2016 Annual General Meeting CEO presentation 24 June 2016

Transcription

1 2016 Annual General Meeting CEO presentation 24 June

2 Important notices This document is produced for information only and not in connection with any specific or proposed offer (the Offer ) of securities in Sirius Minerals Plc (the Company ). No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity, and must not be relied upon in any way in connection with any investment decision. An investment in the Company or any of its subsidiaries (together, the Group ) involves significant risks, and several risk factors, including, among others, the principal risks and uncertainties as set out on pages 28 to 30 of the Company s Annual Report for the period ended 31 December 2015 and other risks or uncertainties associated with the Group s business, segments, developments, regulatory approvals, resources, management, financing and, more generally, general economic and business conditions, changes in commodity prices, changes in laws and regulations, taxes, fluctuations in currency exchange rates and other factors, could have a material negative impact on the Company or its subsidiaries' future performance, results and financial standing. This document should not be considered as the giving of investment advice by any member of the Group or any of their respective shareholders, directors, officers, agents, employees or advisers. Any Securities offered for sale by the Company will not be registered under the U.S. Securities Act of 1933 (the Securities Act ) and may only be offered and sold pursuant to an exemption from, or in a transaction not subject to, such registration requirements and applicable U.S. state securities laws. Unless otherwise indicated, all sources for industry data and statistics are estimates or forecasts contained in or derived from internal or industry sources believed by the Company to be reliable. Industry data used throughout this document was obtained from independent experts, independent industry publications and other publicly-available information. Although we believe that these sources are reliable, they have not been independently verified, and we do not guarantee the accuracy and completeness of this information. The information and opinions contained in this document are provided as at the date of this document and are subject to amendment without notice. In furnishing this document, no member of the Group undertakes or agrees to any obligation to provide the recipient with access to any additional information or to update this document or to correct any inaccuracies in, or omissions from, this document which may become apparent. This document contains certain forward-looking statements relating to the business, financial performance and results of the Group and/or the industry in which it operates. Forwardlooking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words believes, expects, predicts, intends, projects, plans, estimates, aims, foresees, anticipates, targets, and similar expressions. The forward-looking statements contained in this document, including assumptions, opinions and views of the Group or cited from third party sources are solely opinions and forecasts which are uncertain and subject to risks, including that the predictions, forecasts, projections and other forward-looking statements will not be achieved. Any recipient of this document should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. Such forward lookingstatements speak only as of the date on which they are made. No member of the Group or any of their respective affiliates or any such person s officers, directors or employees guarantees that the assumptions underlying such forward-looking statements are free from errors nor does any of the foregoing accept any responsibility for the future accuracy of the opinions expressed in this presentation or the actual occurrence of the forecasted developments or undertakes any obligation to review, update or confirm any of them, or to release publicly any revisions to reflect events that occur due to any change in the Group s estimates or to reflect circumstances that arise after the date of this document, except to the extent legally required. Any statements (including targets, projections or expectations of financial performance) regarding the financial position of the Company, any of its subsidiaries or the Group or their results are not and do not constitute a profit forecast for any period, nor should any statements be interpreted to give any indication of the future results or financial position of the Company, any of its subsidiaries or the Group. Any statements (including targets, projections or expectations of financial performance) regarding the financial position of the Company, any of its subsidiaries or the Group or their results are not and do not constitute a profit forecast for any period, nor should any statements be interpreted to give any indication of the future results or financial position of the Company, any of its subsidiaries or the Group. 2

3 Contractors have delivered enhanced implementation approach Capital funding requirement reduced to US$2.9 billion Stage 1 funding requirement reduced to US$1.1 billion Project NPV of US$15.2 billion and IRR of 28% Stage 1 financing plan well progressed 3

4 Approvals Engineering and construction Finance 4

5 Year in review NYMNPA planning approval Major offtake agreement upgrade Selection of preferred contractors Final decision notice Take or pay offtake agreement DFS launch Reserve increase/ de-icing salt opportunity Agronomy update Judicial review period expiry Agronomy update Agronomy update Offtake agreement upgrade IPA pre-qualification 5

6 Approvals 6

7 Approvals Approvals for commencement of construction in place 7

8 8

9 Global need for a bulk multi-nutrient fertilizer Demand growth expected in key markets Sources: FAO; Sirius Minerals: UN revision

