From a standing start, Sirius is suddenly sprinting. And yet the shares have plummeted 15%.  What gives?

Show me the money!

Having secured Rhinehart’s backing, Sirius now plans to accumulate the remaining cash through a placing of new shares and convertible bonds. The issue of new shares means that the company will now be working over the next two days to find buyers through a bookbuild. Having discovered what price institutional investors will be willing to buy the new stock, the company can then confirm the firm placing and offer price to the market. Sirius estimates that the new shares will be priced  between 20p-30p.  To put things in perspective, a price of 20p would be 54% lower than yesterday’s closing price of 36.75p.  This explains why the share price has behaved the way it has in response to such excellent news from the company. If you offer anything at a discount, it’s value falls accordingly. 

But what does this all mean for the humble private investor who already has a stake in the business? As CEO, Chris Fraser has long hinted, they haven’t been ignored in this process. Of the new share issue, roughly 10% (£40m) will be offered to those who already hold the shares. This will happen on 7 November unless the book build completes today, at which point the company is likely to launch the offer earlier than first thought.  

Perhaps the most interesting aspect of this offer is the fact that existing holders will be able to apply for as many new shares as they desire. This may lead some to question whether they should jettison their existing holding and buy back in at the placing price, assuming this is lower than the price they originally paid.

So, I should sell?

Not so fast. I would strongly caution against any investors dumping their shares at such a crucial time simply because there are no guarantees of being able to repurchase their existing holding (and more) once the offer goes live. The issue is likely to be heavily oversubscribed and, as those who applied for shares in Royal Mail will remember, it’s sometimes the case that you get less than you may want.  At times like this, it’s important to remember the two driving forces behind the market: fear and greed.  Attempting any kind of ‘buyback’ strategy now would be rather risky and potentially undo a lot of the dedication early investors have shown to this point.

In my opinion, any Foolish investors out there with shares in Sirius Minerals should sit back and do nothing other than toast Chris Fraser’s words: “Once we have received shareholder approval, we want to get on with the job of delivering this compelling value proposition, not only for our shareholders but also for the North Yorkshire community.”

The post Sirius Minerals plc dives on long-awaited funding news appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Meanwhile the share price looks perky today, up around 16% at 9p or so as I write. However, step back and take a longer view and we can see that the share has fallen a lot — so is it a bargain?

A lot to do

The share price is lower than the 32p it touched at the end of 2011, that’s for sure. But even now, the firm’s market capitalisation sits at around £147 million, and Sirius Minerals has a lot to do, and a lot of capital to spend, before it will see first potash production even when, and if, the planners rubber-stamp the project.

Meanwhile, with no revenues Sirius continues to eat its own cash. Back in September, cash stood at about £27 million and the firm consumed around £7 million during the first six months of its trading year.

The firm’s situation regarding cash burn and lack of revenues leading into a mine development project, with all the capital expenditure that entails, renders Sirius Minerals uninvestable other than as a highly speculative proposition.

Before investing in Sirius Minerals, I’d like to see these factors in place:

1) Planning approvals in

Without permission to build the mine, we don’t really have a serious business regardless of how many forward contracts the firm negotiates with potential customers.

If planning approvals come in as hoped, we’ll probably see the share price jump. However, planning permission is just the start and we could see a drift down as shareholders realise Sirius must then build the infrastructure of the potash mine, and that costs money. If the plans don’t secure planning permission, the shares will likely plummet. If there are further delays in the planning process, we could see the shares drift lower.

2) Fund raising for building

With permission to build secured, Sirius will need funds to build. Those funds will likely come either from shareholders, or by taking on debt, or both. The creation of new shares in a fund-raising event will dilute existing shareholders and new debt will increase the enterprise value of the firm. Both conditions could put downward pressure on the share price despite the firm’s improved prospects.

3) Substantially complete building of mine infrastructure

Building a potash mine and all its associated infrastructure is an uncertain pursuit. Who knows what problems the firm will face along the way that may create delays and budget increases. I’ve seen share prices wilt during the building process at other firms with a mine-development project and that could happen here.

Before investing, I’d like to see the mine substantially complete and clarity over whether another fund-raising event is necessary to fund the firm to early production and break even.

The post When I’d Invest In Sirius Minerals PLC appeared first on The Twelfth Magpie.

More reading

• Forget meal deals! Here’s how £8 a day could be worth £357,000
• With a 7% yield, is this dividend share a no-brainer?
• The CMC Markets share price is smashing the FTSE 100 in 2026. Is there an opportunity here?
• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.