Sirius Minerals, the developer of the £3bn North Yorkshire polyhalite mine, has awarded its shafts drilling contract to Canadian firm DMC in a move that could accelerate production by up to six months.
Sirius said that after protracted discussions with its initial contractor AMC over commercial terms, it decided that DMC should carry out the design and build work for all four shafts.
The firm said DMC’s improved shaft sinking methodology creates the opportunity to accelerate the first polyhalite production by up to six months.
It added that DMC Mining Services is one of the world’s leading shaft sinking and mining contractors.
Chris Fraser, managing director and CEO of Sirius, said: “Sirius continually seeks opportunities to use innovations and a commercial approach to accelerate development and unlock value.
"DMC has proven, world leading experience using Herrenknecht SBR technology on deep shafts and represents a strong partner, commercially aligned to our success.
"We are confident that they can deliver the North Yorkshire polyhalite project shafts significantly earlier than all previous expectations and we look forward to working with the team.”
Graham Buttenshaw, managing director of DMC, added: “We are excited to be partnering with Sirius on this world-class project and are confident of leveraging our leading technology and experience to accelerate development of the mine and enable Sirius to bring its sustainable multi-nutrient fertilisers to the market earlier than previously planned.”
Sirius had been in extended discussions with AMC to finalise the shaft sinking contract following the notice of award last July, which anticipated execution of a finalised contract shortly afterwards.
However, following protracted discussions with AMC regarding the commercial arrangements, Sirius engaged with DMC and other shaft sinking companies to consider the alternatives.
Sirius said: "Through this process, it has become clear that DMC, with their extensive and proven shaft sinking experience, are a strong construction partner for Sirius and will bring technical opportunities and a commercial partnership that can unlock potential savings in the construction schedule.
"Sirius has therefore entered into a design and build contract with DMC and has terminated ongoing arrangements it had for the shafts with AMC."
Analysts welcomed the news.
Yuen Low, mining analyst at Shore Capital, said: "Sirius sprang a major (positive) surprise this morning, announcing the termination of arrangements with minesite contractor AMC and the entering into of a design-and-build contract with DMC Mining Services.
"DMC, a subsidiary of large Polish miner KGHM, has proposed a more efficient and safer shaft sinking methodology. In addition, while Sirius’s ‘base’ schedule and capex estimates remain unchanged, the new methodology presents 'real opportunities' to achieve first polyhalite delivered up to six months earlier.
"Most importantly, from our point of view, Sirius’s contracts with AMC included rights of termination for convenience, so Sirius will not incur any penalties."
Analyst Richard Knights at Liberum added: "The company has announced it has finalised its shaft sinking contract with DMC Services, who believe they can accelerate shaft construction and achieve first polyhalite up to six months earlier than currently planned (i.e. May 2021).
"The award of the shaft sinking contract to DMC comes as a surprise as Sirius had already given a ‘notice of award’ to AMC.
"After Sirius and AMC failed to overcome sticking points on certain commercial aspects of the contract, the company brought DMC into a retendering process in October last year.
"DMC are known for their Shaft Boring Roadheader technology, which the company expects will allow faster excavation of the shaft, bringing forward first polyhalite by as much as six months. The company applied this technology in excavating the two shafts for BHP’s Jansen potash project in Canada."
DMC has been operating for over 35 years and has sunk 23 shafts with one of the lowest incident/accident frequency rates in the industry.
Amongst other projects, it is currently the main contractor for the construction of the two 1,000 metre deep potash shafts at the BHP Billiton Jansen project using the Herrenknecht Shaft Boring Roadheader (SBR) system.
The commercial arrangement with DMC is based on a risk/reward model, with financial incentives for completing the scope of work under budget and ahead of Sirius’ base schedule and financial penalties should completion be late or above the target price.