When I’d Invest In Sirius Minerals PLC

Sirius Minerals PLC (LON: SXX) remains several steps away from being investable

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.

sdf

We are still waiting for planning approvals on Sirius Minerals’ (LSE: SXX) proposals for a mine and associated workings at its lead Yorkshire potash development project.

Meanwhile the share price looks perky today, up around 16% at 9p or so as I write. However, step back and take a longer view and we can see that the share has fallen a lot — so is it a bargain?

A lot to do

The share price is lower than the 32p it touched at the end of 2011, that’s for sure. But even now, the firm’s market capitalisation sits at around £147 million, and Sirius Minerals has a lot to do, and a lot of capital to spend, before it will see first potash production even when, and if, the planners rubber-stamp the project.

Meanwhile, with no revenues Sirius continues to eat its own cash. Back in September, cash stood at about £27 million and the firm consumed around £7 million during the first six months of its trading year.

The firm’s situation regarding cash burn and lack of revenues leading into a mine development project, with all the capital expenditure that entails, renders Sirius Minerals uninvestable other than as a highly speculative proposition.

Before investing in Sirius Minerals, I’d like to see these factors in place:

1) Planning approvals in

Without permission to build the mine, we don’t really have a serious business regardless of how many forward contracts the firm negotiates with potential customers.

If planning approvals come in as hoped, we’ll probably see the share price jump. However, planning permission is just the start and we could see a drift down as shareholders realise Sirius must then build the infrastructure of the potash mine, and that costs money. If the plans don’t secure planning permission, the shares will likely plummet. If there are further delays in the planning process, we could see the shares drift lower.

2) Fund raising for building

With permission to build secured, Sirius will need funds to build. Those funds will likely come either from shareholders, or by taking on debt, or both. The creation of new shares in a fund-raising event will dilute existing shareholders and new debt will increase the enterprise value of the firm. Both conditions could put downward pressure on the share price despite the firm’s improved prospects.

3) Substantially complete building of mine infrastructure

Building a potash mine and all its associated infrastructure is an uncertain pursuit. Who knows what problems the firm will face along the way that may create delays and budget increases. I’ve seen share prices wilt during the building process at other firms with a mine-development project and that could happen here.

Before investing, I’d like to see the mine substantially complete and clarity over whether another fund-raising event is necessary to fund the firm to early production and break even.


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.

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing Articles

Down over 20%, should I dump this FTSE 100 dividend stock?

Our writer has been loving the passive income this dividend stock has been throwing off. But does the big share…

Read more »

Businesswoman calculating finances in an office
Investing Articles

I’ve just bought this FTSE share…

Our writer explains the thought process that led to him buying this FTSE share. One that’s likely to do well…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Just over £5 now, easyJet’s share price looks cheap to me anywhere under £13.84

easyJet’s share price has dropped recently, which could mean the business is worth less than before. Conversely, it could mean…

Read more »

Trader on video call from his home office
Investing Articles

36% under ‘fair value’ and forecast annual earnings growth of 6%, should investors consider this FTSE 250 stock?  

This FTSE 250 firm is a leader in a growing sector and has secured several new sites to drive its…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

3 UK shares that have recently become takeover targets

Mark Hartley examines why these three UK shares have become takeover targets and could be bought out by rivals in…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

These 4 FTSE 100 stocks are currently yielding more than 8%!

Our writer believes there are plenty of passive income opportunities among FTSE 100 (INDEXFTSE:UKX) stocks. These are the top four…

Read more »

Close-up of British bank notes
Investing Articles

3 reasons I prefer HSBC over Lloyds shares

While this writer likes Lloyds shares for their solid passive income potential, a rival FTSE 100 bank looks even more…

Read more »

Stacks of coins
Investing Articles

Up 131% this year! Should I add this rocketing 9p penny stock to my ISA?

Agronomics (LSE:ANIC) has made investors a lot of money so far this year. But is it too risky at 9p…

Read more »