10 Significant global demand for POLY4 7Mtpa plus offtake partner options for an additional 1Mtpa Sirius Minerals offtake breakdown (Mtpa) China North America Central America South America North North America America increase animal feed China Offtake options Total Other commitments Total Notes: Offtake contracts comprise 1.0Mtpa with Yunnan Dian Huang Peony Industrial Group Company Ltd (which replaces an offtake with Yunnan TCT Yong-Zhe Company Ltd which was cancelled by mutual agreement in June 2016), 1.5Mtpa with a Fortune 500 US based agri-business, 0.25Mtpa with a major Central American fertilizer distributor and 0.30Mtpa with leading South American fertilizer distributor, 0.05Mtpa with leading distributor of high quality mineral animal feed ingredients in North America, 0.5Mtpa with Huaken International an approved potassium importer into the republic of China. Other commitments, 1.4Mtpa LOI s/fsa S, 2.0Mtpa MOU s. 10

11 Beyond the nutrient value Enhanced residual nutrients in soil Enhanced macro-nutrient uptake Enhanced micro-nutrient uptake Low chloride ph neutral EC effect limited Topical disease reduction Root disease reduction Reduced leaching losses Reduced potentially toxic nutrient uptake 11

12 Broad acre High value Yield Index POLY4 outperforms traditional products Blend studies ratify POLY4 as an excellent feedstock 1 MOP - T12 Synthetic POLY4 - T12 POLY4 - T12 Tomato % Cabbage % Peanuts % Corn % Soybean % Wheat % Sugarcane 3 + 9% Notes: Detailed crop study results available on Company website. 1) Yield parameters by crop; sugarcane yield, wheat dry weight, soybean fresh weight, corn aerial fresh weight (40 days), peanuts fresh weight, cabbage head weight, tomato yield. Yield gains of POLY4 over MOP T12 NPK blends and T12 NPK synthetic POLY4 made out of SOP, Gypsum, and Kieserite. 2) Field trial. 3) Greenhouse trial. 4) Represents the 31% of total K 2 O consumption which is used on chloride sensitive crops. 5) Represents the theoretical POLY4 demand by multiplying the K 2 O recommendation rates per crop per ha by the global amount of hectares harvested for corn, soybean, wheat and sugarcane. Source: Texas A&M, Durham University, University of Florida, Shandong Agricultural University, IFA, Sirius Minerals. 12

13 Soil improvement Increases soil nutrients to depth Soil structure improvement My land value is my equity and I could lose my ability to borrow money. Kenny Barnwell 13

14 Reduction in disease Reduced the severity of sheath blight on corn by 71% over MOP Tomato leaf spot incidence reduced by 48% over MOP The farmer has to be an optimist or he wouldn t still be a farmer. Will Rodgers 14

15 Multi-nutrient discount/premium (% Premium over primary Nutrient values) Multi-nutrient products command a premium Farmers and blenders value efficiency gains and nutrient synergies Market multi-nutrient premiums v sum of the parts nutrient value (Quoted average prices v straight nutrient value) 1 11 POLY4 Implied Value (No CI-free) 120% 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% -40% Two macro nutrients 113% Three macro nutrients Four macro nutrients 69% 56% 34% 25% 27% 21% 18% 7% N P K Straights Multi-nutrient fertilizers US$220/t Potassium (14% K 2 O) Magnesium (6% MgO) US$100/t -38% US$150/t -8% Sulphur (19% S) Calcium (17% CaO) +23% US$200/t 60%+ average premium for substitute multi-nutrient products Notes: 1) Multi-nutrient premium based upon the difference between quoted prices by CRU (Annual 2015), IPI (Average Q1-Q3), K+S (Quote provided by trader Sep, 2015) and regional single nutrient value (Excl. CaO), N (Urea), P (Phosphoric Acid 100% P 2 O 5 ), K 2 O (MOP), S (Sulphur), MgO (Kieserite (GR, CH) 2). TSP premium based upon regional prices (BR) over implied nutrient value P. 3) NPK T:15 premium based upon regional prices (Baltic, EU,CH) over implied nutrient value N, P and K 2 O. 4) NPK-S T:15 premium based upon regional price (CH) over nutrient content implied value N,P,K and S. 5) CAN premium based upon (EU) prices over nutrient content implied value N. 6) AS based upon regional prices (US, BR) over nutrient content N and S value. 7) SOPM US premium (US IPI TRIO ) over nutrient content implied value K 2 O, S, MgO (No CI-free value). 8) SOPM EU premium (K+S Patentkali CPT quote) over nutrient content implied value K 2 O, S, MgO (No CI-free Value). 9) SSP regional price (BR) over nutrient content implied value P and S.10) SOP granular regional prices (US, EU) over K 2 O + S value (No CI-free value). 11) POLY4 pricing scenarios (4) over K 2 O + S + MgO value (EU, US, CH, BR) (No CI-free Value). 64% weighted average premium representing POLY4 primary substitute products in scope. Source: CRU, Sirius Minerals. 15

