What’s next for the Sirius Minerals (LSE: SXX) share price? That’s the question that’s been on the lips of the company’s investors and City analysts since 17 September when the firm announced it had failed to get its Phase 2 financing off the ground.
Investors have been waiting with bated breath for further updates ever since. However, so far, there’s been no official updates. CEO Chris Fraser has caused a bit of a storm by reportedly claiming the company may be better off quitting the stock market. Sirius quickly rubbished this on Twitter.
Unfortunately, it could be some time before Sirius issues any further updates. After failing to get its financing package together, management has commissioned a six-month strategic review to determine its options.
Sirius believes it has enough money to pursue this path, with £117m of uncommitted capital at the end of August.
Weighing up the options
Although Sirius isn’t out of options yet, the company’s running out of time. There’s been speculation that some of the firm’s larger backers might be willing to stump up the extra cash required to complete the North Yorkshire mining project.
These include the Qatar Investment Authority, Norway’s $1trn sovereign wealth fund and Australian magnate Gina Rinehart. Each of these investors could single-handedly fund the project from their own resources. Fraser and team are also still pursuing government support for the project.
So there’s still a chance Sirius could get the funding to complete its project. And if it does, how much could the stock be worth?
Double or nothing?
At this stage, it’s tough to tell. When I’ve covered Sirius in the past, I’ve estimated the shares could be worth more than 60p when production is in full swing, based on average peer multiples.
A lot has changed since I put together these targets. Most importantly, the firm has issued hundreds of millions of new shares, diluting existing shareholders. Ultimately, the outlook for the Sirius share price will depend on the terms it manages to receive for the second stage of financing — if it manages to agree one at all.
If the company has to issue a lot more shares to get the deal off the ground, then the potential upside would decline substantially, although it would put the threat of bankruptcy to sleep for the time being.
On that basis, at this point, I think it’s impossible to say if the Sirius Minerals share price can double your money. The company’s outlook is just too uncertain. We don’t even know if Sirius will be solvent 12 months from now.
With that being the case, I think it might be worth avoiding the stock for the time being until we have more clarity on what the future holds for the business.
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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.
Motley Fool UK 2019