17th Mar 2016 08:13
LONDON (Alliance News) - Sirius Minerals PLC Thursday outlined the results from the eagerly-awaited definitive feasibility study for its huge potash project in York, stating the project can generate between USD1.00 to USD3.00 billion in earnings each year.
Sirius is proposing to initially build a project capable of producing 10.0 million tonnes of potash per year for an initial capital cost of USD1.63 billion, before ramping up production to 20.0 million tonnes a year by spending a further USD1.93 billion.
Initial production is expected to start in 2021, but the project is not expected to reach that initial 10.0 million tonnes a year until 2023. After hitting the 10.0 million tonne mark, production will increase to 13.0 million tonnes a year before rising to the 20.0 million tonne target.
"Currently there is a limit of 13.0 million tonnes per annum of production imposed by a planning condition on the North York Moors National Park Authority approval," said Sirius.
"The company is confident that, given the expansion to 20.0 million tonnes per annum will be largely achieved through utilising the infrastructure constructed for the initial capacity, there will be limited environmental impact arising from the tonnage increase and therefore an application to vary the planning condition to allow for the increased tonnage would be granted as required," said the company.
The project currently has a net present value of USD15.00 billion - a huge valuation for a company that only has a market cap of around GBP531.0 million. Once production begins, Sirius believes the net present value will rise to USD27.00 billion.
The miner is hoping the operation can generate annual earnings before interest, tax, depreciation and amortisation of between USD1.00 to USD3.00 billion per year, and said the variation depends on what the final volume and price achieved by the project.
Sirius is using a high-margin model, stating its cash operating costs will only be around USD27.2 per tonne, giving it a cash margin of around 70% to 85%, it said.
Sirius has conceded it is using a "disruptive market penetration strategy" with the York project, and believes it can produce a premium product compared to existing products in the market.
Sirius Mineral shares were down 9.9% to 20.30 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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