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Why I’m buying Sirius Minerals shares after its 20% price rise

Sirius Minerals (LSE: SXX) share price had reached its nadir when I last wrote about it a couple of weeks ago. But price for this soon-to-be polyhalite miner has risen by 20% from then to the middle of the past week. SXX’s new funding plans are at the heart of the renewed interest in the stock.

After abandoning its earlier financing plan, the company now aims to raise £600m from a strategic investor and financial investor. This minimum amount of funding will allow it to access the first polyhalite needed for the production of POLY4, SXX’s fertiliser product.

Risk reduction for SXX

Investing in Sirius still remains a risky bet, to be sure. That said, I think the risks to SXX have now declined just a tad. Here are my reasons for believing so:

  • SXX was earlier tasked with having to raise £500m through a bond sale, which was first postponed and then entirely abandoned, keeping a significant remainder of funding otherwise available from JP Morgan locked in. The company cited market conditions as the reason for this cancellation, which is as much a fair point as the fact that SXX is an investment risky enough to give heart palpitations to investors. A strategic investor would probably have a bigger appetite for the company’s offerings and less consideration for market conditions than other investors. In other words, the new approach is more likely to put Sirius on the winning path.

  • I think the post-election environment will be more conducive to SXX getting the government support it’s been seeking in the past months. Labour party MPs have shown support towards the project, and if Labour does come into power it may be just the good news that Sirius Minerals needs.

Hedging the bets

For me, these are enough reasons to at the very least stay invested in the stock for right now, even if making a fresh investment in it isn’t your cup of tea. Or perhaps, it would be a good idea to consider a super-safe share to invest in now along with Sirius Minerals just to hedge the bet. And there are many such in the FTSE 100 universe alone.

Consider companies like Smith and Nephew for instance, which could potentially meet a Warren Buffett style checklist. Its price recently tumbled on a swift exit by its CEO despite the fact that it’s a financially solid company and, I’d really like to highlight, in a defensive sector (healthcare) at a time of macroeconomic uncertainty. The share price has already started inching up from the recent decline and to my mind a good time to seriously consider investing in it.

I also like pest control provider Rentokil Initial, whose share price has given great returns in the past years. Its large North American market also makes it Brexit-proof.   

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Manika Premsingh 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.