Sirius Minerals (SXX) could be dealt a blow in financing its Woodsmith polyhalite mine in Yorkshire if reports are to be believed.

Bloomberg has reported provisional guidance for the $500m bond it launched in July at a 13.5% coupon, the annual interest yield investors will get on their bonds.

This is far higher than the original 10% to 12% yield that Sirius expected, and would place Sirius’s bond firmly in the ‘junk’ category. That implies that the bonds will be far riskier for investors than first thought.


It also means Sirius would have to pay an extra $56m in interest payment over the lifetime of the bond.

Sirius needs investors to take up the bond and give it the $500m 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 (RCF) that JP Morgan will initially provide, which in turn is vital to being able to build the mine.

But Liberum analyst Richard Knights thinks the ‘far more important impact’ now the guidance has been published, as far as the Sirius share price is concerned anyway, is that it gives ‘improved certainty’ that will eventually get all the money it needs.

Liberum models subsequent bonds, which it thinks will be lower risk, at a 10% interest rate.

Knights added, ‘In our opinion one of the major reasons for Sirius’ discount to net present value (currently 80%) is financing risk. With completion of the high yield bond and the RCF (due before end-September), financing risk is largely eliminated.’

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Issue Date: 02 Aug 2019