Everyone knows there’s no so-called dead certs to be found in the mining industry. The uncertainty over potential payloads and abrupt operational hurdles can give both revenues and profits a significant smack in the face.
But listening to some of those talking about Sirius Minerals (LSE: SXX) a few years back, owner of one of the biggest and richest polyhalite resources on Planet Earth, you could have been tricked into thinking it was the opportunity investment of a lifetime. I was sceptical then, and I’m even more sceptical now, given the raft of disappointing financial news coming from the FTSE 250 firm in recent weeks.
A better buy right now?
I won’t argue Sirius is choc-full of promise. But why take a gamble on promise alone when you can invest on some hot FTSE 100 stocks that have already proven their ability to deliver stunning shareholder returns?
Take International Consolidated Airlines Group (LSE: IAG), for example. Now I’m not going to pretend that the British Airways owner doesn’t have problems of its own. The flyer is being pressured by a combination of rising fuel costs, unfavourable currency movements, and intense competition.
That said, unlike a great many of its rivals, the company remains profitable. In the first quarter, it generated €135m worth of operating profit (excluding exceptional costs, that is). While the company expects annual profit to remain flat year-on-year in 2019, this is a respectable performance under the circumstances and particularly as concerns over Brexit continue to rumble too.
But forget about the near-term. In my opinion, IAG will be able to deliver brilliant profits growth further out as steps to expand its position in the low-cost segment pay off, and many of its rivals likely fall by the wayside. And in the interim, investors can chew down on some big dividends (the yield sits at a chubby 5.6% for 2019 alone).
What about Sirius?
At the same time it could be argued the airline operator carries ultra-attractive value relative to its predicted profits prospects, with IAG sporting a sub-10 forward P/E ratio of 5 times.
Compared with Sirius, this is pretty compelling, not just because the mining firm doesn’t actually carry a valid earnings multiple right now as it’s not predicted to become profit-making until maiden polyhalite is hauled out of the ground in (hopefully) 2021.
And what a risky path Sirius faces to even reach that point. It may have secured essential funding in recent sessions via a controversial share placing — a development understandably lamented by its shareholders at the time — but this may not be the end of the story should the familiar problem of cost overruns reappear between now and first production.
And then there’s the threat of massive market oversupply in the next decade as major fertiliser producers ramp up production, a situation that threatens to mash expected revenues over at Sirius. It’s not an exaggeration to say that Sirius Minerals has plenty on its plate right now. If I was an investor, I’d be thinking of selling up and buying a proven FTSE 100 bruiser like IAG, for example.
