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Sirius Minerals Share Price: Stage 2 Financing Explained – IG

Proving the benefits of the product and the size of the market

Although attention has been on the company’s finances there are still operational risks to consider. Polyhalite, which contains four of the six macro-nutrients needed for fertiliser, is not a mainstream product and is currently regarded as niche. The company believes it is a superior product that can revolutionise the agriculture industry, but it is still conducting hundreds of trials and tests to cement its point.

Bearing in mind that this makes polyhalite a new market, some believe Sirius has been a bit over-zealous with its predictions. Consultancy firm CRU said the global polyhalite market last year was around 30 times smaller than Sirius’ planned production, suggesting the job at hand is just as much about creating the market for polyhalite as it is producing it. Analysts at Berenberg have added that while the market is big enough to be economical it is likely to be smaller than what Sirius has estimated.

Sirius will rightly point to the huge amount of offtake agreements it has secured for its product to quash any of those concerns. It has deals in place for over 10 million tonnes of its product, which exceeds its initial production capacity. Plus, many have welcomed its latest client, BayWa, the German agricultural and fertiliser group that generated over €16 billion in revenue in 2018. Although Sirius had signed-up distributors across most continents, it had been lacking a partner in Europe - the second largest fertiliser market behind China, where it has already signed deals.

Sirius Minerals: will the short-term volatility be worth the long-term gains?

The stage 2 financing is by far the biggest hurdle for Sirius to clear, so the company and its shareholders have every right to feel confident. If it secures the package then the project will be significantly de-risked and, after years of share price volatility driven by funding concerns, shareholders could finally see a couple of years of stability while the project is built – barring any development delays, of course.

Still, the money is not in the bank and although Sirius has laid out the pathway to its future there is no guarantee, it will get to the end of it. Issuing the $500 million senior secured bond will be the critical step it needs to complete to secure the credit facility from JPMorgan and keep construction going. With the end of September set as a deadline by the company, the next few months will be nerve-racking for shareholders and share price volatility is likely to continue. The financing package may not be ideal, but it is necessary.

The volatility will be welcomed by short-term traders but not investors. However, anyone looking to put their money behind Sirius must take a long-term approach and try to look through the uncertainty in the meantime.

Read more on whether mining in the UK and Ireland is well and truly alive

Fraser has openly addressed the criticism of Sirius and its chances of turning its ambitions into a reality. ‘Only once this thing is a $20 billion FTSE 100 company will the sceptics be satisfied… and even then I am sure they will find some reason not to invest in the company,’ he told the Financial Times.

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