You turn your back for a minute and then look what happens. As a long-term holder of Yorkshire-based potash polyhalite miner Sirius Minerals (LSE: SXX), I had got used to it trading within a (disappointing) range of between 25p and 35p. Then I look away and the next thing I know, the Sirius share price has slumped to around 13p on my return. Its market cap is now below £1bn, at £942m at time of writing.
I expected to discover some shock Sirius Minerals news announcement but there wasn’t much news around. That is often the case with SXX stock. You hear little for weeks, months, then an announcement sends it shooting off in whatever direction.
Selling Sirius short
I did pick up a report from Berenberg that suggested the long-awaited $3.7bn stage two financing package that will de-risk the project was in a crucial and uncertain phase, although the broker remained positive about its long-term chances.
There was better news, with Sirius Minerals signing a “take-or-pay supply agreement” with Indian Farmers Fertilisers Cooperative (IFFCO) for annual volumes of one million tonnes (mtpa) in year eight. India is a top three fertiliser market and this adds to the string of agreements Sirius has struck around the world
So far, so Sirius
Roland Head notes that investors should not put too much faith in all the agreements Sirius has been striking, which now total a whopping 11.7Mtpa, because they are based on peak volumes that won’t be achieved for some years. What worries me is that there is no actual market for this type of fertiliser as yet, Sirius is effectively building it (along with two mile-deep bore holes and a 23-mile tunnel to export facilities at Redcar).
This means that nobody knows what price Sirius will actually get for its product. There is so much up in the air. Short sellers, who make up roughly 14% or 15% of shareholders, have been feasting on all the uncertainty.
The biggest worry is that the finance won’t come through at all and the long-term will never actually happen. A lesser concern is that if it does, the terms will be more onerous and expensive than expected. There is also the threat of further shareholder dilution, if management issues further shares to raise funds.
Then there is the underlying worry about the state of the global economy.
The long-term case for the group’s POLY4 product remains strong, as it offers higher crop yields at lower prices than potash sulphates, provided Sirius can get it to market. I have repeatedly warned that investors need to be in this for the long haul, because the mine will not be open until 2024 (later if it overruns) so it will be years before the profits come through.
You should only invest money if your portfolio is big enough to withstand losing the lot. I am holding my existing stock but I am not brave enough to buy more. Which means I’ll kick myself if Rupert Hargreaves is right, and Sirius stock is worth 47p. How brave are you?
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Harvey Jones 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.