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Sirius Minerals PLC Is Starting To Run Out Of Cash…

Sirius Minerals (LSE: SXX) has announced a placing today with the intention of raising approximately £15m. The placing is being conducted by way of an accelerated bookbuilding process to qualifying investors, and should have been completed by 10am this morning. 

Sirius intends to use the proceeds from the placing to strengthen its balance sheet and provide additional working capital for the group. Or in other words, the company is running out of cash. 

And it looks as if Sirius is conducting this fund raising now, before the company receives the initial outcome of its planning application for its flagship potash project near York, which is expected in May.

A warning

Sirius warned alongside its interim results in November that the company only had enough cash to operate for 12 months. Sirius had a cash balance of just under £28m at the end of September, the last period for which data is available. But six months later, and according to today’s press release, Sirius’ cash balance has fallen to only £12m, indicating a cash burn rate of just under £2.7m per month.

Even with the extra £15m from today’s placing, if Sirius does not receive planning approval soon for its York potash project then, according to my figures, the company will only have enough cash to keep the lights on until the end of the year, assuming a cash burn rate of £2.7m per month. 

Approval needed

Still, according to Sirius’ management the company should have received some sort of planning decision by May. This should alleviate pressure on the company. Unfortunately, the decision has already been pushed back by the planners once this year, and there’s no guarantee that a decision will actually be published by May.  

So, Sirius’ investors are now facing yet more uncertainty. True, today’s placing will give the company enough cash to stay in business until the end of the year. Although if Sirius doesn’t get the planning permissions it requires within the next few months, it’s unclear how the company will survive past December.

In addition, even if the plans for the York potash mine are approved, Sirius will have to find funding to build the mine, which is likely to be an uphill struggle. 

Time is running out

Overall, time is running out for Sirius and the company is no longer the blue-sky opportunity that it once was. 

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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.