TIDMSXX
RNS Number : 8277L
Sirius Minerals plc
23 April 2018
23 April 2018
Sirius Minerals Plc
Annual Financial Report
In accordance with Listing Rule 9.6.1R, Sirius Minerals Plc (the
"Company") announces that the following documents have been posted
to shareholders and submitted to the UK Listing Authority via the
National Storage Mechanism:
-- Sirius Minerals Plc Annual Report and Accounts 2017;
-- Notice of 2018 Annual General Meeting; and
-- Proxy Form for the 2018 Annual General Meeting.
The above-mentioned documents (except for the Proxy Form) are
available on our website at www.siriusminerals.com and will shortly
be available for inspection at www.morningstar.co.uk/uk/nsm. The
2018 Annual General Meeting will be held at 1.00 p.m. on Thursday
31 May 2018 at The Events Centre, The Principal York, Station Road,
York, YO24 1AA.
The information set out in the appendix below, which is
extracted from the Annual Report and Accounts 2017, is included
solely for the purpose of complying with DTR 6.3.5R. It should be
read in conjunction with the Company's 2017 Preliminary results
announcement issued on 6 March 2018. Both documents are available
at www.siriusminerals.com and together constitute the material
required by DTR 6.3.5R to be communicated to the media in unedited
full text through a Regulatory Information Service. This material
is not a substitute for reading the Annual Report and Accounts 2017
in full. Page numbers and cross references in the extracted
information refer to page numbers and cross references in the
Annual Report and Accounts 2017.
For further information, please contact:
Sirius Minerals Plc Tristan Pottas Tel: +44 845
Investor Relations Email: ir@siriusminerals.com 524 0247
Manager
-------------------- ----------------------------------- ---------------
Media enquiries Alex Simmons, Ed Tel: +44 7970
Edelman Brown 174 353
Email: Siriusminerals@edelman.com Tel: +44 7540
412 298
-------------------- ----------------------------------- ---------------
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.
Appendix
1. Identifying and managing risks (page 48)
Risk management and internal control
The Group's strategy exposes it to various risks. The Board is
responsible for determining the nature and extent of the risks that
the Group is willing to take in achieving its strategic
objectives.
The Board has an ongoing process for identifying, evaluating and
managing the principal risks faced by the Group.
The Board has performed a robust assessment of the principal
risks facing the Group, taking into account those that would
threaten its business model (see page 32), future performance,
solvency or liquidity, as well as the Group's strategic objectives
(see page 22). In addition, the Board considered how risks evolve
and potential emerging risks. The most significant risks arising
from this assessment, including details of their management and
mitigation, are detailed in the Strategic Report on pages 49 to
52.
The Group has a system of internal controls which is designed to
manage and mitigate these risks and which the Board is responsible
for. This system is in accordance with the Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting as issued by The Financial Reporting Council and its key
features include:
-- a defined organisational structure with appropriate
delegation of authority and clearly defined lines of reporting and
responsibility, whereby the incurring of expenditure and assumption
of contractual commitment can only be approved by specified
individuals and within pre-defined limits;
-- formal authorisation procedures for all banking transactions,
expenditure and investment decisions;
-- a comprehensive system for budgeting and planning whereby
annual budgets are prepared and approved by the Board and
subsequently monitored with variances reported to the Board at
Board meetings; and
-- regular and comprehensive information provided to the Board
from the Group's senior management team, covering financial
performance and key performance indicators, including non-financial
measures.
The Group's system of internal controls (including each of those
detailed above) have been in place for the year under review and up
to the date of the approval of this Annual Report. This system is
regularly reviewed by the Board and a review of the effectiveness
of all material controls was carried out by the Audit Committee
during the year. This effectiveness review considered the design of
controls associated with key risks and the evidence as to their
proper operation throughout the year. No significant failing or
weaknesses were uncovered in the course of this review.
Brexit
The Group is aware that the referendum vote in June 2016
pursuant to which the United Kingdom has indicated its intent to
withdraw from the European Union might present risks for companies,
including uncertainty about the process, timings and consequences
of the final withdrawal. The Group does not currently trade with
Europe. It is also not in receipt of EU foreign direct investment
(FDI). Most of the Group's future sales are likely to be in US
Dollars. Therefore, the risk relating to Brexit is low for the
Group and is not considered one of its principal risks. The Group
continues to monitor political, regulatory and legislative aspects
of the withdrawal from the European Union and is aware of the
aspects of this potential risk.
