Even though the future of Sirius Minerals (LSE: SXX) manages to look consistently inconsistent, resulting in sharp share price gyrations, I didn’t think things could get much worse for the polyhalite miner when analysing it last month. Except that it did!
After a 33% month-on-month share price fall in August, it tumbled further by a whole 28% in September. And this decline is when we consider the average monthly price. If instead we compare the month-end price difference, the fall is an even sharper 61.5%. So, what exactly went on here to further add to the company’s list of challenges?
Let’s find out.
Cancelled bond sale
In early August, Sirius had announced the suspension of its $500m bond offering, citing unfavourable market conditions. That news is bad enough at any time, but particularly so for SXX because unlocking the rest of its funding from J.P. Morgan hinged on a successful independent fund raise through its bond sale. Considering that the company hasn’t started generating revenues yet, external funding is important for its very existence.
Cut to September, and it completely dropped the plans for the bond issue, once again citing market conditions. Unsurprisingly, this resulted in a sharp share price dip of over 53% on the day of the announcement.
Government declines backing
I find it particularly disappointing that the company’s inability to secure government funding is a key cause for cancelling the bond issue. While the rubber hasn’t yet met the road for Sirius, so to speak, but there are huge potential benefits not just for investors, but also for the region’s economy, as it likes to point out. It’s the latter benefit that makes a strong case for political support, but the government declined Sirius’ request to issue $1bn in guaranteed bonds if the company was unable to issue them otherwise.
Increasingly uncertain future
The FTSE 250 company continues to highlight the project’s larger importance for the relatively underdeveloped North Yorkshire region, pointing out that 1,200 jobs may be lost if it doesn’t secure funding to continue mining, according to a Financial Times report. I find it nerve-wracking that it has only six months of financial capacity before its activities could come to a complete halt.
But then I reckon that anyone who’s invested in Sirius in the recent days is comfortable taking the risk that comes with it. Even if not, the fact is that with a share price of 3.6p at time of writing, there is little value left to lose.
In other words, this is obviously not a time to invest, but for investors already holding the share, it’s definitely not the time to sell either – unless the volume of share-holding is large, there’s limited downside. SXX has pulled rabbits out of the hat in the past, so who is to say it won’t do it again?