Sirius Minerals (LSE: SXX) published its interim results this morning, and my reading of the figures suggests the firm could be facing a cash crunch or even lights out if it doesnt get planning permission for its York Potash Project in the first quarter of 2015.
At the end of March, Sirius had 48.4m in cash, of which 21m had been spent by the end of September, leaving the firm with a cash balance of 27.4m.
This suggests to me that Sirius could run out of money in 6-9 months, a conclusion that the firms directors confirmed in todays interim report, which states that only by deferring certain expenditure will Sirius be able to operate for the next 12 months.
Crunch time
For Sirius, its crunch time: if the firm is given planning permission as expected, in January 2015, then raising new funds shouldnt be a problem, and the share price could rise.
On the other hand, if planning permission is refused, then the company admits that it may not be able to raise new funds. This could mean that Sirius shares become worthless, and the company folds.
Its almost a binary bet, in my view: the near-term future of Sirius Minerals is now dependent on the planning decision it receives early next year, without which its efforts to build a commercial case for the mines Polyhalite fertiliser will be irrelevant.
Will it happen?
I live quite close to the site of the proposed mine and I know from both local press and anecdotal evidence that support for the project is high.
The company does seem to have made a real effort to take account of the mines rural setting and is expected to generate more than 2,000 jobs, in an area where employment opportunities are generally quite poor, outside tourism.
Im also encouraged by the commercial case for the mine, which seems increasingly strong and is backed by a raft of recent crop study results, showing that the firms Polyhalite fertiliser can outperform traditional alternatives.
As a result, I expect the local planners to say yes to Sirius.
Is Sirius a buy?
I think that Sirius is a reasonable speculative buy, but its high risk means it probably shouldnt form a large part of your portfolio its worth remembering that the current 235m market cap isnt backed by cash, revenue or saleable assets, and could fall rapidly if planning or fundraising difficulties emerge.
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Roland Head 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.
