It would be a highly contrarian move to buy Sirius Minerals (LSE:SXX) shares right now. Short sellers smell blood in the water and are circling the troubled Yorkshire mining project in ever greater numbers.
But with the SXX share price approaching just 3p, is now the time to make your play for the bargain of the decade?
Sirius swapped its AIM listing for the FTSE 250 in April 2017. But that meteoric rise has come to an end. This week the index operator FTSE Russell said that from 23 October, Sirius would exit the list of the UK’s 250 largest companies by market cap and be relegated to the SmallCap index instead.
In Sirius trouble
Chief executive Chris Fraser claimed he was misquoted in a recent Daily Mail article alleging Sirius could go private. Still, the news sliced another 8% from the Sirius share price when trading opened on Monday 21 October.
Early investors knew they would have to be patient to see returns from the biggest new infrastructure project in Europe. Sirius always said it didn’t expect to produce any polyhalite until the latter half of 2021 and it could be 2024 before it hit a production target of 10 million tonnes a year.
But it has watched helpless from the sidelines as the £3.6bn mine goes through a series of highly publicised struggles.
Efforts to raise $500m from a September bond issue failed spectacularly. The investment would have kickstarted the next phase of construction, but Sirius has since been forced to down tools and lay off 300 workers.
For long-suffering backers, it seems the only light at the end of a very dark tunnel is a train coming the other way.
No news good news?
When the latest round of fundraising failed, Fraser said bosses would instead turn their focus to “seeking a major strategic partner for the project“. Sirius has around £180m in cash left before it runs out of money sometime in spring 2020.
An RNS news story from 11 October about signing a 10-year worldwide distribution deal with the state-owned Qatari company Muntajat is perhaps not the major boost it purported to be.
Qatar is already heavily invested in Sirius Minerals; the country’s sovereign wealth fund bought a 3.3% stake in the company in May. Announcing a decade-long deal with a mine that may never be finished costs them nothing, but helped inject some optimism from a few positive headlines.
Investors with significant exposure to the Sirius Minerals share price may be holding on because they have succumbed to the sunk cost fallacy: they’ve lost so much on paper, there’s no point in realising the losses.
While local politicians point to the thousands of jobs that Woodsmith could create, there have been no moves from the government to step in with a bailout.
About 10,000 people have now signed a petition to try to force Westminster to guarantee a loan, which would revive Sirius’ fortunes. This at least means the government will have to issue a formal response.
But without a multi-billion pound deal with a new corporate partner there is a vanishingly small chance that the fertiliser mine will ever be completed.
I think you would have to be dead-set on throwing your money into an unfinished hole in the ground to invest in Sirius Minerals now.
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Tom has no position in 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.