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Why I believe the Sirius Minerals share price is far too cheap

Many investors need a daily fix on their share prices and like to see where their portfolios are going on an almost constant basis. But I think there are better things I can be doing with my time, and I’m a strong believer in ‘strategic ignorance’, taking no notice of the prices of my shares over the short term.

Sometimes it can be a shock when you finally look, but often you get a very pleasant surprise. It was the latter when I checked on my Sirius Minerals (LSE: SXX) shares after a gap of a couple of months, and it was very nice to see the price up to nearly 30p from February’s lows.

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Short-term nonsense

Plenty has been happening in the past couple of months, with March’s full-year results release being the highlight of 2018 so far. The share price dipped on the day, which is surely down to the tripling of the firm’s reported pre-tax loss to £79.25m. But I reckon that’s missing the point, especially in a year when development costs came to £197.3m with plenty more to come. And with profit still not expected for another five years, focusing on profit and loss figures at this stage just seems silly.

Cash resources fell from £665.3m a year previously, to £468.5m, which no doubt spooked a few bottom-line watchers. But as my colleague Harvey Jones pointed out, that’s exactly what long-term investors should have expected, and if anyone was surprised by it, then they simply hadn’t been doing their homework.

The latest financing adjustment has been an invitation to convertible bond holders to exercise their conversion rights and take ordinary shares instead. And it’s been a success, with 10.7m new shares listed as a result. I see that as a significant vote of confidence in the company’s long-term potential, especially at such an early stage when bondholders really didn’t need to do much more than sit and wait.

Progress on track

March’s quarterly update opened with the words “the project remains on track to deliver first polyhalite and commercial production on time and on budget.

The more I read these bulletins and see that as the first sentence, the happier I am, especially as we heard that progress is being made on catching up on some delays previously encountered in D-walling activity (a technical thing, which I’m happy to not need to know much about).

In fact, there are apparently opportunities to bring production of the first polyhalite forward by up to six months, and Sirius is in consultation with contractor DMC to progress that. A production shaft bore hole encountered 53m of polyhalite, which is consistent with previous holes and helps to affirm estimates of the amount of the stuff that’s down there.

Fellow Fool writer Rupert Hargreaves reckons the SXX share price could be set for another upwards hike as the company prepares to complete its second stage of financing, and I think he’s right. With development progressing nicely, and pre-orders for potash already building up, uncertainty over funding could well be the one thing that’s holding back cautious investors.

But in the short term I really don’t care about the share price, and I’m going to don the mantle of ignorance again and go for a bike ride.

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Alan Oscroft owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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