Shares in Whitby mine tumble after £410m bond delay

Shares in Sirius Minerals, the company behind the £3.2bn polyhalite mine near Whitby, fell sharply on the news it has postponed its $500m (£410m) bond offering due to tough market conditions.

Red Arrows at a Sirius drilling rig

The shares fell 29 per cent to close at 10.4p.

The firm said it intends to revisit the market when conditions have improved later this quarter.

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Sirius needs to find sufficient buyers for the bonds in order to unlock a $2.5bn (£2.1bn) JP Morgan revolving credit facility.

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.

Analyst Richard Knights at Liberum said: “Sirius has suspended its bond issue until market conditions have stabilised.

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

“It’s impossible to know how much market weakness impacted demand for the Sirius issue, but the performance of Freeport’s BBB bond issued on Friday gives some indication.”

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

“In our view, a yield of 13.5 per cent looks highly attractive in the context of its B rating,” he added.

“While the current delay won’t help sentiment around the issue, it’s worth re-iterating the fundamental reasons why we think the bond should offer outstanding value and still has a good chance of success.”

However, investment director Russ Mould at AJ Bell said: “The news this morning that prospective potash producer Sirius Minerals has pulled its $500m bond issue is a reflection of increasing investor nervousness across the board, but also raises questions about the viability of its project in Yorkshire.

“The company needs to get the fundraise away by the end of September, as that is a crucial term and condition of getting the additional $2.5bn 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 this 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.

“After all what happens if market conditions deteriorate rather than getting better?” he asked.

“With big upfront capital requirements, bringing a mining project into production is a massive challenge and it is one which the company has been tackling for years at this point, following lengthy attempts to secure planning approval and now financing for the project.”

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.

“We expect the Senior Debt Event to catalyse a major re-rating of the shares, as it is in our view effectively the key to unlocking Sirius’s vast value potential,” he said.

“Beyond that, while Sirius would still be some years from becoming cash generative, an investment in the company should become progressively de-risked and enjoy significant value uplift as it advances towards production.”

Last month Sirius said it is on track to achieve its first polyhalite production in 2021 and construction of its North Yorkshire polyhalite project remains on schedule.

The group said construction is advancing well and the company remains on target to achieve first polyhalite and commercial production on time and in line with its cost schedule.

Sirius said it is on target to complete the construction of its foreshafts by the year end to enable commencement of excavation of the main shaft.