What's going on?
Sirius Minerals is in a duel for its life after a failed bond offering – and an announcement on Tuesday that further funding isn’t likely to appear – led investors to ambush its stock, which fell 50%.
What does this mean?
In August, Sirius – which currently has no earnings, but plans to turn the minerals it mines into fertilizers – failed in its attempt to sell $500 million of fresh bonds, blaming an unfavorable market environment. Sirius then asked the UK government to guarantee $1 billion of its bonds – but, perhaps busy with He Who Shall Not Be Named, it responded with a potential Killing Curse: a hard no. That’s left Sirius in a deep hole – and not the good, mining kind. Unable to get its hands on more cash, the company may run out before it strikes gold – or, er, polyhalite.
Why should I care?
The bigger picture: A hit to the UK economy.
Sirius’s options are varied but limited: it could team up with a larger miner, raise money by selling new shares to investors, or entice bond investors back with its progress in the next few months. Or the miner could try weaving its magic on the UK government again. After all, 1,200 British jobs and its continued UK investment (totaling $1.5 billion to date) are on the line if Sirius meets an untimely end – and another blow to the UK’s shrinking economy certainly won’t help the country avoid a recession.
For markets: Investors flip reverse it.
When US recession fears rose this summer, investors scrambled to buy up bonds. And not just safe government bonds: riskier corporate debt too, including those so risky that rating agencies (think Experian for companies) ranked them “junk”. But those fears appear to have abated, and investors now seem more discerning about their bond investments – opting for risky stocks instead now a recession doesn’t seem as imminent as they feared.