Hedge funds cash in as Sirius shares tumble: FCA under pressure as potash miner crashes 

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Hedge funds cash in as Sirius shares tumble: Blow to plan to build the world’s biggest Potash mine in Yorkshire hits jobs and 85,000 small investors

Hedge funds banked millions of pounds yesterday as shares in the company trying to build a fertiliser mine under the North York Moors nosedived.

Sirius Minerals’ stock crashed by as much as 79 per cent after it was forced to abandon a £403million fundraising and revealed it has enough cash to survive for only six months.

The miner also asked the Government for support by guaranteeing loans of up to £804million but this was turned down, leaving it struggling to stay afloat and putting 1,200 jobs at risk.

Shares crash: Sirius Minerals' founder and chief executive Chris Fraser at the site of the firm's planned fertiliser mine under the North York Moors

 Shares crash: Sirius Minerals’ founder and chief executive Chris Fraser at the site of the firm’s planned fertiliser mine under the North York Moors

More than 6 per cent of its stock was on loan to short-selling hedge funds, which bet on its troubles increasing and the value of its shares falling.

Last night they closed down 53.3 per cent, or 5.33p, at 4.67p, which meant short-sellers could have pocketed as much as £20million.

But the firms betting that Sirius would suffer, which include Citadel Europe, HBK Investments, Highbridge Capital Management and Polygon Global Partners, have targeted it since at least August, and are likely to have banked much more.

About 85,000 retail investors – many of whom live close to the mine – will have lost out from the share price plunge.

And Sirius could now face a probe from City regulator the Financial Conduct Authority (FCA), after its share price fell 10.5 per cent on Monday – the day before it released the dire update.

The FCA, which declined to comment last night, often investigates whether there was any suspicious activity or foul play when a company’s share price falls or rises significantly before a major announcement. Sirius declined to comment on the move.

It released the update alongside half-year results that covered the six months to the end of June.

However, neither the update nor the results had been scheduled, meaning investors did not know they were coming.

Sirius is building a deep mine to extract polyhalite, a fertiliser to spread on crops. The deposit it will tap into was formed in rock more than 1,000m below North Yorkshire and the North Sea.

Sirius estimates there are 2.6bn tons it can extract – enough for 100 years of mining.

But it warned last month it would run out of cash later this year if it could not secure £403million through a bond issue. 

It has now scrapped the bond, in part blaming Brexit uncertainty hitting investors’ appetite for British stocks. 

Founder and chief executive Chris Fraser said: ‘Anything to do with the UK and major capital projects is a big challenge for any financing.’

The bond was crucial to the future of the Woodsmith mine, as it would have unlocked another £2billion worth of funding as an overdraft from JP Morgan. 

Sirius also has to pay back £322million it raised earlier this year – another financial hurdle. This means it has raised only £322million of the £3billion it needs to get the mine going.

Sirius said it has £180million in the bank to see it through the next six months, during which it will slow down construction at Woodsmith and review how it can secure more cash.

The most likely outcome is thought to be tring to bring in another major investor, which would probably dilute the stake that current investors hold.

Its backers already include the Qatar Investment Authority and Gina Rinehart, Australia’s richest woman. 

Sirius is due to start digging in 2021 and expects to reach peak production, extracting 20m tons a year, by 2026.

Graham Spooner, investment research analyst at The Share Centre, said: ‘Investors will fear for the future of the mine and remain cognisant that the recent history of mining in the UK has been littered with failures.’

 

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