The wait is finally over for shareholders of Sirius Minerals (LSE: SXX).
Yesterday, the North York Moors National Park Authority gave the green light for the company to go ahead with the construction of the world’s largest potash mine. This means that the first major, and perhaps the most difficult, milestone for Sirius is now complete and out of the way.
However, Sirius still has its work cut out before production can begin. The company intends to provide a separate update next week, which will include a full run-down of the mine’s progress. Additionally, next week’s report will detail the company’s next steps and milestones on the way to reaching first production.
Out of the frying pan…
While the planning ruling is undoubtedly a huge positive for Sirius, the company is really only just at the beginning of its journey.
The next stages of the company’s life will be tougher than ever, as it seeks to secure financing for the mine and bring the project online, on time and on budget.
And the biggest hurdle the company now faces is securing finance for construction. It’s estimated that the mine will cost a total of £1.7bn to build. At the last tally, Sirius had £27m in the bank — enough to keep the lights on for around 12 months.
Finding finance
Still, now that the project has been approved by planning authorities, Sirius should find it easier to seek out the finance it needs.
The company has already stated that it is looking to raise the case for the first stage of the project — around £600m — from a mixture of bonds, bank debt and possibly private equity. All of these options will have different advantages/disadvantages for the company, but by using several different methods to fund the project, it should be easier for Sirius to raise the cash it needs.
Another possible option could be a takeover or joint venture. Over the long-term, global potash demand will only increase and one of Sirius’ larger peers, with deeper pockets, could swoop on the company looking to buy up additional reserves at a rock-bottom price.
Last week’s £5.1bn deal between Potash Corp of Saskatchewan and its German rival K + S showed that there’s plenty of desire for deal-making in the sector.
What’s next?
So, how should investors react do following yesterday’s planning decision?
Well, at pixel time, Sirius’ shares have jumped nearly 90% on the news. But the company is yet to arrange finance for the mine, and there’s plenty that could go wrong between now and initial production.
With this being the case, Sirius is still a high risk, high reward play. Investors should be prepared for volatility over the next few weeks and months.
If you’re prepared to take the risk and ride out the market gyrations, then Sirius could be for you. However, if you’re looking for a safer bet, there’s one company we believe has all of the essential qualities required to make it into the big leagues.
