24 June 2016

Sirius Minerals Plc

Capital funding requirement reduction

§ Contractor engagement has delivered an enhanced implementation approach for the Company's North Yorkshire polyhalite project

§ Total capital funding requirement has been reduced to US$2.91 billion (18% reduction)

§ Stage 1 capital funding requirement has been reduced to US$1.09 billion (33% reduction)

§ Updated Project net present value ('NPV') of US$15.2 billion

§ Updated Project after-tax debt-free internal rate of return ('IRR') of 28%

§ Positive progress on the Company's financing plans with a number of parties undertaking detailed due diligence

Sirius Minerals Plc (AIM: SXX, OTCQX: SRUXY) ('Sirius' or the 'Company') announces a material reduction of its capital funding requirements for its North Yorkshire polyhalite project (the 'Project').

Since October 2014, in parallel with the preparation of the Definitive Feasibility Study ('DFS'), the Company has been conducting a detailed early engagement and competitive tendering process with specialist contractors for critical aspects of the Project's construction. The completion of the DFS and the selection of the contractors for the mine site development ('MSD') and the mineral transport system ('MTS') has now enabled the Company to confirm a refined implementation plan for the delivery of the Project.

One of the outcomes of this work is that the capital funding requirement for the Project has been reduced to US$2.91 billion (an 18% reduction from the US$3.56 billion estimate detailed in the DFS announcement). There has also been a significant reduction of the capital required for stage 1 of the two stage financing strategy. The revised stage 1 requirement is US$1.09 billion (a 33% reduction from US$1.63 billion). This delivers an updated Project net present value, after tax and debt free ('NPV') of US$15.2 billion and an updated Project after-tax and debt-free internal rate of return ('IRR') of 28%.

Chris Fraser Managing Director and CEO said:

'By working closely with specialist contractors for almost two years we have been able to further strengthen the delivery plan for the Project. The reduced capital funding requirement will also be a significant benefit to the already attractive economics that underpin our world-class Project.

'We look forward to continuing to work with our contractors and their local supply chains as we move into the delivery phase and maximise value for both our shareholders and the wider economy.'

Background

The implementation and delivery of the Project is a critical phase of value creation for the Company. In order to ensure the most efficient and optimal implementation plan for the Project, the Company has been undertaking a detailed early contractor engagement process since October 2014. This process has involved running a competitive tendering and value engineering process with specialist contractors to identify opportunities to enhance the implementation strategy.

This tender process has been run in parallel with the DFS preparation and during that process it has served as a valuable check on the validity of the DFS conclusions. At the time of the completion of the DFS the competitive tenders for the MSD and the MTS had confirmed critical aspects of the DFS estimate and schedules and gave the Company the confidence in the DFS findings. However, it was noted at the time of the DFS that the Company considered it to be a conservative estimate and that opportunities existed in the tendering process, the competitive dynamic around equipment supply and the optimisation of construction methodology, to reduce costs, schedule and risk.

The recent selection of preferred contractors has enabled the Company to confirm the opportunities to adopt the contractor solutions. This has been done by reviewing the proposed contractors' proposals in detail against the DFS and revising the capital requirements for the Project to align with those decisions. The three key areas of change are detailed below.

Adoption of key contractor designs and estimates

The DFS estimate was based on designs using typical construction methodologies prepared by specialist consultants for each of the components of the Project. The consultants produced specific quantities (such as volume and specifications of steel, concrete or specific equipment procurement requirements) and schedules for each component of the Project. Rates were then applied to the schedules and quantities (both the direct costs and an estimate of the related contractor indirect costs). An estimate of contingencies and of owner's costs was also then added to deliver the DFS estimate.

The DFS provides the Company with a detailed baseline for the delivery of the Project but ultimately it is an estimate compiled from various designs and assumed implementation approaches. This detailed assessment puts the Company in a position to accurately assess and benchmark the specialist contractor solutions and prices throughout the Project. With the DFS complete, and the preferred construction contractors now selected, the Company can now confirm with confidence that the contractors' designs and implementation approaches can be adopted as the basis for the delivery of the Project. In addition to the change in the basis of the implementation methodology, and the estimate of the capital cost for those components, it also enables the Company to adopt a refined approach to the management of the Project delivery and also to update other components of the DFS estimate with current market prices.

During the tendering process each of the construction contractors' optimised their methodologies and designs which meant they varied from those outlined in the DFS. This included different assumptions on quantities, labour requirements, sequencing of work, and ultimately detailed cost estimates. Following a review of the detailed contractor design proposals, a reduction in the total capital funding requirement for the Project of US$490 million has been made possible.

