April 30, 2012 / 9:48 AM / 5 years ago

UPDATE 2-Sirius Minerals says in talks with lenders for UK potash project

* Expects to start production in 2017

* First phase to cost $2.7 bln

* In talks to raise $2.5 bln through debt

By Karen Rebelo

April 30 (Reuters) - Potash explorer Sirius Minerals Plc said a study confirmed its North Yorkshire project was viable and that it was in early talks with lenders to raise $2.5 billion to fund what would be its first producing asset.

Sirius, which operates in North America, Australia and United Kingdom, said it was planning to start production in early 2017.

“At this stage what we are looking at is a series of options, debt finance from either bond markets, banks but also looking at potential longer-term strategic partnerships with customers,” Chief Executive Chris Fraser told Reuters.

“We are at least a year or so away from financing, we have to get our key approvals in place, which we look to have by first quarter of next year,” Fraser said.

The company estimates production of 1.4 million tonnes of potash per year at a cost of $2.7 billion in the first phase.

Shares of Sirius, valued at about $497 million, were down 3 percent at 21.52 pence at 0945 GMT on Monday on the London Stock Exchange.

“Capex has gone up quite a lot and it looks sort of technically and logistically challenging, so...it’s probably slightly negative,” Numis Securities analyst Andy Davidson said.

Top potash producers Potash Corp and Uralkaliy have been cutting output to cope with weak demand, but forecast a recovery in the long term.

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