Owners of Sirius Minerals (LSE:SXX) shares have taken a bath like no-one else. At time of writing, the share price is in single digits, down from a 30p high at the beginning of 2019.
Huge hype and intense investor interest followed Sirius Minerals since it announced one of the largest new infrastructure projects in Europe. The Woodsmith polyhalite mine underneath a national park in North Yorkshire would be the first major UK mining project in decades.
But shares fell away as costs blew through early estimates. At last count the build needed $3.6bn to complete.
Seasoned investors will have seen this kind of hype before, for projects like Kenmare Resources. Look at a five-year chart of that stock’s share price and tell me it was a good investment.
Tell us a story
If the Sirius share price is going to recover, the company needs money, and fast. That means potentially another share issuance and a dilution of stock for current holders.
Sirius promised the mine would be the deepest in Europe, with enough in the ground for 100 years of digging. A 23-mile underground conveyer to haul minerals to the surface would be the longest tunnel in the UK. Polyhalite production could hit 20m tonnes a year, and selling the mineral as a fertiliser could add £2bn a year to UK GDP.
Global expertise, a tireless workforce, the vision to think big – Sirius seemed to have it all. Apart from the cash to actually build the thing.
As market commentators have wisely noted, Sirius Minerals is in the business of selling stories and investors like to buy stories.
Mine half full?
Optimism has drained away as the news keeps getting worse.
The latest calamity to shave half the value from the price of Sirius Minerals shares, is its $500m bond issue failure. It desperately needs the money to complete the next stage of construction on the Whitby mine. The bond was part of a $2.5bn bank facility with JP Morgan that would take the mine into production. That will now be pulled and Sirius will also have to hand back $400m from a convertible bond issue earlier this year.
Bosses blamed “market conditions” for the bond failure. And Boris Johnson’s UK government – which this week intervened in the £4bn sale of FTSE 250 defence firm Cobham – said it would not step in to help.
Chief executive Chris Fraser said the firm would slow development on the massive build to preserve the £180m-odd in cash Sirius has left. A six-month strategic review “will incorporate feedback from prospective credit providers around the risks associated with construction and will include seeking a major strategic partner for the project,” Fraser said.
Can Sirius share price go lower?
One of the hardest things about being an investor is knowing when to cut losses and move on. Employing that capital in already-profitable projects is nowhere near as exciting as getting in on the ground floor, but it will make you richer than keeping a white-knuckle grip on dying shares.
I would steer well clear for now. For shareholders stuck waiting for a giant, long-term payoff to reward their faith, it’ll be the hope that gets you in the end.
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Tom owns no 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.