For many investors, the name Sirius Minerals (LSE: SXX) brings a shiver to the spine, or perhaps a tear to the eye. Once seen as a potential big money maker, sitting on the world’s largest polyhalite (used in fertilisers) deposit in North Yorkshire, a lack of funding has reduced its shares from over 40p to just 3p.
As I see it, there are three potential scenarios that Sirius could be facing – one of which will mean you lose everything, one of which means you may make some decent money (perhaps doubling your investment), and one of which could see you retire a millionaire. How likely each of these scenarios might be is where the problems arise.
Going bust
The first of these cases is the bad one, and is also perhaps the more likely. There are a number of situations that could mean Sirius’s shares are delisted or the company could go bust. Recently CEO Chris Fraser reportedly stated his preference for taking the company private, a move that, depending on the details, could see the stock worth next to nothing.
The lack of appetite for Sirius, both in the bond and equity markets, suggests that unless something changes, the company’s shares may just not be able to stay listed for much longer.
Merger or acquisition
Another possible scenario is the potential for a merger or an acquisition of the company. Given the assets already in place, the size of the deposit and its current low share price, I think Sirius is a prime target for such a move.
If the company is acquired, any investors at current levels are likely to see a fair return. At just 3p per share, offers of even 6p per share would double your money. Similarly a merger with a larger firm looking to take advantage of Sirius’s troubles would likely see value added to the stock. But if you bought at 40p+, your losses would be large.
Going all the way
Though perhaps the least likely scenario, there is still a small chance, I think, that the company can actually make it. The immediate funding problem is the main hurdle for it to overcome, but if it is able to do that, it could open the way for the company to become massive.
If and when it moves into some form of production, it should be able to fund itself and eventually move into full operation. Meanwhile, outside funding, and even another bond issuance attempt, are still not off the cards entirely. Recently the state-run Qatar fertiliser company Muntajat signed a 2m tonne per year deal with Sirius, showing both appetite and support for the company.
My colleague Rupert Hargreaves has suggested that if Sirius were in full production, based on the average of similar firms, its shares could be worth more than 60p. At its current levels, this means a £50,000 investment would get you £1m.
If we are generous however, and say a firm with the world’s largest polyhalite deposit could eventually become one of the largest producers, the numbers could be far higher. Before its acquisition, the world’s largest potash producer (a similar fertiliser mineral) PotashCorp was fetching $20 per share (about £15). If Sirius could reach just a fraction of this, buying shares at today’s price could mean you retire a millionaire.
