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Should You Buy Sirius Minerals plc After Its Crash?

It’s a great idea. You’ve chanced upon a huge potash deposit in the North York Moors. You know that potash is a highly valuable mineral which dramatically improves farmers’ yields, and is thus worth a lot in the commodity markets. You have a revenue stream which will last many years into the future.

This is the idea around which mining company Sirius Minerals (LSE: SXX) is based. It’s entrepreneurial and it’s brave, but will this company actually succeed?

A lot of the hard work has already been done

Long-term investors in Sirius will know a lot of the hard work has already been done. Many small-cap mining companies can spend years searching in vain for high-quality mineral deposits. Even then their share prices can rocket to sky-high levels, only to tumble when investors realise that the business will not make any profits.

Sirius has already found these deposits. Surely the other steps will be a lot easier, and this is now just a case of managing the implementation?

However, it remains the case that running a UK mining company is far from straightforward. If you were to dig for deposits in Africa or Latin America there is much less regulation. But in the UK there is a whole series of regulatory hoops to jump through.

That’s why Sirius is not a sure thing, but a bet on whether the company’s potash mine will obtain planning permission. And the fact that the deposits sit slap bang in the middle of a National Park certainly muddies the water.

But no-one can predict the future

A recent report by the North York Moors National Park Authority Planning Committee highlighted the difficulty, stating that although the mine had a strong economic case, “the application has a clear and fundamental conflict with both local and national policies”.

Understandably, as soon as this report was published, Sirius Minerals’ share price crashed, and it now stands some 40% off its May high. So should you buy in?

Well, the success of Sirius Minerals is entirely dependent upon what happens at the forthcoming planning meeting, and at any possible referral to the Secretary of State.

Will planning permission be granted? I have no idea – and neither do you. There is a strong chance it will be, but then there is a strong chance it won’t. But my view is Sirius Minerals is still worth a punt; however, I wouldn’t bet any more than, say, a thousand pounds’ worth of shares. If you have already invested in Sirius, I wish you the best of luck.

The next planning meeting takes place on 30th June 2015. Fingers crossed…

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.