Key to risk management
Risk increasing No change Risk decreasing
Principal risks Mitigation Trend Strategy
Link
--------------------------------- -------------------------------- ---------------- ---------
Strategic risks
------------------------------------------------------------------- ---------------- ---------
Exploration and development The geological, mining,
The Group is completely processing and infrastructure
dependent on the ability challenges of the
of the Project and Project are inherent
engineering team to in a mining and infrastructure
successfully deliver Project of this size,
operational mine and and are not of an
infrastructure facilities. extraordinary level
or nature.
Site investigation
work through a program
of seismic surveys
and investigative
boreholes continues
as part of the Project.
As engineering progresses
this risk naturally
reduces.
Development risks
are assessed, evaluated
and reduced as far
as reasonably possible
as part of the Project
management function
performed by our
experienced owner's
team.
--------------------------------- -------------------------------- ---------------- ---------
Financial risks
------------------------------------------------------------------- ---------------- ---------
Liquidity risks We have a strong
The Group's current Board and management
activities do not generate team with extensive
revenues and there experience in financing
is a risk that, despite large, multi-billion
raising the initial Dollar projects.
funds to commence construction,
we will have insufficient We have been successful
funds to finalise development in raising funds
and construction of in the recent past,
the Project to a point including in 2016
of production where to commence construction
the Group generates of the Project and
positive operating signing a non-binding
cash flows, which will mandate letter with
affect our ability financial institutions
to manage operating in relation to a
costs and capital expenditure. potential senior
There is no assurance debt financing which
that adequate funds would fund the majority
will be available when of the remainder
they are required. of the operating
costs and capital
expenditure required
to finalise the development
and construction
of the Project and
reach a point of
production where
the Project generates
positive operating
cash flows.
--------------------------------- -------------------------------- ---------------- ---------
Commodity price Our research team
There is a risk that continues to analyse
fertilizer prices, various fertilizer
including potash and markets, including
polyhalite, could fall NPK, potash and polyhalite.
to levels at which Current studies support
it would not be economically the continued growth
viable to develop the in world demand and
Project. Such conditions a positive price
would materially and outlook over the
adversely affect production, medium term.
earnings and the financial
position and could Feasibility study
result in the cessation work indicates that
of mining activities the anticipated cost
that become uneconomic of production for
or could result in polyhalite is circa
the economics of the US$30. At this cost,
Project not being sufficient the Project would
to enable the Group rank in the bottom
to raise the next stage quartile of potash
of funding to take producers and is
the Project to production, therefore well positioned
halt or delay the development for significant price
of new areas to mine, downturns
and reduce funds available
for proving reserves,
resulting in the depletion
of reserves. There
is no assurance that,
even as commercial
quantities of polyhalite
ore are produced, a
profitable market will
exist for it.
--------------------------------- -------------------------------- ---------------- ---------
Currency The Group has mitigated
Sirius Minerals will the currency risk
have currency exposures in the medium to This risk
arising from both its long term, by planning is increasing
capital expenditure a capital structure as the
and operating costs where it has raised time frame
and the sale of polyhalite funds in Pounds Sterling for Brexit
ore. and US Dollars, to draws
broadly match the closer
Revenue from polyhalite anticipated currency and drives
sales and the majority split of its expected increased
of future financings capital expenditure volatility
for the Project are and operating cost in the
expected to be denominated needs. foreign
in US Dollars, providing exchange
a natural exchange The Group monitors markets.
rate hedge. However, its exposure to currency As the
a significant portion risk based on the proceeds
of the construction, Project expenditure from the
development and operating forecast and the stage
expenses for the Project stage of development. 1 financing
will be incurred in The treasury policy are spent,
non-US Dollar currencies, sets out appropriate the Group's
in particular Pounds risk tolerances for exposure
Sterling. currency exposure to sterling
and the treasury is also
Accordingly, appreciation team implement appropriate increasing
of such non-US Dollar hedges to ensure because
currencies, without the Group is compliant the stage
offsetting improvement with the treasury 2 financing
in US Dollar denominated policy. is likely
polyhalite prices, to be
could adversely affect predominantly
the Project's profitability in US
and financial position. Dollars.
