I have a prediction to make: the Woodsmith polyhalite mine and associated infrastructure being built by Sirius Minerals (LSE: SXX) will be completed and will eventually produce its fertiliser product.
You heard it here first, free, and I reckon you can put that ‘insight’ in the bank!
No turning back
Why am I so certain? Because I watched a documentary clip on the telly last night showing the vast scale and extent of the mine and tunnel workings construction project that is taking place in the North Yorkshire Moors.
I knew all about the statistics of the project already, of course, but there’s nothing quite like seeing it visually to drive home what the construction figures actually mean. And through one lens, the workings have already created a vast scar on the countryside that no government will ever allow to remain, even if SXX turns up its metaphorical toes and goes bust.
It’s interesting how much attention has been given in the planning stage to minimise the visual impact of the completed infrastructure. The top gear over the enormous service shafts will sit below eye level and there will be an embankment around the site to stop the industrial activity spoiling our leisurely walks in the countryside around the hamlet of Sneatonthorpe where the mine is located.
But none of that will be in place until the infrastructure is completed. Right now, the whole thing looks like an ugly eyesore with two vast holes in the ground. Indeed, you can’t dig to an eventual depth of 1.5km or tunnel under the countryside for around 37km without upsetting the natural order of things.
And that’s why I think the mess will be cleared up – eventually – by the completion of the project. But I am by no means certain that it will be Sirius Minerals that finishes off the development of the mine and its infrastructure. To me, it seems perfectly possible for the company in its current form to become insolvent.
Big money problems
On 17 September, the firm revealed to us that it can’t get its $500m bond offering away in the current market, suggesting that debt investors see the firm’s project as too risky. That was a big blow because the bond offering was key to the stage-2 funding plan. An earlier issue worth $400m has been reversed and the funds sent back to the investors who bought the bonds.
The financial consequences are dire. On 31 August, SXX had just £117m of unrestricted cash to keep the lights on, and the company is scaling back construction activities while it undertakes a “strategic review” over a period of “up to 6 months.”
These are desperate times for the firm. If funding isn’t sorted out within six months, I reckon we could see the complete mothballing of the project and even Sirius Minerals going bust. In another scenario, any financing deal could lead to existing SXX shareholders being diluted into insignificance.
So, I see way too much risk in the stock for me to get involved now. However, whatever the outcome for SXX, I reckon Woodsmith will be picked up and completed by others in the fullness of time.
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Kevin Godbold has no position in any 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