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Should I buy Sirius Minerals shares?

Fellow Fool Roland Head recently commented that Sirius Minerals (LSE: SXX) remains a high-risk speculative buy and I would have to agree. Just look at the evidence.

Its Woodsmith mine, a deep potash and polyhalite mine in Whitby, North Yorkshire has the potential to be one of the world’s most profitable, but ‘potential’ is the key word here. Mining is notoriously hazardous with so many factors in play that could go wrong and for Sirius, production is still many years away.

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It has begun the process of securing a $2.5bn funding facility with US bank JPMorgan, intending to refinance this debt through future bond issues. Unfortunately, this is likely to incur higher interest payments than expected.

Enterprise Value-to-EBITDA is a way to measure a company’s performance and Sirius’s EV/EBITDA is negative at -38.5, while its share price has fallen 59% in the past year from a high of almost 40p to 14.98p on Friday. The level of financing agreed means it’s unlikely Sirius will turn a profit for at least five years.

Poly4, the polyhalite product Sirius will sell, is an efficient and effective fertiliser with lower CO2 emissions than other fertiliser products. In a world obsessing over environmental issues, this could prove very appealing and therefore lucrative. But there are many hurdles to cross before returns can be assured.

Unless you’re an existing shareholder, prepared to wait up to five years for returns, I’d sell. 

So, what are the stock alternatives in this speciality chemicals industry? Having looked at contemporaries Johnson Matthey and Croda International, both of which seem to be facing several challenges ahead, I’d suggest looking elsewhere. And ‘big pharma’ has caught my eye.

Pharma shares

AstraZeneca (LSE:AZN) has been a popular FTSE 100 stock of late and with good reason too. It reported product sales growth of 12% for the first half of 2019, with the second quarter seeing an “encouraging” performance in every sales region and all three of its therapy areas: oncology, cardio and respiratory. New medicines catapulted ahead 66% to $2.4bn. Emerging markets sales grew 17% and China 34%.

The board expects the second half of the year to be exceptionally busy with further positive pipeline developments ahead. Its cancer drugs are faring well and it has positioned itself effectively in providing solutions to early detection and treatment of cancer, rather than late-stage treatment that’s a focus for many rivals. 

It has a strong drugs portfolio and has seen growth in China where competition from generic drugs is fierce, two reasons that make me think the share price still has room to climb.

It has a dividend yield of 3% and is about to trade ex-dividend on August 8. This means if you purchase the stock on or after this date, you won’t be entitled to receive the dividend, when it’s paid on September 9.

AstraZeneca is certainly more appealing to me than Sirius. At £72 its share price is 45% below its future cash flow value. It’s a strong pharma favourite in a competitive environment and one I consider a good buy for a long-term dividend-based portfolio.

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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca. 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.