Back in December, I reflected on a transformative year for AIM-listed Sirius Minerals (LSE: SXX). In 2016, the company managed to complete a two-year feasibility study, obtain all necessary planning permission and gather the all-important cash needed to begin building its polyhalite mine in North Yorkshire.
Based on a recent update on current activities in and around the site, I think we can expect 2017 to be another hugely busy year from the £750m cap.
On your marks…
According to Sirius, highway works — focused on improving site access roads — are scheduled to begin on 30 January and end in the first week of April. As far as the actual mine is concerned, an additional drilling rig “to gather more detailed information for the upcoming shaft sinking” is now expected on-site by the end of February. It follows on from the “further geotechnical studies” undertaken since the end of 2016. Sirius also commented that a “significant amount of detailed engineering, design and commercial work” was in progress and that, in accordance with the company’s plans, the full site preparation phase will commence in the second quarter of this year. So far, so good.
Perhaps the most interesting part of last Thursday’s announcement for shareholders, however, was the company’s declaration that it would release “general development and construction updates” to the market on a quarterly basis. That means three times this year, in the final weeks of March, June and September with a break for Christmas and a further update in week two 2018.
So, if this is when we expect to hear from the company over the next 12 months, what might happen its shares?
On the up?
Now that investors — both existing and prospective — have a better insight into when the company will update the market, sentiment towards Sirius should begin to shift. Although undeniably brief, last week’s news provided investors with the kind of transparency they were craving during in H2 2016. It may even be enough to convince one-time holders, dismayed at the pricing of the open offer conducted last November, to return.
Clearly, considerable moves in the share price whenever a (positive) update on progress is released are likely. Given the complexity of the task ahead of the company, however, there’s always the potential for at least some of these updates to be disappointing. Setbacks are common in this industry and highly probable for a project of this scale, despite the capability and experience of the management team and their confidence in those hired to help build the mine.
Although I fully expect the share price to be substantially higher by the time it comes into operation in five years time (and Sirius has moved away from AIM), some volatility between now and then should be assumed.That’s even more so if, thanks to Trump, Brexit or some other factor, changes in the macro-economic environment motivate some investors to become less risk-tolerant. This is why I continue to regard Sirius as the sort of company built only for patient investors with long investing horizons.
At just above 18p each — the same level they were last June, long before funding for the mine had been secured — I’m optimistic that shares in the company have now reached their nadir. For Sirius, 2017 should mark the end of the beginning. Time to get digging.
