Patience is a critical (and well-known) part of successful share investing. Sometimes it doesn’t always pay to hunker down and try to ride out the worst, though.
Just ask investors in Sirius Minerals (LSE: SXX) who, prior to Tuesday, had seen the mining play’s shares lose exactly two-thirds of its value in the past year alone. I bet many of them are wringing their hands with fury following the release of half-year financials today, a report which has sent the stock price plummeting a whopping 50% from Monday’s close. So what exactly has caused Sirius to crash again?
Bond auction axed
Well, the prospective polyhalite producer has been struggling to launch a $500m bond sale in recent months. Sirius was confident of getting it off the ground before long, but today announced it was finally going to bite the bullet and cancel the auction altogether. The business cited “global market conditions, the ongoing uncertainty surrounding Brexit and the political environment in the United Kingdom.”
Critically, this means Sirius now won’t get access to a $2.5bn revolving credit facility from JP Morgan to continue development of its Woodsmith Mine in North Yorkshire. As a consequence, the digger will likely miss its target date of 2021 for first production as it adopts “a reduced pace of development focused on key areas of the project.”
Because of the bond auction debacle, Sirius chief executive Chris Fraser said: “The company will now conduct a comprehensive strategic review over the next six months to assess and incorporate optimisations to the project development plan and to develop a different financing structure for the funds required.”
He added: “The process will incorporate feedback from prospective credit providers around the risks associated with construction and will include seeking a major strategic partner for the project.”
In a hole
Sirius, then, has a heck of a lot of work in front of it to stop itself going out of business, and a very short space of time to achieve it all too. Indeed, it was also announced today that “the group will need to secure additional external financing in order to allow it to continue operations after 31 March 2020.”
So what can investors expect over the next few months? Well I’m not expecting those difficult market conditions to improve any time soon, meaning any further attempts to raise external financing will likely fall flat again. And Sirius only has £180m in cash reserves, enough to stop the lights flickering out in the meantime, but not much else.
The short-term outlook for the FTSE 250 business is clearly pretty dire. And even if it gets through its current woes, there’s still plenty of other possible perils that could plague investors further down the line. That could include more financing troubles, development or operational issues at Woodsmith, or poor Poly4 prices should material finally start flowing from the mine.
The risks now outweigh the rewards by some distance, in my opinion. So my advice to battle-worn Sirius investors is to sell out while the stock is still worth something.
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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.