16 Engineering and construction 16

17 Basis of the DFS An end-to-end estimate based on reference designs and market costings Designers Rates for all quantities Contractor indirect est. Risk assessment (contingency) Engineering and designs Development of quantities based on designs Schedules Study manager DFS estimate and report Owners costs Implementation methodology DFS provides a robust basis for the implementation of the project 17

18 Project implementation Accelerated contractor engagement has delivered significant benefits Focus area Description Capital (US$m) 1 Contractor designs and methodologies Different designs and construction methodologies from the basis of the DFS estimate Competitive current market pricing Adoption of detailed contractor estimates for key components of the Project 490 Change of implementation approach Simplified contractor implementation approach DFS estimate assumed PMC approach for full duration Owner s team to be expanded to manage small number of major contractors Necessary system support procured Value engineering Normal refinement and review of detailed estimate following contractor tender process completion Removal of items surplus to the chosen design Total 656 Notes:1) Reflects reductions to the DFS capital funding requirement which includes the nominal expenditure required up to the first quarter when the Project achieves break-even cash flow. The capital funding requirement reflects an estimated cash flow distribution applied to CAPEX prepared by management based on a refinement of the DFS cash flow distributions incorporating estimates from preferred contractors where applicable. 18

19 Implementation capital funding requirement Reduced stage 1 funding reduces costs of funds and equity dilution Capital funding requirement US$m 1,2,3 Area Basis Stage 1 Stage 2 Total Revised Total DFS Reduction Mine site development DFS/ Contractor ,426 (449) MTS (tunnel) DFS / Contractor (78) Materials handling facility and port DFS (8) Other infrastructure and facilities DFS (7) Owner s costs 4 DFS / Owner (63) Contingency and escalation DFS (0) Working capital and other 5 DFS 71 (34) (51) Total 1,088 1,821 2,909 3,565 (656) DFS (March 2016) 1,634 1,930 3,565 Reduction 33% 6% 18% Notes:1) Capital funding requirements are shown as nominal. Assumes up to 95:5 split of granulated and coarse POLY4 production capacity. DFS costs based on DFS estimated accuracy -10% to +10%. Capital costs exclude amounts for mining equipment, port and MHF facilities which are assumed to be leased. 2) The capital funding requirement reflects an estimated cash flow distribution applied to CAPEX prepared by management based on a refinement of the DFS cash flow distributions incorporating estimates from preferred contractors where applicable. 3) Areas identified as including costs estimated on a DFS basis include removal of some surplus items. 4) Includes costs relating to land acquisition 5) Includes funding of Section 106 security arrangements and operating cashflows. 19

20 Quarterly funding requirement (US$m) Cumulative funding requirement (US$m) DFS based financing strategy Staged financing strategy designed to complement project risk profile 250 DFS capital funding requirement 1,2 US$m 3, Stage 1 1,634 Stage 2 1,930 Capital funding requirement 3,565 First product 3,000 2, Senior debt commitment 100 Senior debt draw down 1,800 1, Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 0 Stage 1 capital Stage 2 capital Cumulative funding requirement Notes: 1) The capital funding requirement reflects an estimated cash flow distribution applied to capex prepared by Bechtel, based on typical expenditure curves for similar projects and reflects the DFS deterministic schedule. 2) Split of capital funding requirement based on high level scheduled activities with management allocation of indirect costs between the two stages. 2) Includes contingency which includes a provision for escalation. 20

21 Quarterly funding requirement (US$m) Implementation plan (excluding contingency) Changes have reduced total funding requirement with a greater upfront reduction Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Stage 1 capital (excl. contingency) DFS capital funding requirement Stage 2 capital (excl. contingency) Notes: The capital funding requirement reflects an estimated cash flow distribution applied to capex prepared by management based on a refinement of the DFS cash flow distribution incorporating estimates from preferred contractors where applicable. Split of capital funding requirement based on scheduled activities with management allocation of indirect costs between the two stages. Contingency includes a provision for escalation. 21

22 Quarterly funding requirement (US$m) Cumulative funding requirement (US$m) Implementation financing plan Staged financing strategy designed to complement project risk profile 250 Capital funding requirement 1,2 US$m 3, Stage 1 1,088 Stage 2 1,821 Capital funding requirement 2,909 First product 3,000 2, , , Senior debt draw down Year 1 Year 2 Senior debt commitment Year 3 Year 4 Year 5 Year 6 0 Stage 1 capital (excl. contingency) Cumulative funding requirement Stage 2 capital (excl. contingency) Cumulative funding requirement (incl. contingency) Notes: 1) The capital funding requirement reflects an estimated cash flow distribution applied to CAPEX prepared by management based on a refinement of the DFS cash flow distributions incorporating estimates from preferred contractors where applicable. 2) Split of capital funding requirement based on scheduled activities with management allocation of indirect costs between the two stages. Contingency includes a provision for escalation. 22

