Could the Sirius Minerals (SXX) share price ever return to 20p?

2019 has been a terrible year for the Sirius Minerals (LSE: SXX) share price. 

The stock entered the year above 20p, and it looks as if it is on track to end the year below 5p. A series of setbacks has whacked the stock over the past 12 months. These include the company’s announcement in mid-September that it was scrapping the bond sale required to get its multi-billion-dollar Phase 2 funding package off the ground.

Following this announcement, shares in the mining group plunged by more than 50%. 

Since then, shareholders have been left waiting for further updates. At the beginning of October, Chris Fraser, chief executive of Sirius, told The Times the company would have an alternative fundraising plan to put to investors before the end of the month. But so far, no plan has emerged.

In fact, since Sirius revealed its devastating fundraising news, there has been little in the way of news flow from the business.

No news

A few days after Fraser’s comments appeared, Sirius announced a 10-year supply and distribution agreement with state-owned Qatari company Muntajat, but there’s been no other substantial news in the meantime.

This is quite concerning. Sirius is not on the verge of running out of money just yet, although it is dangerously close. In its half-year financial report, the company declared that it would “need to secure additional external financing in order to allow it to continue operations after 31 March 2020.” Job cuts have already been implemented at its North Yorkshire potash mine project to conserve cash.

Simply put, Sirius’s future is unclear. However, what I think is clear is the fact that the company will have to ask investors for extra cash at some point in the next four to five months. 

Shareholder funding 

Sirius has always leaned heavily on its investors to provide financing for the company with share placings and rights issues. I think any further fundraising is going to include a significant shareholder contribution as creditors will want to minimise their exposure, and the group already has quite a lot of debt to contend with. 

Still, at this point, it is impossible to tell how much money the company will need to squeeze out of investors. A ballpark figure of, say, £400m might be enough to keep construction going — it would certainly put the business back on a stable footing — but require a two-for-one rights issue (shareholders could buy two new shares for every one they already own) according to my rough estimates.

Uncertain outlook 

Increasing the shareholder base by 200% would likely push the share price down a further 60%+ if all else remained equal. However, the company’s new-found financial stability would undoubtedly attract new investors, and that will have a positive impact on the share price.

In other words, it is quite difficult to tell what the future holds for the Sirius Minerals share price and with that being the case, I think this investment is only suitable for the most risk-tolerant of investors.