The Sirius Minerals (LSE: SXX) share price has delivered a torrid performance over the past 12 months.
After jumping to a high of 45.5p in August 2016, the stock has been on a rollercoaster ride, dropping as low as 17.5p before making a charge at 39.8p at the beginning of 2018 as it looked as if the company’s flagship North Yorkshire potash project was finally making progress.
However, since hitting its 52-week high of 39.8p, the stock has cratered by 47% and is currently dealing at 21p as shareholders wait for further news on the progress of the company’s financing plans.
Whatever happens next will have a significant impact on the share price. In my opinion, Sirius is now in a make-or-break situation. It needs to sign up lenders to finance the next stage of its project development, but at the same time, the company is rapidly running out of money to keep the lights on.
Indeed, at the beginning of January, management told shareholders that the company’s “cash balance as at 31 December was £290m, of which £230m is unrestricted.” This funding only “provides sufficient liquidity to fund project progress in line with the current Project schedule into the second quarter of 2019,” the January trading update went on to note.
So, without funding, the firm only has enough cash resources to last until the end of June at the latest without freezing project development. This gives Sirius 12 weeks to agree and lock in funding.
Because Sirius has been trying to decide on terms for this second phase of the financing for over a year now (and has been discussing it since 2016), I’m starting to get worried the group may not seal the deal in time.
Funding is pivotal
There’s been no comment from Sirius on funding progress since the beginning of March when management informed shareholders that the firm has received an “Alternative Proposal” from a “major global financial institution” to provide all of the required Phase 2 funding. No other details have been provided on this transaction as of yet.
Even if Sirius does manage to lock in this financing, it won’t be out of the woods. It’ll still have to complete the construction of the mine and start production without running out of money. Considering the company’s capital needs have already jumped to $4.2bn from the original cost estimate of $2.9bn the group provided when it listed in 2005, I’m sceptical the project can be completed without further cost hikes.
The bottom line
So, after considering all of the above, I think the future for Sirius Minerals share price is binary. Either the company gets its funding, which will keep it alive for the time being and help it progress towards production, or it won’t. And this could mean shareholders are wiped out.
The next few weeks will be critical for the company. Investors of a nervous disposition should look away now…
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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.