Shares in potash miner Sirius Minerals (LSE: SXX) spiked higher on Wednesday morning, continuing a rebound that has seen the shares rise by 35% over the last month.
Despite this, Sirius’s share price is just 2% higher than it was at the start of 2015.
However, with key planning decisions approaching, and the firm’s finances on a stronger footing, are Sirius shares now a speculative buy?
Latest news
The latest spike in the share price appeared to have been triggered by news that the firm’s management won’t receive any share awards for 2014.
Sirius also announced that stock options equivalent to 2% of the firm’s issued shares have lapsed, reducing potential future dilution for shareholders.
Stake building?
Following Wednesday’s announcement, Sirius shares saw heavy trading. The firm recently completed a £15m placing to raise funds and has also been paying some of its bills with stock options, so the trading could relate to these activities.
Indeed, given that the recent placing was priced at 7p per share, the current share price of 10.7p means that the participants in the placing have made a 50% profit in less than one month!
However, there is another possibility: one or more investors could be increasing their stake in the firm ahead of the long-awaited planning decisions for the Sirius mine. The first decision, from the North York Moors National Park Authority, is expected in May.
Some reservations
I was a little surprised to notice that only two of the firm’s seven directors chose to take part in the recent £15m fundraising.
One director who didn’t participate was Sirius’s chief executive, Chris Fraser, who chose not to add to his current 5.7% shareholding in the firm, despite the discounted price of 7p per share.
Stronger finances
Sirius’s recent £15m placing has given the firm a cash balance of around £27m.
However, Sirius burned through £20.7m of cash during the first six months of its current financial year, making it clear to me that the recent placing was simply a lifeline to keep the firm afloat, until we learn whether the York potash mine will get planning approval.
Further fundraising will be difficult without planning permission, so in my opinion Sirius shares are currently a very risky, all-or-nothing type bet: the share price could double in a day if planning is granted, but will collapse if the firm is not successful.