The most significant component of this reduction has been the optimisation of the shaft design and construction methodology by the preferred mine site construction contractor - AMC. The AMC design for the shafts aligns with the 50 year design life for the MTS. The change of design is not expected to impact the operating cost assumptions during the first 50 years of the operations. AMC's plans have a more effective and efficient construction methodology, reducing the amount of temporary construction equipment (such as the number of temporary winding towers) and the early utilisation of the permanent equipment.

Change of implementation approach

Early engagement with the construction contractors, particularly with respect to the integration between site preparation, shaft sinking and tunnelling, has resulted in replacement of multiple, concurrent construction contracts with a single shaft sinking contract for the mine and mineral transport system shafts. The proposed shaft sinking contractor would therefore be largely self-contained, particularly for the first 18 months to two years of construction. As a result, the Company reassessed its approach to project management to adopt an 'owner's team' management approach, which is a change from the 'PMC' based approach considered in the DFS.

This change results in a removal of the costs of the PMC from the DFS estimate and the addition of costs for the procurement of certain systems and the cost of recruiting the additional in-house team. This change results in a net reduction in the total capital funding requirement of US$63 million.

Value engineering

During a value engineering review of the DFS estimate a number of items were identified that no longer aligned to the timing of the construction approach or were surplus to the requirements of the chosen design. The net result of these changes is to remove some costs and defer others to later in the Project schedule resulting in a reduction of the capital funding requirement by US$103 million.

Improved project economics

The following table outlines the revised capital funding requirement of the Project.

Table 1: Capital funding requirement

The updated Project net present value ('NPV') is US$15 billion today rising to an NPV of US$27 billion upon commencement of production. The updated Project after-tax debt-free internal rate of return ('IRR') is 28%. Further to this the NPV and IRR of the 10 Mtpa case are US$7.1 billion (up from US$6.7 billion) and 22.9% (up from 20.7%) respectively.

The key changes to the assumptions underpinning the financial analysis are as follows:

· Capital funding requirement reduced from US$3,565 million to US$2,909 million;

· Revenues estimated based on expected free on board ('FOB') prices derived from existing offtake contracts, including the recent Dian Huang offtake agreement, and regional sales forecasts; and

· UK Corporation tax rate legislated to reduce to 17% from 1 April 2020.

The following tables outline the updated Project economic analysis.

Table 2: Project cash forecasts: capital funding period (nominal)

Notes: 1) Other costs include funding of Section 106 security arrangements. 2) Net Project Cashflow includes operating cash flow and investing cash flow. All financing cash flow items including interest are excluded.

Table 3: NPV (US$bn) sensitivity to Capex and Price at full capacity (20 Mtpa)

Table 4: IRR sensitivity to Capex and Price at full capacity (20 Mtpa)

Financing progress

The Company is focused on shareholder value and pursuing the most efficient and cost effective capital structure to develop the Project. The Company is making good progress with the previously articulated two stage approach to financing. The material reduction in the initial capital funding requirement results in a consequent reduction in the envisaged equity requirement for the Project.

As previously announced, the Company is seeking to finance the stage 1 capital requirement via a combination of structured capital and equity in approximately equal proportions. The structured capital is likely to take the form of various instruments such as a royalty, debt plus warrants or a convertible note. Various parties are in the process of conducting due diligence to support structured capital proposals and the Company will provide an update on the outcome of this process at an appropriate time.

Work on the stage 2 financing has progressed with the Company conducting a market sounding with potential senior debt lenders. Fifteen prospective lenders participated in the sounding process with positive feedback received from the majority of participants. The Company continues to work with a select number of banks with a view to forming a small group of mandated lead arrangers. It is envisaged that once this process has concluded (in advance of the stage 1 financing), the Company will have indicative terms for its stage 2 financing and support from the mandated bank group. On the basis of feedback provided so far, the Company is confident that a commercial bank transaction will be capable of meeting the entire revised stage 2 capital funding requirement of US$1,821 million.

The Company's AGM presentation has been uploaded to the website and a webcast of the presentation is planned to be uploaded next week.

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About Sirius Minerals Plc

Sirius Minerals is the fertilizer development company focused on the development of its North Yorkshire polyhalite project, the United Kingdom. It has the world's largest and highest grade deposit of polyhalite, a multi-nutrient form of potash containing potassium, sulphur, magnesium and calcium. Incorporated in 2003, Sirius Minerals' shares are traded on the London Stock Exchange's AIM market. 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.