Sirius Review : Underway

Captain Qahn's picture

"Current construction status

The first phase of the strategic review was to adjust the ongoing scope of work across the Project to preserve sufficient funds for the six-month review period.  This has been effectively implemented with positive engagement and involvement with the Company's employees and contractors.  Since the start of the review period on 17 September 2019, the Company has continued work across a number of areas on the Project:

·    Successfully driven Drive 1 of the mineral transport system ("MTS") from Wilton to a distance of 2,250m.  Even at this early stage, over the last one kilometre of tunnelling the tunnel boring machine ("TBM") has averaged 19 metres per day - this is ~40% ahead of the rate expected for the current ground conditions;

·    Completed sinking of the inner Service Shaft to a depth of 119m using conventional sinking and segmental lining.  This shaft has now been slip-form lined to the current base of the shaft.  Work is proceeding in the foreshaft in preparation for the launch of the shaft boring roadheader ("SBR");

·    The SBR for the Service Shaft has been delivered to site and has been modularised to the point where it is ready for lifting into the shaft once full development scope recommences;

 ·    Development work on the Production Shaft has now been suspended.  The foreshaft has been excavated to a depth of 45m.  The inner shaft to 120m has been pre-lined with diaphragm walls, although this has not been excavated.   

·    Lockwood Beck MTS shaft site is being made safe and secure;

·    Woodsmith MTS temporary headframe construction is nearing completion with the Galloway sinking stage installed in the shaft and being prepared for commissioning.  This shaft has been excavated and lined to 115m;

·    The demonstration granulation plant at Wilton, for production of POLY4 granules, has been successfully installed and will be commissioned in December."

About Progress ...

"A discovery about the type of rock being dug out for its 23km tunnel has meant excavation has speeded up by 40%, saving both money and time..."


"Mr Fraser revealed that the company is now talking to potential partners and investors in a bid to raise £470m by April. This would help Sirius push ahead with a scaled-back drive to mine polyhalite in North Yorkshire."

Ohm ...

"Sirius has already raised $1.2bn (£932m) to develop the Woodsmith mine but needs a further $3.8bn (£3bn) to turn the project into the world’s biggest producer of polyhalite, a potent type of fertiliser."

Ah, So ... :

"Revised development plan

The second stage of the strategic review has been to assess the development options available to the Company.  When reviewing development options, the Company's ongoing objective has been to protect and maximise shareholder value.  The outcome has been to redefine the Company's base case development plan to commercial production to incorporate certain identified opportunities (the "Revised Base Case").

The Revised Base Case development plan has been defined into two phases of work: an initial scope of work (the "Initial Scope"), and a deferred scope of work (the "Deferred Scope"). 

Phasing of Development

The Initial Scope will comprise shaft sinking activities for all four shafts until first polyhalite is achieved and the excavation of Drive 1 of the MTS tunnel to Lockwood Beck.  This scope has been selected to deliver the elements of the Project perceived to be higher construction risks (e.g. shaft sinking) and / or of having the greatest de-risking benefit (e.g. establishing clear track-record on tunnelling by completing Drive 1). 

The Deferred Scope incorporates the remainder of construction required to deliver 10mtpa capacity ramped-up and operational.  The remaining work comprises a more 'infrastructure' style risk framework more consistent with civil construction and more commonly financed in large scale by project finance banks.

The aim of this approach is to materially de-risk the implementation of the remaining elements of required funding and ultimately aim to reduce previously anticipated funding costs of the additional financing required to fully fund the Project to 10 Mtpa capacity.

The two-phase development approach enables the Company to significantly reduce the initial further capital requirement to ~US$600 million for funding of the Initial Scope.  The Deferred Scope, which has estimated capital costs of up to ~US$2.5 billion, will only be committed to once full financing of the Project has been secured.  The Company will target full financing 12 to 24 months from the commencement of the Initial Scope.  The earlier date is to enable time for sufficient track-record on shaft sinking to be demonstrated (i.e. lower the perception of risk and increase cost certainty) and time for the detailed work with the financial providers in terms of due diligence and documentation.  The latter date assumes all of the Initial Scope is completed prior to commencing the Deferred Scope.

Development options incorporated into the Revised Base Case

Based on the work undertaken so far in the strategic review, the Company has identified a number of options with the potential to improve the cost and delivery timelines within the Deferred Scope and intends to incorporate those options into the Revised Base Case.  The cost and schedule estimates incorporating these options are subject to detailed engineering and procurement work that is currently ongoing and will be finalised prior to implementing financing for the Deferred Scope.  The Strategic Review has also identified some further significant opportunities which could potentially benefit the Project through cost reduction and schedule acceleration.  These may be added into the Revised Base Case prior to commencing the Deferred Scope but are not committed to yet."

Down Periscope ;-)

"MTS tunnelling rates

Based on performance to date, the Company is increasingly confident in the capabilities of the tunnel boring machine ("TBM") to deliver the tunnel at much faster than expected rates of progress and this has been evident in the performance of Drive 1 to date.  The initial three kilometre near surface drive from Wilton was expected to be the most difficult and time-consuming component of the MTS development.  Over the last kilometre of excavation, the average rate of 19m per day is approximately 40% ahead of the expected advance rate for this shallower, wetter ground.

Drive 1 was originally expected to achieve a long-run average of 17.5m per day but this drive is now expected to achieve an average of 25m per day over the balance of the drive from the 3km mark.  As a result, Drive 1 is expected to be complete (reaching Lockwood Beck) by the end of 2020, ahead of the original base schedule. 

This change to the expected schedule does not adjust the contracted rates but does create a number of opportunities for the Company to align other components of the project and make implementation decisions which are detailed below.

