Sirius Minerals (LSE: SXX) is a stock I’ve been warning investors about for a while now. For example, a little over a year ago, when the SXX share price was at 31p, I said that, although the story was interesting, the stock was “a risky investment” due to the fact fertiliser production was still years away.
Then, in March, when the share price was at 20p, I warned that hedge funds were shorting the stock and said there was “considerable risk” for investors. Last month, with the share price at 9p, I said investing in Sirius was akin to “taking your money to the casino.”
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So, given my bearish stance on SXX, I’m not really that surprised by the significant fall in the share price earlier this week.
Share price crash
On Tuesday, Sirius dropped a bombshell on investors by announcing it is cancelling its planned $500m bond sale. It needed to raise this cash to get access to £2.5bn in funding from JP Morgan so it can continue to develop its mine in North Yorkshire. The group said it was cancelling the bond sale due to “global market conditions, the ongoing uncertainty surrounding Brexit, and the political environment in the United Kingdom.”
Make no mistake, this is bad news for Sirius investors. While the company has said it’s going to conduct a strategic review to work on an alternative financial structure, the future for Sirius now looks highly uncertain. With a cash balance of just £180m at the end of August (only £117m is uncommitted) – which is around six months worth of cash – the company needs access to capital quickly.
Unsurprisingly, investors dumped the stock on the shock news, which led to the share price crashing over 50%, from 10p to under 5p. At the current share price of 4.4p, SXX is down around 85% over the last year. As such, there’ll be plenty of investors carrying huge losses. So what’s the best move now?
Without wanting to sound too obvious, shareholders have two options. They can hold onto their SXX shares, hoping the group can arrange some form of emergency funding (there’s been talk of a government bailout or a rights issue), or sell, take the loss, and walk away with whatever they have left.
Personally, if I was a SXX shareholder, I’d go with the latter option and cut my losses now. I’d rather take what’s left of my holding and deploy that into another investment than risk losing everything.
I’d then turn my attention to companies that are actually generating profits. Right now on the AIM market, there are plenty of fast-growing smaller companies churning out big profits and many are generating fantastic returns for shareholders in the process.
For example, shares in online fashion retailer Boohoo, which is enjoying huge success thanks to the popularity of its PrettyLittleThing brand, are up nearly 500% in five years. Another favourite of mine, dotDigital Group, which specialises in digital marketing, has seen its share price surge up 175% in five years.
Of course, you can still lose money on profitable companies. However, from my experience, you’re far less likely to lose 80% of your money.