The Sirius Minerals share price fell to a three-year low earlier this month, as the fallout from the firm's share-placing scheme weighed on investor confidence.
The fertilizer development firm announced a $3.8bn financing plan in April, and the funds were earmarked to continue the construction of a major potash mine in Yorkshire. The majority of the funding would be raised through debt, in the form of loans and bonds, but it was the equity element that wounded the share price.
Share issue raises $400m
Sirius Minerals announced that $400m would come from an equity cash call, where stock would be sold off at a deep discount in order to entice investors. On 1 May, the firm revealed plans to issue 1.97 million new shares at 15p, which was a 32% discount to Sirius's share price close the previous day.
Financing is crucial to the existence and the expansion of a company, and Sirius Minerals are caught in the tight position of having a popular mineral – polyhalite, but needing the cash to fulfil its potential. Polyhalite has a number of industrial uses, but fertilizer is what it is best known for. Sirius has contracts teed up to supply fertilizer to different regions of the world, such as China, South America, Europe and Africa, so the demand is clearly there. Now that the capital question has been answered, the onus is on Sirius to continue development in Yorkshire.
Sirius Minerals (SXX) share price sell-off
Given the aggressive sell-off in Sirius Minerals' (SXX) share price since April, any negative updates are likely to be met with further declines, but if the stock can hold above the 13p mark, it would be well-positioned to claw back some of the recent losses.
Sirius expected to top forecasts
Credit Suisse recently upped their outlook for the stock from 'neutral' to 'outperform'. The bank noted that traditionally the consensus estimates were above the company's forecasts, and therefore expectations were high. Now the Swiss finance house feels that analysts' predictions are in line with the group's guidance, and Credit Suisse believes Sirius Minerals is more likely to top forecasts.