23 In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to their environment. Charles Darwin Finance 23

24 US$1.8 bn US$1.1 bn Financing strategy Alignment of risk with appropriate capital Stage 1 capital Mix of equity and structured capital Prospective investors currently conducting due diligence Instrument and terms of structured capital yet to be determined Targeting 50:50 equity and structured capital Stage 1 capital Site preparation and geotech Production and services shafts MTS shafts and mobilization Equity Ordinary equity or cornerstone investors Structured capital Debt plus warrants, convertible note, royalty or combination Stage 2 capital Senior debt financing activities have commenced Likely to be 100% debt-funded Bank sounding completed with 15 banks and 3 government credit agencies Positive initial feedback with due diligence activities ongoing Project CAPEX Stage 2 capital MTS Mine fit-out MHF crushing and granulation plant Senior debt Project finance bank debt and/or corporate bonds Potential for IPA/ECA support Initial terms expected to be provided prior to execution of stage 1 financing 24

25 Margin Building blocks of value Robust proposition and value throughout the cycle Key drivers Sirius operational volume and margin matrix A Market demand Volume Low Volume/ High Margin High Volume/ High Margin US$170/t (85%) B Selling price and production costs Margin US$1.7bn EBITDA US$3.4bn EBITDA C Infrastructure development Capital cost Low Volume/ Low Margin US$0.7bn EBITDA High Volume / Low Margin US$1.4bn EBITDA US$70/t (70%) D Financing strategy Returns 10Mtpa Volume 20Mtpa 25

26 CAPEX CAPEX US$ million Project economics Market opportunity will drive production to 20Mtpa 1 Production, EBITDA and value progression 1,2 2 Annual cash flow profile 1,2,4 Year Y1 3 Y7 Y9 Y12 4,000 3,000 POLY4 (Mtpa) ,000 1,000 EBITDA (US$m) ,814 2,992 0 (1,000) (2,000) Y1 Y4 Y6 Y8 Y10 Y12 Y14 NPV (US$m) 15,238 30,023 36,381 43,607 Operating Cash Flow Expansion Capital Development Capital Project Cash Flow 3 NPV (after-tax) sensitivity US$m 1,2,3 4 IRR (after-tax) sensitivity 1,2,3 POLY4 price -20% -10% Base +10% +20% -20% 11,405 13,538 15,671 17,804 19,937-10% 11,188 13,321 15,454 17,588 19,721 POLY4 price -20% -10% Base +10% +20% -20% 27% 29% 31% 32% 34% -10% 25% 27% 29% 31% 32% Base 10,971 13,104 15,238 17,371 19, % 10,753 12,887 15,021 17,154 19, % 10,535 12,669 14,804 16,937 19,071 Base 24% 26% 28% 30% 31% +10% 23% 25% 27% 28% 30% +20% 23% 24% 26% 27% 29% Notes: 1) Cash flows are shown as nominal (all prices and costs inflated at 2%). Discount rate 10% nominal; 50-year mine life. 80:20 split of granulated and coarse production. Capital costs based on DFS estimated accuracy - 10% to +10% with adjustments based on preferred contractor estimates and reflecting an estimated cash flow distribution prepared by management based on a refinement of the DFS cash flow distributions incorporating estimates from preferred contractors where applicable. Capital costs exclude costs for mining equipment, port and MHF facilities which are assumed to be leased. Expansion capex based on Company estimates based on the DFS. 2) Revenues are based on the expected netback FOB sales price related to a) contracted volumes and b) uncontracted volumes which are derived from implied nutrient values using CRU regional fertilizer price forecasts and the expected geographic sales profile and price development. 3) At commencement of scheduled construction activities. 4) Operating Cash Flow is EBITDA less tax and WC adjustments. Project cashflow is operating cashflow less development and sustaining capex. 26

27 A world-class development Project specification enhanced, confirmed and fully costed Preferred contractors for MSD and MTS announced 10Mtpa installed capacity with the foundations for 20Mtpa US$2.9bn capital funding requirement 1 ~65% of funding for installed core infrastructure for 20Mtpa 1 Long-life infrastructure to exploit 100+ year asset US$15bn NPV and 28% IRR 2 US$27/t FOB cash cost 3 Lowest cost multi-nutrient potassium producer Industry and resource sector leading margins of 70%+ Notes: 1) Capital funding requirement includes the nominal capital expenditure required up to the first quarter when the Project achieves break-even cash flow. Outsourced infrastructure and leased equipment is excluded. Expansion capex estimates not adjusted from the DFS and based on Company estimates based on the DFS. 2) Project economics NPV (after-tax) at commencement of scheduled construction activities. 3) Cash cost of production over LoM at 20Mtpa on real 2016 basis. 27

28 Questions 28