--------------------------------- -------------------------------- ---------------- ---------
External risks
------------------------------------------------------------------- ---------------- ---------
The Group is in possession
Permits and licences of the planning permissions
The Project requires required to commence
a range of permits the construction
and licences to operate. of the minehead,
As the Project progresses, MTS, MHF and has
the details of the also received a development
works will require consent order for
changes to the planning the construction
permissions. There of the harbour facility.
is no guarantee that Any changes applied
these will be forthcoming. for do not affect
these permissions,
but rather either
modify or replace
the existing permissions
once approved.
Up to this point
the minor non-material
changes sought have
been approved. A
minor material change
for the Woodsmith
Mine site has also
been approved by
the NYMNPA.
Sirius Minerals has
a broad range of
consultant advisers
that specialise in
obtaining the remaining
permits, licences
and secondary approvals
and licences needed
for the Project to
operate.
--------------------------------- -------------------------------- ---------------- ---------
Competitors Our polyhalite product
There are high barriers contains four of
for potential new entrants the six macro-nutrients
into the market. The (potassium, sulphur,
major competitors all magnesium and calcium)
have substantial existing required for plant
infrastructure, less growth. Polyhalite
leverage and substantially is an effective,
greater financial resources. direct application,
There can be no assurance multi-nutrient fertilizer
that Sirius Minerals and can also be combined
or its Project will with nitrogen and
be able to successfully phosphorous to create
respond to such competitive high-value NPK fertilizer
pressures or the competitive products that contain
activities of the other all six macro-nutrients.
major suppliers in As such, we are less
its markets. exposed to the existing
potash supply structure
with respect to product
supply and demand
dynamics. The Group
continues to develop
its marketing and
sales strategy to
utilise the unique
characteristics of
polyhalite.
--------------------------------- -------------------------------- ---------------- ---------
Operational risks
------------------------------------------------------------------- ---------------- ---------
Construction delays Detailed assessment
The Project may experience and planning will
construction and schedule be carried out continuously
delays due to unforeseen by the management
technical issues. team and external
consultants as part
of the Project's
continued development
to mitigate and de-risk
the Project during
construction.
The Group also continues
to pursue all acceleration
options available
to reduce the time
required to reach
first production.
Contractors are incentivised
to bring their scopes
forward.
--------------------------------- -------------------------------- ---------------- ---------
Contractors and suppliers This risk would manifest
The performance of itself in cost, delay
our contractors and and/or quality issues.
suppliers is critical
to the success of the An active and experienced
Project. Performance management team is
issues or a lack of in place with a focus
alignment could introduce on being clear about
cost and schedule risks expectations, verifying
to the Project. performance, and
doing everything
possible within the
contracts to ensure
the success of our
contractors and suppliers.
Performance is actively
monitored and managed,
with mitigating change
instigated should
performance not meet
expectations.
In working with our
contractors we are
focussed on ensuring
that they are working
within their area
of specialisation,
that their senior
management are engaged
in our Project, that
regular communication
and progress updates
are maintained and
that major construction
contractors are incentivised
around the success
of the Project.
--------------------------------- -------------------------------- ---------------- ---------
Construction cost overruns The owner's team
The Project may experience has a strong focus
construction cost overruns on cost.
due to unforeseen technical
issues or scope change. Confidence in the
final cost will increase
as detailed engineering
progresses and contracts
are put in place
for the works.
Prices received from
contractors and suppliers
so far have been
in line with the
DFS and budget. In
addition, the Project
was costed with significant
contingency and escalation
provisions in case
of cost pressures.
The fall in the value
of the pound also
provides comfort
in this area.
--------------------------------- -------------------------------- ---------------- ---------
Safety and environmental We continuously assess
performance the risk and ensure
A significant safety that we have the
or environmental incident right people in the
would affect the delivery right place. Nonetheless,
of the Project and the Group is not
the Group's reputation. complacent about
the risks in this
area.
