Sirius Minerals (LSE: SXX) published its interim results this morning, and my reading of the figures suggests the firm could be facing a cash crunch — or even lights out — if it doesn’t get planning permission for its York Potash Project in the first quarter of 2015.
At the end of March, Sirius had £48.4m in cash, of which £21m had been spent by the end of September, leaving the firm with a cash balance of £27.4m.
This suggests to me that Sirius could run out of money in 6-9 months, a conclusion that the firm’s directors confirmed in today’s interim report, which states that only by deferring certain expenditure will Sirius be able to operate for the next 12 months.
Crunch time
For Sirius, it’s crunch time: if the firm is given planning permission as expected, in January 2015, then raising new funds shouldn’t be a problem, and the share price could rise.
On the other hand, if planning permission is refused, then the company admits that it may not be able to raise new funds. This could mean that Sirius shares become worthless, and the company folds.
It’s almost a binary bet, in my view: the near-term future of Sirius Minerals is now dependent on the planning decision it receives early next year, without which its efforts to build a commercial case for the mine’s Polyhalite fertiliser will be irrelevant.
Will it happen?
I live quite close to the site of the proposed mine and I know from both local press and anecdotal evidence that support for the project is high.
The company does seem to have made a real effort to take account of the mine’s rural setting and is expected to generate more than 2,000 jobs, in an area where employment opportunities are generally quite poor, outside tourism.
I’m also encouraged by the commercial case for the mine, which seems increasingly strong and is backed by a raft of recent crop study results, showing that the firm’s Polyhalite fertiliser can outperform traditional alternatives.
As a result, I expect the local planners to say yes to Sirius.
Is Sirius a buy?
I think that Sirius is a reasonable speculative buy, but its high risk means it probably shouldn’t form a large part of your portfolio — it’s worth remembering that the current £235m market cap isn’t backed by cash, revenue or saleable assets, and could fall rapidly if planning or fundraising difficulties emerge.