Is the Sirius share price finally worth a gamble?

Far from a sensible investment, buying Sirius shares now enters the realm of taking a bet.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I like it when share prices drop. Not the shares I own of course, but stock I might consider buying. News-driven (or perhaps fear-driven) price declines usually mean one of two things – a great opportunity as a stock gets oversold, or the beginning of the end for a company’s time on the stock exchange.

Looking at Sirius Minerals (LSE: SXX), though I can imagine a scenario where its shares recover and the mine opens, I think that is the less likely of the above two choices.

It takes money to make money

Sirius is suffering the same problem that hits many smaller mining companies – it is sitting on a massive deposit of natural resource that if it could be brought into production, would make the company lots of money. Unfortunately it will take a large amount of cash to be able to actually do this.

Last week, the chances of Sirius ever raising enough finance to open its mine took a turn for the worse after it was forced to pull its planned $500m bond issue and failed to receive government support. The bond would have have unlocked a $2.5bn financing package from JP Morgan, which is now on hold once again.

What is interesting though, is that CEO Mark Fraser has said he is still confident the mine will open. Admitting this latest setback was “an incredible challenge”, he took a confident tone, saying “we have to adapt and evolve”. Indeed, putting his money where his mouth is, a regulatory statement showed his family trust purchased 250,000 shares at about 4p per share.

Problems for shareholders

The major problem for current shareholders and potential investors as far as I can see, is that even if some form of financing can be raised, the terms of it may still mean dilution of current shares (if there is a new share issuance), though as it stand this seems highly unlikely given the lack of appetite. it could also mean delisting or a private buyout that may or may not offer fair terms.

Fom this point on, it may be all-or-nothing news for investors. With the failed bond issuance now leaving the stock at 4p, it is hard to envision any news that would see the price drop much lower – that is to say, news that would spur the shares to lose ground rather than just go to zero.

Any further bad news for shareholders will probably mean the delisting of the stock or a poor buyout. On the flip side, it probably wouldn’t take much positive news to help the shares gain some ground. Talk of raising money, lenders coming to terms, or even the government succumbing to political pressure to support Sirius may all help the stock.

Of course as a potential investment, we are not in fact talking of investing at all, but rather gambling. In all honesty, I can see more than one potential scenario that would have the stock recover, have the mine move into production and see shareholders making lots of money. But how likely is this? As I said, it would be a big gamble.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »