Sirius Minerals to receive warrants boost

Sirius Minerals said Thursday it had applied to block list up to 179.4 million shares - about 8.3% of the current share capital - linked to warrants issued as part of a fundraising back in March 2014. Some of the warrants have been exercised already, and more will follow. This is clearly good news for the potential potash miner - a rising share price reduces the chance of a stock overhang, and cash raised could help fast-track the York potash project.

It is expected that the block admission will become effective on 2 June, with shares issued within five trading days of any exercise of warrants. Those who took part in the £43 million placing at 12p received one warrant for every two shares subscribed for exercisable at 18p.

Warrant owners can cash them in any time up to 18 months after the issue on 14 March, but Sirius can shorten the period to one calendar month following two trigger events. First, that the volume weighted average price (VWAP) exceeds 20p for any 10 days within a 30 day trading period, Secondly, that permitting for the York Potash project mine head has been issued. That's expected to happen in early July.

"It is our understanding from the documentation that the qualifying date from the 20p VWAP trigger for the shares can be before permitting, but that Sirius cannot give notice shortening the term of the warrants to one calendar month until after permitting for the mine head has been issued," writes WH Ireland analyst Paul Smith.

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The VWAP topped 20p for the first time since the March placing on 26 May and briefly traded above 25p.

"In anticipation of a positive permitting meeting on the 30 June, this could be the perfect time for the exercise of these warrants from Sirius’ perspective," reckons Smith. "An increase in strength in the share price in the run up to the planning meeting could create a market for these new shares post-permitting (if it goes Sirius' way) whereby the new shares would not create an overhang to the market."

"The cash raised from the exercise of these warrants would be a useful addition to Sirius' balance sheet (up to £33.3 million) as it would then be more than comfortable to fast-track the project through feasibility and into the funding phase of the York Potash project."

Smith repeats his 'buy' rating and 37p price target.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.