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RNS Number : 8372E
Sirius Minerals plc
14 February 2018
14 February 2018
Sirius Minerals Plc
Sirius signs shaft sinking contract with DMC Mining Services
Improved shaft sinking methodology opens opportunities to
accelerate first polyhalite by up to six months
-- Design and build contract for the construction of all shafts
has been entered into with DMC
-- Proven SBR systems to be used for the construction of the
deep shafts for Sirius
-- DMC incentivised for early completion vs existing target
price and schedule guidance
Sirius Minerals Plc ("Sirius" or the "Company") announce that it
has entered into a design and build contract with DMC Mining
Services UK Ltd and DMC Mining Services Ltd, both subsidiaries of
KGHM Polska Miedz SA ("KGHM"), for the construction of the four
shafts required for its polyhalite project in North Yorkshire. DMC
Mining Services ("DMC") is one of the world's leading shaft sinking
and mining contractors.
Sirius has been in extended discussions with AMC UK Ltd ("AMC")
in respect of finalising the shaft sinking contract following the
"notice of award" in July 2017 which anticipated execution of a
finalised contract shortly afterwards. Due to protracted
discussions with AMC regarding commercial arrangements Sirius
engaged with DMC and other shaft sinking companies in parallel to
consider alternatives.
Through this process, it has become clear that DMC, with their
extensive and proven shaft sinking experience, are a strong
construction partner for Sirius and will bring technical
opportunities and a commercial partnership that can unlock
potential savings in the construction schedule. Sirius has
therefore entered into a design and build contract with DMC and has
terminated ongoing arrangements it had for the shafts with AMC.
Chris Fraser, Managing Director and CEO of Sirius, comments:
"Sirius continually seeks opportunities to use innovations and a
commercial approach to accelerate development and unlock value. DMC
has proven, world leading experience using Herrenknecht SBR
technology on deep shafts and represents a strong partner,
commercially aligned to our success. We are confident that they can
deliver the North Yorkshire polyhalite project shafts significantly
earlier than all previous expectations and we look forward to
working with the team."
Graham Buttenshaw, Managing Director of DMC, comments:
"We are excited to be partnering with Sirius on this world-class
project and are confident of leveraging our leading technology and
experience to accelerate development of the mine and enable Sirius
to bring its sustainable multi-nutrient fertilizers to the market
earlier than previously planned."
Analyst conference call
Sirius Minerals' Chief Executive Officer, Chris Fraser, will
host a conference call for investors and analysts at 10.00 am
today. The call can be listened to live, by dialling +44 (0)330 336
9411 and entering the confirmation code 6224490.
About DMC and KGHM
DMC is one of the world's leading shaft sinking and mining
contractors. DMC has been operating for over 35 years and has sunk
23 shafts with one of the lowest incident / accident frequency
rates in the industry. Amongst other projects, it is currently the
main contractor for the construction of the two 1,000 metre deep
potash shafts at the BHP Billiton Jansen project using the
Herrenknecht Shaft Boring Roadheader ("SBR") system.
KGHM is a diversified mining Company based in Poland with
operations in Europe, North and South America. Listed on the Warsaw
Stock Exchange, KGHM has a market capitalisation of approximately
US$6bn and its major shareholder (32%) is the Polish State
Treasury. KGHM currently employs approximately 34,000 people
worldwide. In addition to DMC's experience, KGHM has constructed 31
shafts in Europe.
Further information on the companies can be found at
www.dmcmining.com and www.kghm.com
Improved shaft sinking methodology
DMC will utilise proven SBR systems for the construction of the
deep shafts for Sirius. The SBR shaft sinking system was developed
by Herrenknecht as a highly efficient alternative to the
traditional drill and blast processes.
DMC has in-depth knowledge of the SBR system and the procedures
for operating it efficiently and effectively, incorporating
significant improvements learned from recent projects. Based on
their extensive experience, DMC are confident that shaft sinking
rates with the SBR are significantly faster than what is possible
with conventional methodologies.
Based on the current status of the development programme in
North Yorkshire and the procurement timelines for the SBR's
required for the Sirius project, DMC and Sirius are confident there
are real opportunities to achieve the first polyhalite milestone up
to six months earlier (i.e. May 2021) than currently planned. Under
the terms of the shaft sinking contract DMC are incentivised to
work to identify and analyse all opportunities to accelerate the
development of the critical path deep shafts and associated
infrastructure.
Contract scope and structure
The commercial arrangement with DMC is based on a risk / reward
model, with financial incentives for completing the scope of work
under budget and ahead of Sirius' base schedule (first polyhalite
Q4 2021), and financial penalties should completion be late or
above the target price. The target price of DMC's scope is
consistent with the allocated project budget and the target dates
are within the dates outlined in the existing project schedule. The
delivery of the project in line with the accelerated schedule
discussed above would result in significant profit bonuses for
DMC.
The cost of this work is expected to be incurred in a similar
combination of currencies previously articulated with the addition
of some exposure to the Polish Zloty.
Change of contractor
AMC was the preferred shaft sinking contractor for Sirius since
June 2016 and was provided with a notice of award in July 2017.
Discussions to finalise the contract with AMC became protracted
through the second half of 2017. As a result, Sirius approached a
number of alternative contractors including DMC to create options
and also potential opportunities to improve on the commercial and
technical proposal presented by AMC.
DMC has proposed a significantly more efficient and safer shaft
sinking solution and the commercial terms and risk sharing
contained in the contract with DMC are a more appropriate alignment
of incentives for project partners.
The Company has now served notice on AMC in relation to the
shaft sinking scope. This notice includes transition and novation
arrangements around the engineering and design work undertaken to
date, on-site activities including the drilling of SM14B and
operation of the concrete plant, and the main winders which are
being procured from a related entity of AMC.
Due to the prolonged nature of the discussions with AMC, Sirius
has already taken steps to prevent any impacts on the project
schedule. This includes the direct contracting and delivery of site
preparation and D-walling, and the direct engagement with a
preferred contractor for the near surface civil construction
activities. These steps have meant that the delay in finalising the
main design and build contract for the shafts has not negatively
impacted the project schedule prior to entering into this agreement
with DMC and the acceleration opportunities discussed earlier.
For further information, please contact:
Sirius Minerals Tristan Pottas Tel: +44 845
Plc Email: ir@siriusminerals.com 524 0247
Investor Relations
Manager
-------------------- ----------------------------------- ---------------
Media enquiries Alex Simmons, Ed Tel: +44 7970
Edelman Brown 174 353
Email: Siriusminerals@edelman.com Tel: +44 7540
412 298
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About Sirius Minerals Plc
Sirius Minerals Plc is focused on the development of the
Woodsmith Mine, which will access the world's largest and highest
grade polyhalite deposit located in North Yorkshire, United
Kingdom. Polyhalite is a unique multi-nutrient fertilizer, which
can be used to increase balanced fertilization around the world.
Sirius Minerals' shares are traded on the Premium List of the
London Stock Exchange. Its shares are also traded in the United
States on the OTCQX through a sponsored ADR facility. Further
information on the Company can be found at:
www.siriusminerals.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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