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Is It The End Of The Line For Sirius Minerals PLC?

Sirius Minerals (LSE: SXX) is running low on one key commodity; cash. 

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.

Four months later, and the company is still trying to gain approval for its flagship potash project near York. With no clear-cut date set for project approval, Sirius is running out of time fast. 

High-risk, high-reward

Sirius has always been a high-risk, high-reward play. But over the past few months, I’ve started to lose faith in the company’s ability to bring the York potash project into production. With cash reserves running low and an on-going battle with planning authorities, Sirius is now locked in a battle for survival.

There’s no question about it; Sirius will have to raise additional cash his year. Even if the company does get the green light from planners, there’s still plenty to do before the York potash project moves from the plan to development stage. And there is also plenty that could go wrong to stall the company’s progress.

With limited cash reserves, Sirius needs everything to go to plan over the next few months. Unfortunately, in the resource industry, everything is more likely to go wrong than actually go to plan!

Planning takes time

The first hurdle Sirius needs to clear is the receipt of planning permission for its York potash project. Management has stated that the date for the determination on the planning application for the project has not yet been confirmed, but estimated it may not be handed down until May.

Even if the planners meet this schedule, Sirius will only be left with enough cash to operate for five months, according to management’s own figures. 

Further, back in January the company withdrew an application for part of the project, saying it wanted to refine some of the options in the application covering harbour facilities. There have been no updates from management on the progress of the planning application since. 

Of course, if the planning application takes longer than expected, Sirius will have to raise additional funds. The big question is, where will the funds come from? 

A placing is most likely, which means shareholder dilution. A rights issue could also be considered, or the company could be saved by a knight in shining armour. Although without planning approval, it’s unlikely that any potential buyer will seriously consider bidding for Sirius.

The bottom line

All in all, time is running out for Sirius and the company is rapidly running out of options. The company is fully funded until November but after November Sirius will struggle to keep the lights on. 

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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.