Sirius Minerals (LSE: SXX) has received some much-needed respite in recent days, the emergence of light dip-buying helping it rise off the multi-year troughs of 8.12p per share at which it closed earlier this month.
Shareholders shouldn’t spend too long savouring the moment, though: after all, even taking into account this slight recovery, Sirius has still lost a whopping 73% of its value over the past year. And there’s still plenty of scope for its share price to keep sinking.
Concerns over the FTSE 250 firm’s balance sheet, and subsequent fears over whether it’ll have to pull the plug on construction of the Woodsmith mine, has been the main share price driver of late. And it’s a subject that’s been examined to death by my colleagues at the Fool in recent weeks and months.
Clearly Sirius has a long way to go to solve its critical financing issues, the latest of which saw it abandon its botched $500m bond offering at the start of August. But the prospect of further problems here isn’t the only thing that market makers have to worry about.
Let’s say the business manages to keep the wolf from the door and raise the necessary funds without much more pain to shareholders; there remain plenty of other obstacles that are part and parcel of the mining sector that could decimate the share price in the near term and beyond.
Digging or drilling for natural resources is a famously temperamental activity that can have a disastrous impact upon investor sentiment. Delayed production, disappointing payloads, rising costs and production outages can all lay waste to profit projections. So while Sirius might be sitting on the world’s biggest and highest-grade polyhalite resource, this matters little if the business has trouble getting it out of the ground quickly and efficiently (polyhalite is a similar product to potash).
Will potash prices disappoint?
Let’s also assume that the business solves its funding crisis and gets maiden material out of the ground as planned in 2021. Whilst there’s no doubt that the food needs of a rising global population bode well for future potash demand, major producers everywhere are aggressively ramping up output to meet demand, casting a shadow over what Sirius may actually get for its Poly4 product.
And things could be set to get a lot worse. Speculation is mounting that BHP Group will give the green light to its colossal Jansen project after it finally struck potash there last year. The FTSE 100 stock’s itching to diversify its operations and starting up its Canadian asset would allow it to do just that, a move that could add an extra 16m tonnes of potash per year to the market.
On top of this Nutrien, the world’s largest potash producer, has teased the possibility of putting up to 5m tonnes of mothballed capacity back into service by 2023, a decision that’d take total working capacity to 18m tonnes a year. And as if this wasn’t enough the company suggested that an extra 5m worth of capacity could be added thereafter.
With concerns over near-term financing, possible production issues and future potash prices doing the rounds, there’s clearly a lot of moving parts that could cause the Sirius share price to keep sinking. And it’s why I won’t be touching it with a bargepole.
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Royston Wild has no position in any of the shares 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.