Shares in Sirius Minerals (SXX) have plunged 20% to 11.6p after the FTSE 250 miner suspended its $500m bond offer, throwing its whole project into doubt.

In an update to the market, Sirius said it decided to suspend the proposed offer due to ‘current market conditions’ and said it intends to ‘revisit the market when conditions have improved later this quarter’.

The potash miner will therefore have to act quick. As it stands, Sirius needs to raise the $500m by the end of September in order to get the $2.5bn in lending which will be provided by JP Morgan. Without that money, no mine will be built.

Shore Capital analyst Yuen Low said in that practice, it is likely to be sometime in September when the company re-launches the bond.

BOND 'RISKIER THAN FIRST THOUGHT'

It comes after Bloomberg reported provisional guidance for the $500m bond it launched in July at a 13.5% coupon, the annual interest yield investors will get on their bonds.

That was far higher than the original 10% to 12% yield that Sirius expected, and would've placed Sirius’s bond firmly in the ‘junk’ category. That implied that the bonds would be far riskier for investors than first thought.

AJ Bell investment director Russ Mould said the fact Sirius has pulled the bond issue reflects ‘increasing investor nervousness across the board’ and also ‘raises questions about the viability’ of the project in North Yorkshire.

READ MORE ABOUT SIRIUS MINERALS HERE

In total, Sirius needs $3.8bn to build the Woodsmith potash mine, from which Sirius intends to extract polyhalite, a form of potash containing potassium, sulphur, magnesium and calcium, via underground mining.

Given the huge potential of polyhalite, which helps farmers improve crop yields, plus the fact there’s only producer in the world at the moment, Sirius sees a real opportunity to strike metaphorical gold.

Based beneath a park in the North York Moors sits a huge deposit of polyhalite, and if Sirius can get it all out of the ground it stands to make a fortune.

DEADLINE 'UNCOMFORTABLY CLOSE'

But the latest news on its funding is not a good sign.

Mould added, ‘This deadline feels uncomfortably close and the company’s insistence that it will return to the bond market later in the quarter is likely to do little to reassure investors.

‘After all what happens if market conditions deteriorate rather than getting better.

‘With big upfront capital requirements, bringing a mining project into production is a massive challenge and it is one which the company has been tackling for years at this point, following lengthy attempts to secure planning approval and now financing for the project.’

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Issue Date: 06 Aug 2019