Even though we are only two weeks into 2015, the year is already shaping up to be a bad one for Sirius Minerals (LSE: SXX). Year to date the company’s shares have fallen by 13% at time of writing, and now trade 44% below their 52-week high of 16p.
In the past I have recommended Sirius as a high-risk, high-reward play but over the past few months, a number of red flags have been raised by the company and, based on these facts, I’m ready to change my stance. I now believe that it could be time to sell Sirius.
Sirius has always been a high-risk play and until the end of last year the company seemed to have plenty of promise. If Sirius could get its York potash project into production then the company’s shares could have jumped ten-fold.
However, recent developments have reduced the company’s ability to complete, or even start construction of the mine.
For example, at the beginning of December the company’s new CFO, Rachel Rhodes announced that she was leaving the company after only two full months on the job. More importantly, Sirius has failed to give a reason for her departure.
Members of executive management teams don’t usually leave after only a few months on the job without a reason; it looks bad for all parties concerned. So either Rhodes discovered Sirius was a sinking ship, or she had a disagreement with the rest of the management team.
Secondly, during the past few days Sirius has announced that a decision on its planning application for the flagship potash project near York is likely to be delayed until May at the earliest. Unfortunately, Sirius is running out of cash and this delay is only going to make the company’s cash position more precarious.
Indeed, the company warned alongside interim results in November that by deferring certain expenditure, Sirius will be able to operate for up to 12 months. Management admitted that the company may not be able to raise new funds if planning permission isn’t granted.
However, even if permission is granted, Sirius could have trouble raising additional finance needed to develop its potash prospect. For several years it has been difficult for small-cap miners to raise finance as commodity prices have slumped. Further declines in the price of all commodities over the past few days have sent investors scattering from the sector as the Bloomberg Commodity index pushes to record lows.
It could be extremely difficult for Sirius to obtain all the cash it needs to develop the York potash project in the current environment.
The bottom line
Like all early-stage mining projects, Sirius is a high-rick, high-reward play. However, the recent developments both at the company and in the wider market have reduced the company's chance of success. After taking these factors into account, it could be time to turn your back on the company.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.