When I first heard about Sirius Minerals (LSE:SXX) I was intrigued. A giant polyhalite mine that could potentially produce 100 years-worth of raw material for high-grade, high-profit fertiliser. Where there’s muck, there’s brass, so to speak.
Creating thousands of jobs in Yorkshire would be a huge boost for the region. It would put UK mining back on the map, and Sirius seemed to have everything in place to make it work. Expertise, big picture vision and most of all, a huge amount of investor interest.
When Sirius crashed out of the FTSE 250 after a much-publicised $500m funding failure, I wrote then that the shares were surely going to zero pence, and that buying-in would be like pulling wads of cash out of your wallet and chucking them into a hole in the ground.
But the potential to scoop up SXX at a bargain price has me wavering.
If you don’t own any Sirius Minerals shares, I’d say now is one of the best buying opportunities. But weigh your risks carefully.
The landscape of the FTSE is littered with failed mining projects that promised the earth and delivered nothing of the sort. SXX shares definitely aren’t a bargain if the whole thing folds.
CEO Chris Fraser’s original projections said the mine wouldn’t be up and running until the end of 2021, while a target of 10m tonnes of polyhalite was set for 2024.
A new $600m funding plan delays those estimates until at least Q2 2022 and 2025 respectively.
Any large capital injection will come at a cost to existing shareholders. Anyone capable of putting up hundreds of millions of pounds will want a big slice of Sirius Minerals in return, and that means share dilution.
$600m also won’t finish the job. There will be another $2.5bn needed and that raises the spectre of more dilution in future.
If, if, if
I’m watching the short interest closely. Highbridge Capital, for example, has been reducing its short position in SXX, from 2.15% in September to a low of 1.17% this month, according to shorttracker.co.uk. Hedge funds like these represent significant institutional interest and to see at least one cutting its bet that the share price will go down is very interesting.
And despite its evident troubles, Sirius still has backers who believe in the project.
I’d say investment in Sirius is just that, a bet. As with the Bitcoin I own, it’s a risky wager that may never pay off. In the meantime, I’m relying on stable high-yield dividend shares in my Stocks and Shares ISA to actually make me wealthier long term.
Dig yourself a hole
Warren Buffett advises us to think in probabilities that events will or will not come to fruition. What’s the chance Sirius will find a big investor before its cash runs out? The company has about four months of money left.
I’ll certainly concede that any investment in SXX is fraught with danger. The share price could plunge again if an investor is not found soon. And time is running out.
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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.