Over the past six months, the Sirius Minerals (LSE: SXX) share price has tanked. Indeed, since the end of August 2018, the stock is down nearly 50%.
After this decline, investors might be wondering what the future holds for the company’s shares. Today I’m going to try to answer that question.
Whenever I have covered the Sirius Minerals share price in the past, I have always concluded that while the company does have tremendous potential, the path to success is dotted with risks.
Mining is a notoriously complex and risky business. Virtually every single mining project costs more and takes longer to develop than early predictions. Giant mining projects like Sirius’s flagship North Yorkshire potash mine are especially risky.
This is something the company’s shareholders have, unfortunately, discovered for themselves over the past six months.
At the beginning of September, the group announced that it needed a further $400m to $600m in financing to complete development of its mine. Management also informed shareholders that it will now take longer than initially expected for the mine to reach full capacity.
The company had been hoping for production to reach 20m tonnes per annum by 2027. It now expects to meet this goal in 2029.
The firm is also struggling to agree on a financing plan with lenders for the $3bn it needs to complete the rest of the North Yorkshire project. This could become a big problem. As I reported at the end of January, Sirius only has enough cash in the bank to last until the end of the second quarter — just four months from now. If it doesn’t raise the money in time, then all bets are off. An overrun of just a few weeks could force the enterprise to mothball construction activities, which would only push back the opening date further and increase costs.
There’s no light at the end of this tunnel
Previously, I have been optimistic about the outlook for the Sirius Minerals share price, but the delay in finding the money to complete the mine is starting to worry me, and I can’t be alone. The company’s creditors must also be starting to ask some serious questions about its sustainability.
Sirius was always a high-risk, high-reward opportunity and a lot hinged on its ability to raise finance for the multi-billion dollar mine. The City was assuming the company would have financing in place by the end of 2018, and it wouldn’t come down to the wire. The fact that it has taken so long is, in my opinion, not a good sign. Surely, if this were a good deal, lenders and investors would be queuing up to give the business money? As they aren’t, we have to ask why.
Because I don’t know the answer to the above question, I’m staying away from the Sirius Minerals share price, and I think you should too. That said, if financing is put in place, the stock could pop, but even then shareholders face a 10-year wait before the project is fully operational. A lot can go wrong in 10 years.
That’s just too much uncertainty for me.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.