MTS - Continuation of Drive 1

With the successful launch and operation of the TBM in Drive 1 and the higher rates of advance experienced, the Company has taken the decision to continue Drive 1 TBM from Lockwood Beck.  This removes the requirement for the Drive 2 TBM as well as the large launch cavern required for that machine.

Once the TBM from Drive 1 reaches Lockwood Beck it will undergo underground refurbishment before continuing on to complete Drive 2 (a further 12 kilometres).  This change is expected to deliver a net saving of approximately US$100million.  This saving is achieved by no longer procuring and assembling the second TBM, reducing the size of the cavern at the base of the Lockwood Beck shaft, and continuing to utilise the infrastructure already installed at Wilton.

MTS - Phased Conveyor Capacity

The idea of better utilising the temporary conveyor infrastructure that is being installed in the MTS tunnel for construction has been investigated.  The plan is to now re-use and upgrade the construction conveyor instead of the original plan of removing that system and replacing it with a new large capacity operational conveyor system.

The conveyor system, once converted to its operational configuration, would then be progressively upgraded and expanded.  Initially the Company is anticipating a capacity of approximately 6.5 Mtpa which could be increased quickly to 13.5 Mtpa and ultimately to approximately 20 Mtpa.

This change is expected to result in a saving of approximately US$100 million and see the MTS commissioned with commercial capacities earlier than the original plan.  Further work on optimising this changeover from construction to operations may further expedite the commissioning of the MTS and accelerate the Company's ramp-up plans."

"Financing Options

The Company is now exploring pathways for funding the Initial Scope of the Revised Base Case.  The Initial Scope is estimated to require ~US$600 million of new capital (in addition to existing cash resources) which would need to be committed prior to the end of Q1 2020 to recommence development from 1 April 2020, as per the development scenarios outlined above. The Company estimates that this new funding will be sufficient to fund the Project to the point of first polyhalite subject to ongoing discussions with potential capital providers.  

The Initial Scope will comprise;

·    progressing shaft construction to deliver completion of two TBM shafts and progress the production shaft and service shaft to achieve first polyhalite on the service shaft;

·    permanent and temporary infrastructure required to deliver shaft sinking including power and concrete supply and other site services;

·    progress MTS Drive 1 to Lockwood Beck and associated support costs;

·    owners team costs; and

·    estimated contingency, subject to ongoing review.

The Company is seeking to have the Initial Scope funded from the proceeds of either the strategic investor process or through a structured debt financing package, either of which may incorporate the issue of new equity or an equity-like component to the financing package. 

One benefit of a strategic investor supporting the Initial Scope funding is that it may reduce the overall perceived risk for the Project from the point of view of potential financers of the additional financing required for the Deferred Scope.  Various interested parties are in the process of undertaking due diligence related to the capital requirements of the Initial Scope.

The Deferred Scope contemplates up to ~US$2.5 billion of capital expenditure which is expected to fund the Project to 10 Mtpa installed and ramped-up production capacity.  The Company would seek to have the Deferred Scope funded by a senior debt financing executed as either a traditional bank-based project financing or a debt capital markets solution (or a combination of the two), similar to the structures of the Company's previously envisaged Stage 2 Financing. 

The Company believes that the scope-based approach to development ought to significantly reduce the risk allocation compared to the Stage 2 Financing in the areas outlined below:

·    Technical risk (reduced) - funding and progressing the Initial Scope separately removes the higher risks typically associated with deep shaft construction from the scope of the funding provided by the senior debt providers.  As described above, this transitions the construction risk away from a "mining" context and into a more "infrastructure" style risk framework where the main risks are consistent with civil construction.  In addition to this, progressing Drive 1 of the MTS further reduces the uncertainty around execution risk and establishes a clear track-record of delivery for the remaining tunnel scope. 

·    Commercial risk (lower) - Funding the shaft sinking through the Initial Scope removes the amount of "risk sharing" style construction contracts for senior lenders.  In particular, the balance of the scope is predominantly fixed price.

·    Time to cash flow (reduced) - The senior debt financing would be required at a time which is closer to the point where the project is generating operating cash flow.  This could ultimately reduce the funding required to pay interest during construction, subject to the cost of the capital required for the Initial Scope, and a portion of the operating cash flow during ramp-up can be utilised to fund the Deferred Scope.  The amount of operating cash flow assumed will ultimately be subject to discussion with the lenders. 

·    Quantum of debt (reduced) - The Deferred Scope contemplates a capex requirement of up to US$2.5 billion.  The potential to incorporate material operating cash flow into the financing plan combined with the reduction in interest during construction provides significant benefit to the financing plan.  This proposition would remove one of the key challenges of previous debt financing activities (where over US$1.5 billion was required to fund financing costs during construction). 

·    Credit metrics (robust) - The previous Stage 2 Financing was provisionally rated B/B- by Fitch and S&P respectively.  The enhancements to the contemplated debt financing outlined above seek to reduce the total debt required and the perceived execution risk of the Project. 

·    Other enhancements - From a product perspective, the Company has continued to increase the volume of production under long term contract and has now established a global distribution platform with peak contracted volumes now in excess of 13 Mtpa.

Any senior debt financing put in place for the Deferred Scope will be materially shaped by the outcome of the financing pathway for the Initial Scope.  Following execution of the financing of the Initial Scope, the Company will commence engagement with senior debt providers with the aim of structuring a comprehensive financing plan for the Deferred Scope."

Big Ears...

In t'other words ... shaving $400mil off Capex, the contingency of $495 together with financial costs reductions is erm about $1.1bil of savings.

Not to be sniffed at.