Investors have balked at the $3.6 billion construction cost attached to Sirius Mineral's (SXX:AIM) York Potash project, sending the shares crashing 20.5% to 18.09p.
The capital expenditure requirement is higher than previous analyst forecasts, although $33 per tonne operating costs are less than expected.
Shares in Sirius had been rallying in the days prior to the publication of today's definitive feasibility study (DFS). Investors had hoped the document would remind the broader stock market about the potential value to be created through building the potash mine.
Indeed, Sirius' $15 billion net present value figure for the mine in the feasibility study is more than three times the amount previously calculated by investment bank Liberum ($4.6 billion).
Sadly, the market doesn't like to be reminded that you first have to find money in order to create value.
Chief executive Chris Fraser argues that the capital requirement on a dollar per tonne basis has actually fallen. 'The DFS has confirmed a much bigger business,' he tells SHARES.
Sirius is busy trying to put together a debt and equity package to facilitate mine construction. The $3.6 billion figure will only cover the first phase of the mine, achieving 10 million tonnes per year production capacity. It will need another $1.7 billion to double this output level, such is Sirius' long-term goal.
The initial $3.6 billion capital expenditure requirement will be obtained in two parts, says Sirius. The first phase will require $1.63 billion to get construction underway.
Fraser says the proportion of equity needed to be raised through issuing new shares to investors could be 50% of the first phase money. It won't start the equity roadshow until due diligence has been done on structured debt which be the source of the remaining money.
Sirius expects to need the second part of the money halfway through the build phase, in 2019. This $1.93 billion requirement is expected to be met entirely through senior debt, which is likely to have cheaper costs than the structured debt. This is because Sirius will have, by this stage, put in elements of the project seen as having variation risk, says Fraser.
First production is earmarked for 2021 and the 10 million tonnes capacity target hit in 2023.