Interactive Investor

Sirius Minerals placing price disappoints

3rd November 2016 12:57

Lee Wild from interactive investor

Sirius Minerals has got a slug of money for its potash project in North Yorkshire, but it's probably not quite the deal it was hoping for. That bankers could only get the massive fundraising away at the bottom of the range has condemned the share price to a fifth consecutive day of losses.

We heard yesterday that JP Morgan would underwrite a £330-400 million placing and open offer at 20-30p, and a convertible bond offering of $400-450 million (£321-361 million). A royalty deal with Aussie billionaire Gina Rinehart had already bagged $300 million.

"For us to get to this point and for JP Morgan to underwrite it, we had strong level of confidence about launching," managing director and CEO Chris Fraser told me Wednesday. "Now we want to close on the best terms we can."

After hitting the phones yesterday, the bookbuild did raise £370 million from new and existing institutional investors, but at an issue price of just 20p. That's a 46% discount to the 37p market price at Tuesday's close.

Understandably, the share price collapsed by a fifth to around 25p, down from 42.75p a week ago.

To limit the dilution of the fundraising, 10% of the placing shares have been made available to existing shareholders via an open offer at the placing price. They'll be able to buy two new Sirius shares for every 25 they currently hold.

"The completion of the convertible bond and equity placing is great news for the company, and delivers the financing that allows us to start construction of our North Yorkshire polyhalite project," said Fraser.

"I would strongly encourage shareholders to vote in favour of the capital raising at the forthcoming General Meeting on 24 November 2016 in order to allow us to progress to the next stage and commence construction."

There's little doubt that this deal will get the nod, and the long-term future of the project appears secure. Unfortunately, shareholders are being asked to take some short-term pain to make it happen. Profits further down the line should reward patient investors, certainly if you listen to the brokers who have "no qualms" repeating 'buy' advice.

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.

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