Blackfriar: Small shareholders should keep faith in Sirius

Some analysts are questioning the viability of Sirius Minerals £3.2bn polyhalite mine near Whitby after the firm’s shares crashed nearly 30 per cent on Tuesday on the news it has postponed its £410m bond offering due to tough market conditions.

Red Arrows fly over Sirius' drilling rig
Red Arrows fly over Sirius' drilling rig

Many small Yorkshire investors who were keen to get on board when the plans were first announced will be worried that the project could fall at one of its last hurdles.

Sirius said it intends to revisit the market when conditions have improved later this quarter. The firm needs to find sufficient buyers for the bonds in order to unlock a £2.1bn JP Morgan revolving credit facility.

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Analysts had mixed reactions to the news. Some think Sirius will re-launch the offer at the beginning of September and this is merely a delay, whereas others had more serious concerns.

Investment director Russ Mould at AJ Bell said the decision to pull the bond issue is a reflection of increasing investor nervousness across the board, but also raises questions about the viability of Sirius’ project in Yorkshire.

He said the fundraise is a crucial term and condition of getting the additional £2.1bn in lending via a revolving credit facility that JPMorgan will initially provide, which in turn is vital to being able to build the mine.

Mr Mould said the September deadline feels “uncomfortably close” and the company’s insistence that it will return to the bond market later in the quarter is likely to do little to reassure investors.

He raised the question of what will happen if market conditions deteriorate rather than getting better?

Analyst Yuen Low at Shore Capital, which is joint broker to Sirius, was more upbeat, saying he expects the offer to be relaunched at some point in September.

He blamed the “current market turmoil” - namely the escalating US/China dispute - for the delay.

He expects the fundraise to cause a major re-rating of Sirius’ shares, as it is key to unlocking Sirius’s vast value potential.

Analyst Richard Knights at Liberum said a number of factors make the fundraise unattractive right now.

The bond was due to price this week, but this has coincided with an escalation in the China/US trade war, a devaluation of the Chinese currency and a smaller than anticipated cut in the Fed funds rate which combined to drive a sharp equity/commodity sell off.

Mr Knights expects that Sirius will return to bond markets in early September.

He said while the current delay won’t help sentiment around the issue, the bond should offer outstanding value and still has a good chance of success.

Mr Mould rightly says that with big upfront capital requirements, bringing a mining project like this into production is a massive challenge. It is one which the company has been tackling for years, following lengthy attempts to secure planning approval and now financing for the project.

Blackfriar has watched Sirius carefully over the past eight years and never seen a more determined CEO than Chris Fraser.

He has moved heaven and earth to get this project to this late stage and if anyone can pull it off he can. He has overcome environmental worries, managed to get 400 individual landowners on board and offered 1,000 jobs to local workers.

Blackfriar believes he can pull this off. Yes there are trade tensions at the moment between China and the US which has delayed the bond offer, but these seem to be fading.

Sirius’ shares have lost value over the past year, but shareholders should keep faith in Mr Fraser. He hasn’t come this far to bottle it at this late stage.