Sirius Minerals: Financing will be a serious challenge

Sirius Minerals has just received approval for their polyhalite (potash) mine under the North York Moors National Park.

The stock was up about 50 percent yesterday and the market cap is now about half a billion pounds.

Now they have the small matter of financing the mine, building it and operating it to specification.

It is a big project. Here is the corporate video:




The mine is roughly 1500 meters deep and workers need to descend by very long shafts.

The video proposes mining with continuous mining equipment (long-wall coal would be an analogy - but coal is never mined that deep).

Longwall equipment is expensive to maintain.

The rock at York Potash looks pretty hard. Moreover deep mines have all sorts of problems (eg the rock in the wall simply explodes as it is depressurised) and the mines are usually fairly hot.

Deep mining is - usually - difficult and expensive. Hard rock leaves high maintenance costs. [Polyhalite is 3.5 on MOHs scale, a lot harder than coal but not truly hard.]

Still, according to the company and its feasibility study this will be a very low cost mine. The feasibility study gives costs as follows:

Yes, that is USD36.9 per tonne in operating costs. Net of processing at port the cash costs are USD24.9 per tonne.

Now I like to compare this to iron ore operating costs.

Iron ore is pretty simple to mine. It comes in large open cut seams, you don't do much to it and you load it onto trains and then to a port. Moreover it is done on huge scale - hundreds of millions of tonnes per year - which tends to lower cash costs (per tonne) dramatically.

Still York Potash estimated cash costs are about the similar to the West Australian ultra-large very low cost iron ore mines. [The linked Sydney Morning Herald article questions the viability of iron ore mines at prices around $35 per tonne.]

Sure some iron ore mines have lower cost than that - but the cash costs cited here are consistent with mega-scale open cut mining, not mining 1500 meters underground. The cash costs that York Potash suggest are in the range of the lowest cost large scale open-cut mining operations in the world.

The management of Sirius came from Fortescue - a giant Western Australian iron ore mine. So they must have learned something about low cash cost mining.

I am just wondering how they do it. Because without a reasonable explanation as to why this is just so cheap I am not buying it.

Count me out of the financing. Financing and building something that cheap to run is going to be a serious challenge.





John

PS. There is a mine (Boulby) owned by Israel Chemicals operating about the same depth in the same area. The cash costs are likely to be in the mid-200s per tonne.

PPS. If you want to understand the challenges of mining hard rock really deep this Wall Street Journal story on mining in South Africa is instructive. [The proposed Yorkshire mine is about a third of this depth and probably in less brittle rock so the WSJ story overstates the problems that York Potash might have.]

This South African mine has thousands of staff and removes 6,400 tonnes of hard rock per day. By contrast York Potash intends on removing 35,000 tonnes per day at much lower costs.

Still this is what the WSJ has to say:

A deep mine is a truce that will always break. Mining at depth makes rock unstable. Every day at Mponeng mine they detonate 5,000 pounds of explosives. Every day they take away 6,400 tons of rock. The laws of compressive force dictate that the rock will try to close the spaces left by mining. To prevent this, engineers backfill stopes with rock and concrete. They reduce rock stress at the mining face, "softening" the rock before they blast it by drilling complex patterns around the blasting holes. In one deep mine they "fool the rock" by drilling out six-foot horizontal slots above the stopes. Since stress propagates through rock, but not through space, the empty spaces hinder the transmission of stress. 

In tunnels, yard-long rock bolts anchor the unstable rock on the tunnel roof to the more stable interior of the rock mass. Patterns of rock bolts inserted in clusters are said to "knit" the rock together. Wire mesh and sprayed concrete stabilize the tunnel walls. Seismic sensors in the mine detect tremors at the first twitch, warning men to leave the rock face. 

Earlier the article indicated just how much force rock explodes with:

Some of the rockbursts had been so powerful that other countries, detecting the seismic signature, had suspected South Africa of testing a nuclear bomb. 

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Whatever, despite extreme depth and the problems that arise Yorkshire Potash will not be expensive to operate. The feasibility study suggests this is all going to be done for open-cut mine cash costs.

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For mine opponents there may be no need to lament the decision to mine. With this sort of financing and engineering requirement I suspect the York Moors National Park is fairly safe.