Here’s how much £1K invested in Sirius Minerals shares a year ago would be worth today. Ouch!

If you’re a Sirius Minerals plc (LON: SXX) shareholder, you may want to look away now.

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.

For years now, Sirius Minerals (LSE: SXX) – which is developing the world’s largest and highest-grade deposit of polyhalite (used to make fertiliser) in North Yorkshire – has been one of the most popular stocks on the London Stock Exchange. Clearly, many UK investors see Sirius as a stock with huge, life-changing potential.

Yet as you are probably aware, the shares have delivered disappointing returns for investors recently. Here’s a look at how much £1,000 invested in SXX shares a year ago would be worth today.

Disappointing year

One year ago, Sirius shares were changing hands for around 22p. Had you invested £1,000 in the stock at the time, you would have picked up around 4,545 shares (I’ll ignore trading commissions for simplicity).

Looking at Sirius’s one-year share price chart, there would have been several occasions when you were actually sitting on a profit had you bought this time last year. For example, in April, the shares briefly spiked up to around 27p on the back of optimism over a funding deal for the company.

However, the second half of 2019 was nothing short of a disaster for the stock, as the company cancelled a planned $500m bond sale (it needed to raise this cash to get access to £2.5bn in funding from JP Morgan) due to global market conditions and the ongoing uncertainty surrounding Brexit. This saw SXX shares plummet to near 2p at one stage.

Large losses

Today, SXX shares trade for 3.8p. This means that, had you bought a year ago, you’d now be sitting on a loss of approximately 83% (note that I have ignored the $425m equity raise in May that enabled institutional investors to pick up shares at 15p, as well as the one-for-22 open offer to existing shareholders in order to keep things simple).

Of course, as Sirius is not yet profitable, there are no dividends here to soften to blow. So that means that your £1,000 investment in SXX would now be worth just £170. Ouch.

Takeaways

So what are the lessons we can learn from SXX’s collapse?

Well, to my mind, the biggest takeaway is that investing in smaller companies (particularly those that have no revenues or earnings) can be risky. With these types of companies, you should only invest what you can afford to lose. To reduce your risk, it’s sensible to diversify your capital over many different companies.

Secondly, Sirius’s collapse highlights the risks associated with investing in small mining companies. While there’s certainly money to be made investing in small-cap miners, it’s important to be aware that these stocks are notoriously volatile. With miners, there’s an awful lot that can go wrong. Quite regularly, small firms in the sector experience operational or funding challenges.

Ultimately, if you’re looking to make big gains from smaller companies, I think you’re better off focusing on entities, outside the mining sector, that are already profitable and growing quickly. Investing in these kinds of businesses has certainly worked for me.

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.

Edward Sheldon has no position in any 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

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

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 »