The owner's team
is set up to manage
safety and the environment
effectively. A key
part of our work
in this area is in
ensuring that we
engage contractors
who have the right
attitude and systems,
and that we welcome
expertise and improvement
from employees, contractors,
and external parties.
Ongoing focus areas
include leadership
activities, work
with our contractors
(including onboarding
processes and auditing),
developing the culture
of the Project team,
and the identification
and control of major
hazards.
--------------------------------- -------------------------------- ---------------- ---------
Viability statement
In accordance with provision C.2.2 of the Code, the Directors
have assessed the prospects of the Company over a five-year period,
taking account of the Company's current position and principal
risks.
Timeframe
The Board believe that five years is the most appropriate
timeframe over which the Board should assess the long-term
viability of the Company. The Company's current activities do not
generate any revenues or positive operating cash flow, and
construction of the Project and the development necessary to
commence production and generate revenues will require significant
capital expenditures. The Project is not expected to generate
positive net cash flow until approximately 2022, some four years
from now.
Assessing viability
The main assumptions are that the stage 2 financing of up to
US$3 billion is completed in the second half of 2018 and that the
U$300 million royalty financing due from Hancock British Holdings
Limited is paid on or around the same time. If these transactions
are not concluded in this time frame the Company may not be able to
ensure that the Project will become operational, nor that
commercial production will commence on schedule (or at all).
Principal risks
In addition, in making their assessment, the Board has taken
into account the principal risks as described in detail on pages 49
to 52 and also the scenario modelling and sensitivity analysis
undertaken by the Company and various consultants which has been
conducted as part of the development of the Project. The modelling
demonstrates profitability over a range of negative assumptions,
both individually and in aggregate. The scenarios considered took
into account the impacts of:
- a Project capital cost overrun;
- a delay in Project completion;
- lower realised polyhalite sales prices;
- lower long-run polyhalite sales volumes;
- higher long-run operating costs; and
- a reasonable downside scenario taking into account a combination of the above.
Based on the financial impact of the analysis outlined above and
the associated risk, management actions and controls that are
either in place or could be implemented, the Board has been able to
conclude that the Group will be able to deliver the construction of
the Project, provided the stage 2 financing is completed as
described.
Confirmation of viability
Taking account of these matters, the Directors have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period to
December 2022, assuming that the stage 2 financing referred to
above is completed as described.
The Group's going concern statement is detailed in note 1 on
page 114.
2. Directors' Responsibilities (page 102)
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and Company financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards, comprising FRS 101 'Reduced
Disclosure Framework', and applicable law). Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the
Group and Company for that period. In preparing the financial
statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- state whether applicable IFRSs as adopted by the European
Union have been followed for the Group financial statements and
United Kingdom Accounting Standards, comprising FRS 101, have been
followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
-- make judgements and accounting estimates that are reasonable and prudent; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and Company
will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group and
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and Company and enable
them to ensure that the financial statements and the Directors'
Remuneration Report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
The Directors are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
We confirm that, to the best of our knowledge:
-- the financial statements, which have been prepared in
accordance with IFRSs as adopted by the European Union, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings included in the
consolidation taken as a whole;
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face; and
-- the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company's performance,
business model and strategy.
By order of the Board
Chris Fraser
Managing Director and CEO
Thomas Staley
Finance Director and CFO
3. Related Party Transactions (page 128)
There have been no material related party transactions in the
year ended 31 December 2017 (2016: nil), except for key management
compensation. The key management compensation below includes eight
(2016: seven) Sirius Minerals Plc Directors and three (2016: four)
further executive management employees who are not Sirius Minerals
Plc Directors. Key management personnel received the following
compensation during the period:
2017 2016
GBP000s GBP000s
--------------------------------------- -------- --------
Salaries and short-term benefits 4,415 1,482
Post-employment benefit contributions 11 9
Share-based payments 1,431 581
Compensation for loss of office - 157
--------------------------------------- -------- --------
Total key management compensation 5,857 2,229
--------------------------------------- -------- --------
Total Directors' emoluments and emoluments of the highest paid
Director, together with full details of Directors' remuneration,
pensions and benefits in kind are given in the Remuneration
Committee Report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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