Rarely have I seen the nature of an investment change as rapidly as Sirius Minerals (LSE: SXX) just has.
Until a few weeks ago Sirius was an outright punt, a gamble on whether it would get planning consent from the North York Moors National Park Authority to press on with its flagship project, one of the world’s largest potash mines.
This make-or-break ruling tempted traders who calculated that too much was at stake, in terms of local jobs and investment, for the authority to turn it down, or for the Government to call a public enquiry. And it proved a winner.
Big Beast
When Sirius got the green light, short-term traders pocketed their profits and sped off. The stock has actually fallen over the last month, down 22%, as a result.
Investors are now facing a very different beast and need to adjust their sights accordingly: Sirius Minerals has instantly shifted from a short-term trade to a long-term investment.
And when I say long-term, I do mean a good number of years, because this is a company that faces a long and potentially arduous journey before it starts to dig up any revenues and profits.
It may no longer be a gamble, but it is still a risky investment.
Poly-talented
The company’s experienced management team now has to put in the spadework to unearth the funding it needs to develop the project.
The scheme, which involves drilling a mile-deep shaft under the moors and a 23-mile long tunnel to transport the high-grade polyhalite deposits to Teeside for export, will cost upwards of £1.7 billion.
It has just £26.6 million in cash, and made a £10 million loss in the year to March, and £8 million in the year before that.
Management is pursuing a combination of corporate bonds, bank debt and possibly even private equity, while other options include a joint venture or even outright takeover.
Fertile Ground
Sirius should still prove a fertile investment, if you are patient. It has an armful of positive crop study results showing how polyhalite-based fertiliser can boost yields and financial returns on staple crops such as corn and soybean.
Global demand for potash is high, and Sirius is already signing agreements and letters of intent to deliver hundreds of thousands of tonnes of polyhalite a year.
The company is now valued at £380 million, but future revenue streams could top £1 billion a year, so there is plenty of scope for a juicy return on your investment. Investors are still playing for high stakes, but they are now also playing a long game, and will need to be patient. Plus there are no dividends to keep you entertained along the way.
At today’s price of 17p, Sirius looks tempting. But it is only for investors with large portfolios, strong nerves and an inexhaustible mine of patience.
