Despite a rally in the last couple of weeks, shares in Sirius Minerals (LSE: SXX) are still down by 25% since the turn of the year. Thats clearly disappointing for investors in the company, but optimism regarding the long term future of the business was given a lift recently with the release of positive results of a significant study programme.
Crop Study Programme
In fact, the ongoing global crop study programmes latest results show that the fertiliser that Sirius Minerals aims to produce from its potash project in York performed better than the alternative muriate of potash fertiliser. It reduced yellow leaves by up to 14% and, at the same time, increased green (healthy) leaves by around 8%. Furthermore, the use of polyhalite (which Sirius Minerals plans to produce) also increased cob height by 9% and reduced the prevalence of a disease called sheath blight by over 70%.
Clearly, this is positive news for investors in Sirius Minerals and is likely to explain the brief rally that has taken place in its share price of late. Thats because it shows that Sirius Minerals appears to have a viable product that could lead to a profitable business over the medium to long term.
Barriers To Entry
However, Sirius Minerals faces a number of key problems that are making its future seem highly uncertain. Firstly, it does not yet have planning permission to build its mine, with the date of the decision being pushed back earlier this year. It is now set to be May, although it would be of little surprise if this was changed as May approaches and, should this happen, the financial standing of Sirius Minerals could come into play. In other words, it is currently burning through cash and, should there be more delays, it may need to raise additional capital.
Furthermore, Sirius Minerals does not have the financial firepower to build a mine. So, even if planning permission is granted it will still need to conduct a placing or borrow significant sums in order to get the project off the ground. This is likely to create a period of uncertainty and could lead to further pressure on the companys share price.
So, while the long term prospects for Sirius Minerals are appealing, in terms of the viability of the fertiliser that it plans to produce, its short to medium term outlook remains highly uncertain. In fact, with planning permission yet to be granted and the cost of the mine yet to be paid for, its future is simply too uncertain even in spite of the potential future reward. As such, now does not appear to be the right time to buy Sirius Minerals, with its share price likely to come under further pressure over the short to medium term.
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