The Sirius Minerals PLC (LON:SXX) (SXX.L) share price has risen by around 3% today after the company released a royalty financing investment update.
The company has agreed an amendment to the Minerals Royalty Deed (MRD) entered into with Hancock British Holdings in October 2016. Hancock has agreed to a drawdown regarding the $250 million royalty component of the MRD, with the proceeds due to be provided no later than 19 September 2018.
The $50 million equity component of the MRD will be provided once stage 2 financing commitments are obtained to fully fund the initial 10 Mtpa development of the polyhalite project. According to the company’s update, the royalty drawdown provides sufficient liquidity to fund the project into the second quarter of 2019, when the proceeds of stage 2 financing will be needed.
Sirius Minerals’ agreement with Hancock entitles the latter to a 5% royalty on gross revenues from the project payable on the first 13 Mtpa of production. It is also entitled to a 1% royalty on revenues from production above 13 Mtpa. Hancock will also have the right to appoint a Director to the board of Sirius Minerals.
In my view, the long-term prospects for Sirius Minerals continue to be relatively positive. Although there has been some volatility in its share price of late, which could continue over the near term, its strategy appears to be relatively sound.
With an NPV of around 230p and a share price of around 12% of that figure, I believe that Sirius Minerals could offer a margin of safety at the moment. With it seeming to have growth potential as demand for fertiliser could increase in tandem with a rise in world population, the prospects for the business seem to be appealing to my mind.
As a result, I remain optimistic about its long-term future, although it remains a relatively risky share versus a number of its FTSE 250 peers in my eyes.