Sirius woes could spell long-term opportunity

Sirius woes could spell long-term opportunity

Sirius Minerals Plc (LON:SXX) have been in a state of flux since last August, with the company agreeing a potash supply deal with Brazilian company Cibra, and this week’s announcement that the company are to implement a financial restructure of its potash project in Yorkshire.

Sirius’ involvement in Cibra

The deal with Cibra outlines a take-or-pay potash supply arrangement with Brazil’s Cibrafertil Companhia Brasileira de Fertilizantes, for supply and resale of POLY4 in Brazil and certain South American countries.

Chris Fraser, Sirius Minerals chief executive, has said, “We are delighted to have signed these supply and investment agreements with a leading player in the South American fertilizer market with a proven track record and ambitious growth plans,”

Cibra chief executive Santiago Franco, meanwhile, added, “We are excited to be entering into this long-term partnership with Sirius to deliver POLY4 into Brazil and other key markets of South America.”

“POLY4 will change the shape of the fertilizer market in South America and Cibra will be at the heart of driving the growth and adoption of this innovative sustainable product across the region.”

The Sirius trading update and financial restructuring

Following the trading update, Sirius Minerals agreed to revise the basis of a $3 billion funding round for its fertiliser project in Yorkshire. The crux of this restructure is that the UK government’s role in financing the new project will be smaller than originally planned.

Chris Fraser commented on the trading update,

“2018 was a year of significant progress for the Company.  Completion of procurement to support the stage 2 financing and the signing of an additional 4.8 Mtpa of take-or-pay supply agreements, have been substantial achievements.  Considerable progress has been made across all our construction sites and development activities are advancing at pace.  More than 800 people are now employed on the Project, demonstrating the transformational potential for jobs and growth in the local area.

“Executing our stage 2 financing plan remains our priority.  We continue to make progress towards obtaining stage 2 financing commitments and are working constructively with all relevant parties to achieve this.  The process with the lenders is continuing this quarter as we work through the due diligence reports with the lending group and progress discussions on the revised debt structure.”

What can Sirius investors expect in coming months?

With a plethora of updates, ongoing talks and targets yet to be realised, future prospects currently look shaky for the firm. Ultimately, since last August, Sirius has suffered from a vicious cycle of having limited financial prospects and in turn uncertainty among investors, with each factor exacerbating the other.

The firm have seen their share price fall 50 percent since August 2018, with the cost of their Yorkshire project increasing, commodities prices working inversely against a climbing dollar and expectations that the first POLY4 fertiliser isn’t going to be delivered until 2021.

Overall, one should expect these factors to weigh on investor confidence in coming months and assume that share prices will remain volatile as 2019 continues.

In the long-run however, Sirius could represent an exciting opportunity, with shares currently trading 60 percent below all-time highs of around 45p per share and ongoing discussions with lenders – to-date – being described as largely positive.

Sirius Minerals shares are currently trading up 0.73p or 3.81% since markets opened on Friday, at 19.87p per share. Liberum Capital analysts have reiterated their ‘Buy’ stance on Sirius stock.