in the assumed advance rates for the shaft boring roadheaders
that will be used to sink the main service and production shafts.

At Wilton, the MTS portal has been completed and tunnelling activities have commenced,
satisfying the 2018 Company milestone for this activity. Current tunnelling activities
are progressing using conventional excavation techniques with 13m of tunnel completed.
The drive 1 tunnel boring machine (“TBM”) is expected to arrive at site during Q1
2019. It is anticipated that approximately 125m of drive 1 will be completed prior
to commencing tunnelling with the TBM in order to reach competent Redcar mudstone
through which the TBM will be launched.

At Lockwood Beck, preparatory works for shaft sinking are well advanced, with DMC
Mining Services preparing to commence initial excavation works in early Q1 2019.
This represents a minor delay against the 2018 milestone of commencing excavation.
Preparatory works undertaken so far include the establishment of the shaft sinking
platform and a shaft collar to 20m depth, the installation of a grout curtain to
a depth of 60m and the commencement of piling for the temporary headframe and winder
house and associated site infrastructure.

Earthworks are underway at the materials handling facility (“MHF”) in Wilton, consistent
with the 2018 milestone, and site preparation activities are currently progressing
on schedule.

**Procurement**

One of the most significant achievements during the quarter was the completion of
procurement for the major construction packages related to the stage 2 senior debt
financing process. In November 2018, an engineering, procurement and construction
contract for the development of the Company’s port handling facility on Teesside
was entered into with McLaughlin & Harvey Ltd. The Company also varied its existing
MTS tunnelling contract with STRABAG AG to include the engineering, procurement 
and construction of the fit-out of the Company’s MTS. The signing of these contracts
marked the completion of procurement of the major construction packages. Through
its procurement programme, the Company has established strong partnerships with 
world-leading constructions companies to develop the Woodsmith Mine and associated
infrastructure.

**Sales and marketing**

During the fourth quarter of 2018, the Company completed the acquisition of a 30
per cent. equity interest in each of the Cibra Group Companies for 95,000,000 ordinary
shares in Sirius (the “Strategic Investment”). The Strategic Investment is linked
to the supply agreement with the Cibra Group Companies for the resale of 2.5 million
tonnes per annum (“Mtpa”) in peak aggregate volumes of POLY4 into Brazil and certain
other South American countries. The agreement provides the Company with access to
a globally important and fast-growing fertilizer market and takes the total peak
aggregate take-or-pay supply agreements entered into to 8.2 Mtpa.

The Company continues to progress key commercial discussions in a number of regions
across the world. Negotiations in Europe are well advanced and concluding a European
take-or-pay supply agreement remains the Company’s current sales and marketing priority.

The Company continues to grow its agronomy programme initiating 44 new agronomy 
trials in the fourth quarter of 2018 and a total of 110 new trails in 2018. The 
trials have continued to demonstrate, in line with previous trials, that POLY4 increases
crop yields compared to existing fertilizer practices in a range of conditions. 
The total number of trials established by the Company now stands at 382 on 42 crops
in 28 different countries.

**Investor webcast**

Sirius Mineral’s Chief Executive Officer, Chris Fraser will host a webcast for investors
and analysts at 9.30am today.

The webcast can be listened to live by clicking on the link below. A replay will
be available on the Company’s website in due course.

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