Investors are taking a gamble on Sirius Minerals and the UKOG share price

Sirius Minerals plc (LON: SXX) and UK Oil & Gas plc (LON: UKOG) number among the top five most popular UK stocks, says Harvey Jones.

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Finally, the verdict is in. Investment platform Interactive Investor has named the UK’s top five favourite stocks during the recent ISA season and two of them are a real surprise.

You expect to find the usual FTSE 100 stalwarts in the top five buys. This year it’s Lloyds Banking Group at number one, Vodafone in second place and another big boy, oil major BP at number four.

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Fertile ground

However, the third most popular trade is a company that doesn’t generate any revenues, and may not do so for years. Ladies and gentlemen, I give you Sirius Minerals (LSE: SXX). The Yorkshire-based polyhalite fertiliser miner has entranced investors but also tested their nerves and patience. Today’s share price of around 22p is roughly half its 52-week high of almost 40p.

Sirius is all about the future. Its £3.2bn mining project would make it a leading global producer of unique multi-nutrient fertiliser polyhalite, but means boring a 23-mile tunnel system to handling and export facilities at Teesside, now one of the UK’s biggest engineering projects.

Boring, boring

If all goes to plan, exports will total £2.5bn a year and single-handedly reduce the UK’s trade deficit by a whopping 7%. It has struck supply agreements all over the world, including a 10-year deal with BayWa Agri Supply and Trade just a few days ago, and has just launched its first tunnel boring machine.

The £1bn FTSE 250 group tempts investors with the prospect of “low operating costs, healthy margins and a very long asset life”. It should add ‘short-term anguish as management scrabbles around how to raise the necessary funds’. The deadline is tight, too. As Rupert Hargreaves has pointed out, Sirius has until the end of June.

I’m itching to hear more about last month’s news of a conditional proposal from a major global financial institution in respect of the £3.5bn Stage 2 financing. If that comes through, expect the share price to fly. If it doesn’t, then it’s squeaky bum time. The nation’s investors await. I’m one of them

Real Weald deal?

The UK’s fifth most popular stock last year was an even bigger surprise, AIM-listed UK Oil & Gas (LSE: UKOG) of ‘Gatwick Gusher’ fame, which has a market cap of just £71m. This is another stock with great potential, but one with even greater funding concerns than Sirius.

Its prime focus is on oil and gas assets in the Weald Basin, where it is building up interests in “a portfolio of dynamic and innovative oil and gas exploration and production assets”, but has yet to deliver on them.

Risk on

This article by GA Chester is a must-read as he warns the group has pursued multiple dilutive share placings in its quest to raise the necessary funds, tapping private shareholders amid a lack of institutional interest. He also warns that it has pursued new acquisitions before monetising existing ones.

The nation’s investors are taking a real punt here. If UK Oil & Gas lives up to its ambitions, you could make a small fortune. But my the risks! Risk is fine as long as you only invest a small corner of your portfolio, money you are willing to lose. That’s what I’ve done with Sirius Minerals. I’m not brave enough to repeat the trick UK Oil & Gas, though. 

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Harvey Jones owns shares of Sirius Minerals. The Motley Fool UK has recommended Lloyds Banking Group. 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.

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