Plan for huge Yorkshire mine in doubt as firm pulls £400m bond sale

Sirius Minerals says government turned down request for financing support

A £4bn plan to dig the UK’s first deep mine in 40 years under the North York Moors is at risk of falling apart, after the company behind it shelved a $500m (£400m) bond issue, blaming factors such as a lack of government support and Brexit uncertainty.

In an update that cut its share price in half, Sirius Minerals said it did not believe it could raise the money in current market conditions, dealing a major blow to its hopes of extracting a potent fertiliser called polyhalite from 2021.

The Woodsmith Mine project, which involves building a 23-mile-long underground conveyor belt to take the mineral to Teesside for export, could deliver £100bn of economic benefits to the UK over 50 years, according to Sirius.

About 1,200 current employees are at risk if the project is cancelled, while Sirius estimates that once up and running, the mine would support around 2,500 high-earning jobs in an area suffering from economic deprivation, as well as benefiting hundreds of local people who bought shares in the company at an early stage.

Chief executive Chris Fraser said a refusal by the government to guarantee $1bn of debt was among factors that deterred potential investors from lending $500m, even at a high interest rate of 13%.

“We made a request, [the government] said no and we’ll be working up a number of financing alternatives,” he said, citing the risk involved in drilling two 1,500m mine shafts as being among the factors that deterred the government.

“We’ll continue to have an open dialogue with government and there may be a structure that they find acceptable that does balance the risk and reward to the taxpayer,” Fraser said.

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Anna Turley, the Labour MP for Redcar, criticised the decision not to provide financial backing for a project she said would bring jobs to the region.

A government spokesman said he could not comment on commercially sensitive matters but that “all requests for financial support must meet necessary lending criteria”.

“When examining any request for financing, we have to assess the potential of a project against the need to protect taxpayers’ money,” he said.

Fraser said lack of state support had exacerbated “soured” conditions in the bond markets caused by factors including uncertainty about investment in the UK amid the ongoing turmoil of Brexit.

“The main factors related to the current status of the bond market, uncertainties around Brexit and the political situation in the UK,” he said.

“Those are two very strong negative winds to go against when you’re trying to raise multi billions of dollars for a project like this.”

Success in securing the extra money from new bond investors would have unlocked a conditional $2.5bn finance package agreed with Wall Street bank JP Morgan.

Without it, the company now has approximately six months before it runs out of cash to fund its operations.

Fraser said the company was now looking for alternative investors and could turn to a sovereign wealth fund, large fertiliser companies or a major mining group.

However, he said he does not expect to receive any further funds from Australia’s richest woman Gina Rinehart, the mining magnate who has invested $250m in the Woodsmith Mine project via her Hancock Prospecting company.

Graham Spooner, an investment research analyst at The Share Centre, said: “With cash running out fast, investors will be fearing for the future of the mine and remain cognisant that the recent history of mining in the UK has been littered with failures.”

Investors include tens of thousands of small shareholders, including local people in North Yorkshire who have been captivated by the ambitious plans and the prospect of huge returns on their investment.

Sirius has agreements in place with potential customers to buy up to 13.3m tonnes of Poly4 a year over five to 10 years and claims the global market for it is more than 30 times that size.

Contributors

Rob Davies and Julia Kollewe

The GuardianTramp

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