Sirius Minerals (SXX LN), are you Serious? Take the money and run!
I think it might be about time for shareholders in Sirius Minerals to get serious and start taking profits.
It is one of the most popular stocks among retail punters, professional fund managers shun away as fundamentals have yet to prove the project is viable.
“The writing was on the wall ..”
I think current stock price is overpriced because:
a) there is not enough cash on balance sheet to fund the ambitious project, current shareholders will be diluted in a series of necessary capital raisings.
Actually Current cash on balance sheet stands at GBP 16.9m,
Serious cash burn at Sirius, GBP 12m in only 6 months (29m cash balance at y/e – 16.9m at 30/6/16). So I Think their current runway could last for another 6 months, unless Sirius issues new shares.
Well it doesn’t take a PhD in Math to realise that current available cash GBP 16.9m is not enough to fund a USD 2,909m project.
The million dollar question:
– First production in 6yrs, how much cash would be needed to serve the debt they aim to raise?
It has happened in the past: Sirius Minerals repeatedly issued new shares in the past, and always stock price rallied before the dilution.
Chart: stock price (green line) v number of shares (orange columns)
b) It will be very difficult to raise debt, because Potash market is oversupplied, adding extra capacity will only push currently depressed potash prices further below. I think even though a potential 10% yield on Sirius junk bonds looks attractive, holders would be more worried about their return of their capital, rather than the return on their capital.
The bull argument goes: “yes but Fortesque minerals made it, they funded green-field development with junk bonds”,
The bear case is that Fortesque Metals success happened when there was a massive boom in iron ore and copper, fueled buy the real estate boom in China. This was the time when the commodities supercycle was going upwards and BHP billiton was completing one acquisition after the other and Glencore IPOed, many things have changed since then.
Potash market is massively oversupplied,
Bloomberg News: Russia’s Fertilizer Tycoon Says Potash Glut May Last a Decade
For your eyes only: the current supply / demand and utilisation rate:
Current available potash supply exceeds demand by 41%, utilisation in ’16 stagnated at 71%. Well that means if current Potash cartel wants/needs to bully new entrants they can oversupply the market for a year or two until potential entrants give up.
Pricing looks ugly
c) I think the recent rally is has all the characteristics of a ‘Mania’ among retail investors.
Sirius is one of the most popular topics in stock punter forums, in brokers like HL and buying activity exceeds than one for respectable stocks like Legal & General, Barclays.
If it is such a bargain, why institutional investors aren’t buying?
Last time we had an institutional buying was almost a year ago, Capital on 21/10/15, the stock was at 17.75 and increased more than x2fold since then.
Checking twitter for Sirius under their cheeky ticker SXX, it feels like people buy because they don’t want to risk ‘missing an opportunity’
I was wondering, in a couple of years time, Sirius will look like the success at Fortesque or like another similar mania a few years ago with Falkland Island oil exploration companies?
Rock Hopper and the Falkland Oil E&P dream ended up in tears..
Sirius stock price is at all time high, everyone is sitting pretty on paper profits.
I think is about time to cash it before it is too late