The Hochtief/Murphy joint venture is awarded construction of the 37.5km mineral transportation tunnel for extraction of the largest mineral reserve of polyhalite in the world.

Project owner Sirius Minerals awards the design-build contract following a tendering process that began in October 2014, and which has run in parallel with the company’s Definitive Feasibility Study (DFS). The DFS, which was released in March (2016), outlines the scope and financial viability of the project and serves as the baseline upon which financial partners/cornerstone investors will provide the necessary US$1.63 billion needed to finance Stage 1 of the project.

Deep mine head and mineral transportation system

Announcement of contract awards via the Regulatory News Service of the UK Stock Exchange is a signal that the critical funding deal could be imminent. In addition to the civil tunnelling contract, Associated Mining Construction UK (a joint venture between Thyssen and Redpath) is awarded the contract to develop the 1,500m deep minehead – located in the North York Moors National Park – and to which the tunnel will connect for onward transport of the extracted polyhalite to the planned port facility at Redcar.

Chris Fraser, Managing Director and CEO of Sirius Minerals, said: "This is the culmination of a huge amount of work by both the successful bidders and those that have been unsuccessful, and we thank all of the groups involved for their efforts.  We are delighted to now be moving forward with our selected partners towards the implementation of the project.

“During the preparation of these tenders a significant amount of engineering and estimation has been undertaken. The DFS provided a relevant and quality benchmark from which to compare and analyse the contractors’ designs, methodologies and cost and schedule estimates.”

Sirius claims to have “captured significant savings” through the tendering process since the issue of the DFS, and is revising its project cost estimates accordingly. The company expects construction of the deep shaft at the mine head to begin “soon after the formal award of the contract once Stage 1 financing has been secured.” It is expected this will happen before the end of the summer.

Construction of the mineral transportation tunnel using up to five TBMs is not expected to begin until a 12-month program of detailed geotechnical investigations along the planned alignment has been completed as part of Stage 1; funding for tunnel construction itself will now come out of the separate US$1.93 billion that Sirius says will be needed to complete Stage 2 financing. Under the terms of a deal that affords the contractor a degree of risk protection, the full geotechnical investigation will inform a final design upon which a “refined estimate” of cost will be agreed with the owner prior to agreement of the final contract sum.

AMC is a recognised leader in shaft sinking both around the world and in the potash (polyhalite) sector. It is currently constructing the K3 shafts in Canada for Mosaic, two shafts for the Ust Jaiwa Project for Uralkali in Russia, and completed the Scissors Creek shaft at Rocanville in Canada for PCS last year.

The Hochtief/Murphy JV has been successfully constructing major projects and infrastructure in the UK since 2001. Most recently it completed the £250m C310 Thames Tunnel as part of the Crossrail scheme in London.

Plans for construction of the first UK potash mine in nearly 40 years move a step closer today (Thursday 17 March) with the long-awaited release of the development company’s Definitive Feasibility Study (DFS). The DFS is a detailed financial document that project owner Sirius Minerals hopes will enable it to advance negotiations with key cornerstone investors.

The York Potash Project in Yorkshire in the north of England involves excavation of a 1,600m deep minehead and construction of a 38km mineral transportation tunnel under the North York Moors National Park using five TBMs operating out of four deep-level intermediate shafts.

Five TBM plan of attack for 38km potash tunnel

At full future production of 20 million tonne of polyhalite per year in 2028 the company forecasts a net project cashflow after tax and debt repayments of US$3.39 billion, for a net company value of US$27 billion. At first production of 10 million tonne by 2024 the company projects a net project cashflow of 1.2 billion, rising to £1.6 billion by 2030 at that same production level.

According to a Regulatory News Service (RNS) market update released by Sirius Minerals today, the company is close to awarding major contracts for the critical underground construction.

“The Company has been conducting a tendering exercise for the site preparation, the mine site development scope, and the MTS [38km tunnel and associated shafts] scope in parallel with completing the DFS. This exercise has involved recognised major industry shaft and tunnelling contractors and the designs provide a scheme that is both buildable and cost effective. The tender processes are well advanced and the Company is close to selecting preferred bidders for over 50% of the DFS value. The Company expects there will be further optimisations available as this process moves forward.” Design of the tunnel and intermediate shafts is by Arup.

Initial Phase I funding of US$1.63 billion will be raised by a mixture of debt and equity from cornerstone investors who are as yet unidentified but who Sirius claims it is in negotiations with. The RNS update informs the market that Stage 1 financing will cover the entire direct costs of all site preparation, shaft excavations, tunnels and a proportion of the indirect costs, project management and owner’s costs and contingency – representing approximately 46% of the capital funding requirement. It is proposed that this will be a combination of equity, either from strategic partners or ordinary equity, plus structured debt.

The RNS says: “Work is advancing with our financing partners globally to bring together the pieces of the initial financing of this Project. This process is expected to take a number of months … [and] the Company is working closely with its corporate brokers and advisers in relation to the components of the Stage 1 financing.

“The Company’s goal is to secure this funding as soon as possible to enable construction to commence. Discussions have been under way for a significant period of time with providers of the structured debt and also potential equity investors. Following the release of the DFS the Company will engage in a more detailed formal due diligence process with these key parties to seek to move to binding commitments as quickly as possible.”

Phase 2 financing of lower risk elements of the project, including the construction of port facilities for export of the product all around the world, will require an additional US$1.93 billion. It is envisaged by the company’s specialist financial advisor, Societe Generale, that this will be raised through non-dilutive corporate debt or the issue of a bond. The capital cost of increasing the scope of current project capacity of 13 million tonne, to a peak future capacity of 20 million tonne, will be financed from profits.

A 58-month construction period is projected: 22 months of site preparation and pre-shaft sinking activities, followed by a 36 month construction period for the excavation of the main minehead, the intermediate shafts, the tunnel itself and a tunnel portal at the northern end of the alignment close to the port at Redcar.