Tunnel vision: Tees underground project costs up by £466m

Sirius Minerals has revealed the costs to tunnel from near Whitby to Redcar has jumped by around £466m to an estimated £1.1bn.

Sirius revealed it has revised initial estimates for the whole North Yorkshire polyhalite project, and now says the total costs from an early feasibility two years ago have risen from £2.84bn to £3.22bn.

Shares in Sirius dipped 11% following the PLC’s announcement to the Stock Exchange on Thursday.

Planners say they need to increase the width of the 23-mile tunnel – from its Woodsmith Mine, South of Whitby, to Teesside’s Wilton – from 4.3m to 4.9m, as well as increasing the thickness of the tunnel’s wall from 250mm to 350mm.

Estimated costs for the tunnel alone have risen from £663m to £1.13bn – up by around £466m.

But Sirius also announced on Thursday it had signed a design and build contract with STRABAG for the remaining mineral transport system drives as well as an EPC contract for the construction of the materials handling facility at Wilton with Jacobs UK, a subsidiary of Jacobs Engineering Group.

“The signing of the contracts for the remaining tunnel drives and the materials handling facility at Wilton are significant steps forward for the business with almost all procurement now complete,” said Sirius CEO Chris Fraser.

“The expected increased funding requirement coming from this process reflects an optimisation of the MTS tunnel design and a significantly improved risk allocation for Sirius to support the senior debt financing.

“The project’s economics remain extremely compelling and we are confident they support the expected additional funding requirement.”

Since its optimised definitive feasibility study announced in 2016, Sirius says the company’s understanding of the geotechnical characteristics of the strata within which the MTS will be excavated has increased following further ground investigation and seismic work.

This exercise has led to a refinement of the parameters set out in the geotechnical baseline report upon which the tunnelling contract has been determined.

The MTS cost increase is driven by a combination of the following factors:

• optimisation of the tunnel design including an increase in the planned internal diameter of the tunnel from 4.3m to 4.9m and an increase in lining thickness from 250mm to 350mm;

• a decrease in advance rates as compared from 25m per day to 17m per day; and

• a commercial risk allocation which transfers construction and delivery risk to STRABAG.

The plant has been scoped to include 7 million tonnes of granulated and 3 Mtpa of coarse product a year in its first phase of development, but with a footprint for up to 20 Mtpa of granulated product.

Sirius has detailed its revised costs to include:

• £834m – Woodsmith mine development
• £1.13bn – MTS (tunnelling)
• £416m – MHF and port
• £200m – other infrastructure and facilities
• £287m – owners costs
Sub-total: £2.9bn
Escalation contingency and allowances: £358m
Total: £3.22bn

 

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