Australia's richest woman backs Sirius Minerals

In a major coup for Sirius Minerals, Australia's richest woman has just backed the AIM-listed firm's North Yorkshire potash mine. Gina Rinehart's Hancock Prospecting Group (HPPL) will pay Sirius US$250 million (£204 million) in cash and acquire $50million of Sirius shares to secure access to the company's high-quality agricultural fertilizer.

As part of what is Sirius's first royalty financing agreement, privately-owned Hancock will receive a 5% royalty stream on revenue from the first 13 million tonnes per annum (Mtpa) of sales every calendar year, and 1% for volumes above that.

Hancock, headed by Rinehart since her father and company founder Lang Hancock died in 1992, also gets the right to buy up to 20,000 tonnes of product every year for use on its Australian agricultural operations.

Sirius is rightly chuffed with the deal, which is part of managing director and CEO Chris Fraser's plan, flagged back in March, and again last month.

"Considering Mrs Rinehart's and Hancock's expertise in each of mining and agriculture, this investment is a significant vote of confidence in not only our project, but also our product," said Fraser.

Of course, the big money which will bankroll the project is yet to appear, although we're told that Sirius continue to make "good progress" on its two-stage approach to financing. We'll get more on the Stage One capital structure and timing "at an appropriate time".

"On our numbers, with full production of 13Mt/a of Polyhalite and a forecast sales price of $150 per tonne (WH Ireland est), this equates to $98 million/year," says WH Ireland analyst Paul Smith, who repeats his 'buy' rating and 60p price target for Sirius.

"The effect of this would be to reduce our EBITDA at the mine of ~$1,500 million by $98 million. The mine has a large operating cash margin with operating costs of only $30/t and Sirius has always guided that a royalty sale was a potential source of some mine finance".

The royalty deal is still conditional upon Sirius completing its Stage 1 financing and two confirmatory due diligence items which will be satisfied prior to the Stage 1 financing being finalised.

Then, drawdown of funds under the agreement is conditional on, among a long list of other criteria, Sirius informing Hancock that it has spent US$630 million of its Stage 1 financing.

"This project delivers a new and natural product which is relevant to Hancock’s focus on agriculture and after years of field tests and across many crop types, demonstrated improved yields," says Rinehart. "Sirius has a large, high quality mineral resource and is located in a stable jurisdiction with a competitive tax rate."

"Through the North Yorkshire Polyhalite project, Sirius Minerals is focused on the development of what we believe to be the world’s largest high-grade known polyhalite deposit and our patented multi-nutrient fertilizer product."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.