Sirius Minerals plc: The upside is already with us

Back in January, I presciently suggested that UK-based potash miner Sirius Minerals (LSE: SXX) could have a 200% upside. The only problem was that nobody knew when it would deliver.

To Sirius, with love

Broker Liberum Capital had just set a target price of 38p for the stock and I reckoned this was eminently possible, given time. That time has already come. Today, Sirius Minerals trades at 40p, which is actually 313% higher higher than January’s 12.75p, and naturally, with the benefit of hindsight I wish I had backed my warm feelings towards the stock with shovelfuls of money.

Plenty of people put their money where their mouth was, recognising an exciting prospect when they saw one. Sirius Minerals has rights to the world’s biggest potash mine, not in some barren mountain zone in Latin America, Australia or Africa, but under the scenic and touristy North Yorkshire Moors. This of course poses very different problems, from thwarting ‘nimby’ planners to raising the estimated billions needed to develop the site and build a 23-mile tunnel to a purpose-built export berth in Wilton, Teeside.

Patience rewarded

I warned that anybody considering investing in the stock should brace themselves for a long wait and periods of scant news, followed by bouts of sustained excitement. However, the party has kicked off far sooner than I expected, with its share price suddenly doubling in the last three months.

It has been driven upwards by a steady flow of positive news, which began in June with Sirius lowering its estimate of the upfront capital funding requirements from $3.57bn to $2.91bn. A positive update followed in August confirming UK government approval for the Wilton harbour facilities, which means all major approvals for the project have now been granted. Management also upped estimates of its likely polyhalite reserves, and reported further take-off agreements. Cash on hand did slip from £29.1m at end-2015 to £16.7m but is comfortably above current liabilities of just £4.2m.

Can you dig it?

The company’s latest financing update, published today, announced credit facilities of up to $2.6bn from a group of commercial banks, Export Credit Agencies and other financing institutions, which should give a strong foundation for growth over the next two years. Management now needs to finalise its Stage 1 financing, and it can start digging. 

For those investors who got in early and took a chance on Sirius Minerals, I salute you. Some have clearly been banking their fat profits, with the share price sliding from a peak of 44p. All the various pieces of the jigsaw puzzle are being put into place, and the future looks promising. One thing hasn’t changed, however. This mining project still requires mountains of patience by investors. It will be years before Sirius starts cashing in those potash orders it has been racking up from global customers and posting a profit.

The news will come in fits and starts. In between, the share price has a habit of sliding as investor attention wanes, and more volatility is likely. If it dips again, that could be your next big opportunity to buy into this highly fertile prospect.

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Harvey Jones 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.