Sirius Minerals(LSE: SXX)York Potash Project is slowly but surely taking shape.
After receivingplanning permission from theNorth York Moors National Park Authority at the end last month, the company has issued a status update on the project today, which outlines managements next steps.
The next steps
Sirius still needs to receive a number of approvals from other entities before the final planning decision notices are issued. These include permissions to constructthe materials handling facility and temporary construction accommodation. Sirius is currently working with the authorities on these matters and expects the necessary approvals to be granted by the end of September 2015.
Additionally, thepreliminary planning hearing for theproposed development consent order for Harbour Facilities at Teesside will take place on 21 July. The final decision is expected before summer2016.
Away from the planning side, Sirius expects its Definitive Feasibility Study of the York Potash Project to be completed during the fourth quarter of 2015.
The final cost estimates produced in the DFS will beinformed by the final tenders for the key construction contract packages. On this front, the company is also making progress. According to management, bids forsite preparation, tunnel construction, and shaft sinking are now in their final stages.
Financing strategy
So, Sirius is making progress across the board with its planning for the development of the York Potash Project. However, one issue that remains is financing.
In todays announcement Sirius revealed that the companyhad been working with advisers since January 2015 to arrange structured debt capital for stage one financing. Stage one of the project refers to the initial construction phase. Stage two of the project willaccount for the majority of the funding requirement and will be 100% debt based.
Sirius management believes that theeconomics of the project business model lend themselves to high leverage. As a result, the company is prepared to take on a high level of debt to fund development.
Call me sceptical, but I can see a lot of issues with this viewpoint. For example, its estimated that it will cost 1.8bn to get the potash project into production.
Now, the mining industry has the worst record of all industries for cost overruns and project delays. Since 1965, the averagecosts overrun has been20% to 60% per project. During the mines construction period, Sirius wont be generating cash and will have to fund interest payments, as well as cost overruns with more debt.
And with such a mountainous pile of debt towering over the company before production has even begun, Sirius could struggle to keep its head above water in the long term.
Impossible to predict
Of course, if the company does manage to bring the project online, on time and budget, the figures do stack up. Although, managements figures rely on a lot of assumptions about future costs and potash prices.
As its almost impossible to predict future market trends, Im sceptical about Sirius long-term outlook, especially when the company is taking on such a huge pile of debt to fund its ambitions.
But don’t just take my word for it.I strongly recommend that you do your own research before making a trading decision — you may come to a different conclusion.
And to help you assess Sirius, our top analysts have put togetherthis new report entitled,“How YouCould Retire Seriously Rich“.
This is a new report from The Motley Foolthattakes you throughthe seven essential steps you need to take to become a stock market millionaire.
What’s more,thereport fromexplainshow spending just 20 minutes a month could help you create a portfolio that could bring you closer to financial freedomfor life.
Click hereto check out the report–it’s completely free and comeswith nofurther obligation.
Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.