Shares in Sirius Minerals (LSE: SXX) are up by around 4% today after the company released positive results regarding its ongoing crop study programme. The latest update focuses on potato studies using polyhalite powder, which is the product that it hopes to produce should it receive planning permission for its potash mine in York.
The results from the study are very promising and show significant yield increases of between 9% and 10%. Furthermore, the use of polyhalite improved emergence by measuring stand counts by 13% and also reduced glucose content by 20%, which is important for product frying. As such, the results should provide the company and its investors with greater confidence regarding the usefulness of polyhalite and also with regard to Sirius future prospects.
The challenge for investors, though, is that Sirius is burning through cash. In fact, only a few weeks ago it undertook a 15m share placing, with the proceeds being used to strengthen its financial position and also provide additional working capital for the company. This is a worrying sign for investors in the company and shows that, while Sirius ongoing crop study programme may be helping to support its share price, the reality is that its cash flow continues to be relatively weak.
Clearly, the decision regarding planning approval for the proposed potash mine is now only weeks away. However, it has been subject to delay in the past and it would not be a major surprise if there were more delays moving forward. As such, Sirius decision to conduct a share placing now is a very sensible one, since it would be more difficult to raise capital from investors if there was a further delay.
A Binary Trade
Of course, the future of Sirius hinges on whether or not it receives planning approval for the potash mine. Certainly, the ongoing crop study results are very encouraging and it appears at this stage as though polyhalite is an effective product. However, Sirius future depends almost entirely on gaining planning approval for the potash mine. If it does not come, then the companys future will be put in severe doubt and, even if it is approved, financing a mine may not be quite as straightforward as many investors believe especially if wider market sentiment continues to decline.
As such, Sirius is very much a binary trade at the present time, with the difficulty for investors being that there is no way of knowing whether planning permission will be granted. Therefore, it does not appear to be the right time to buy a slice of the business, with there being a number of more appealing opportunities on offer elsewhere in the small cap space.
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