With the Sirius Minerals (LSE: SXX) share price around 50% below the level it achieved last summer, is it time to pile into the stock for a potential rebound?
I reckon the main worry weighing the shares down right now is money. The cash-hungry potash mine development company revealed in an announcement today it’s pursuing an alternative financing proposal to cover its stage 2 financing needs.
The firm received a conditional proposal from “a major global financial institution.” Naturally, the directors are keen to look into the deal because they’d previously been negotiating a senior debt financing deal “with a group of prospective lenders” since 2016. And the timetable had been slipping.
My Foolish colleague Roland Head pointed out recently that the company expected financing to be tied up by the end of 2018. However, news that the mine-building project needed an extra $400m-$600m pushed the date back to the end of March. Now, it seems, that particular financing deal may not complete at all.
The directors said in the announcement they believe the alternative proposal could deliver “a more flexible and attractive solution to its stage 2 financing requirements.” They’re taking bold action and pausing discussions with the existing prospective lenders while they look at the new proposal.
Now we have a new date to consider. The company reckons it’s working towards getting firm commitments for the alternative proposal and the additional financing requirements before the end of April 2019. But nothing’s certain. Indeed, the whole deal may be off if the potential lenders decide not to go for it after running things past their own due diligence and internal approvals procedures.
Expect further share-price weakness until a finance deal is in the bag, I’d say. But maybe this is just what investors have been waiting for? After all, when sentiment is negative and a stock is down, isn’t that the best time to bag a bargain? The one problem with that approach in this speculative situation is that there’s a significant chance that no finance deal will go through with any group of lenders.
If that happens, expect a significant crash in the share price from here. Maybe the only way ahead after that would be to tap the stock market for more money, which would lead to huge dilution for existing investors. But there’s no certainty such a money-raising event would fly either.
I’m sticking to my plan, which is to wait until the mine-building and infrastructure project is nearly finished before investing in the shares. I want most of the construction and finance risks to be behind the company before taking what even then would be a speculative position. I don’t think there’s any rush to pile in because even if the share price spikes up in the event of a successful finance deal, I think there could be more weakness in the stock as the project progresses.
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Kevin Godbold has no position in any 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.