The Sirius Minerals (LSE: SXX) share price spiked Monday morning, as the latest approach to trying to attract funding was revealed.
At one point the price was up 35%, though it quickly fell back and we’re currently looking at just a 6% gain since market close last Friday. Perhaps the early optimism faded when investors remembered that the share price is still down 85% over 12 months, and saw there have really been no concrete developments.
New plan
My colleague Roland Head examined the details of the new plan, but it’s essentially shelving any attempts to secure full funding through to final production, with all the risks for lenders that that entails, and instead seeking a significantly lower amount of cash to get the riskiest development stages underway.
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The idea is to try to get someone to stump up $600m by March, to fund the digging of four mine shafts and the completion of the first stage of the 37km tunnel leading to Teeside port facilities. Chief executive Chris Fraser says that’s the riskiest part of the whole thing, and if it can be progressed to completion, then the risk associated with the further £2.5bn needed to get to final production would be significantly reduced.
With this dangled in front of investors, might anyone bite? Fraser said “We are in discussions with potential strategic partners and debt investors with the aim of securing the best route to finance our revised initial scope of work,” so, well, maybe.
Options
All options are apparently up for grabs, with the company saying it is “seeking to have the initial scope funded from the proceeds of either the strategic investor process or through a structured debt financing package, either of which may incorporate the issue of new equity or an equity-like component to the financing package.“
That level of vagueness suggests to me that the new plan hasn’t really progressed much beyond the hope stage at the moment.
What, if anything, does this give to shareholders? To try to answer that, I’m looking at it from the point of view of the potential white knight that Chris Fraser is hoping will ride to the rescue. In that position, I’d see a desperate Sirius Minerals as not really having much more bargaining power than a beggar right now.
There’s apparently enough cash to keep the lights on until March 2020, and I wouldn’t be in a rush to commit my money to the project – the closer we get to March, the more I’d be able to call the shots. And I’d be looking to gain a substantial ownership of the company in return for my bailout.
Wipeout
So even if such an investor should show up, I can’t see current investors being left with much after the inevitable dilution of ownership. I think we’d need several potential bidders to turn up in competition to give the Sirius management any leverage at all, and I doubt that’s going to happen.
I think the project can still survive and I hope it does, but mostly for the sake of the jobs it will generate, and I’ve written off my now small shareholding.
