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Sirius Minerals’ share price has crashed this week. Would I buy it now?

Considering the fundamental changes occurring across industries like oil and gas, tobacco and retail, driven by newer technologies and shifting consumer preferences, a few weeks ago I said that this may well be the age of disruption. Most of the big, publicly traded companies that I have written about in this regard have one common feature – they are the ones being disrupted, as opposed to being the disruptors.

Disrupting fertilisers

There is one widely traded FTSE 250 company, however, that could well be the next mover and shaker at the industry level. Sirius Minerals (LSE: SXX) is building a polyhalite mine (it’s a form of potash), to manufacture fertilisers and is very optimistic about its prospects. When this mine in North Yorkshire kicks into gear, the company says it will be “among the most cost-competitive multi-nutrient fertiliser producers globally”, and it has more than its fair share of takers given that it’s the most traded FTSE share at the time of writing this article.

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Roadblocks on the way

The road to potential market dominance isn’t without its roadblocks, of course. The company’s share price plunged sharply to a three-year low in the past week after the announcement of its new funding package. While some of the funding fine print understandably explains the investor panic, I am of the view that much of this is a market overreaction. And there’s no time like a sentiment-driven share price decline to invest. Some recovery in the share price is already visible, and I think there is room for more. But let’s look at this in some detail.

It’s better off, not worse

The company’s JP Morgan-backed funding that aims to bring the mining project to the stage where it starts generating cash flow is an achievement in its own right, considering that there were doubts about whether it could even be secured not very long ago. Further, the company’s placement of new shares has been oversubscribed, indicating continued investor faith in its business prospects. While potential dividend payouts per share would be reduced as the number of shares issued increases, the fact remains that Sirius isn’t a profit-generating machine yet and has never paid dividends. In other words, this is a genuine concern but it’s also tomorrow’s concern.

De-emphasising the volatility

Next, it’s worth highlighting that this is a historically volatile share. The latest share price drop needs to be seen in the context of these consistently sharp movements. I expect this trend to continue until such time that the company hits stable ground in terms of production and revenue generation.

In this scenario, while speculative investors can bet on it for short-term trading gains, we at the Motley Fool are interested in profitable, long-term investing opportunities. Sirius carries some risk, to be sure, because the rubber hasn’t met the road, so to speak, yet. It looks like a worthy bet to me. I’d invest in the share when its price is down and let it lie until the company starts generating returns before thinking about my next step.

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Manika Premsingh has no position in any of the shares mentioned. 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.