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Why Sirius Minerals’ 17% share price rise makes me optimistic

It’s only last week that I wrote about investor favourite, Sirius Minerals (LSE: SXX). What new could have happened since to lead me back to the polyhalite miner, did you ask? A fair bit, actually. The most obvious indicator that something’s afoot is a change in share price. And SXX has indeed seen some impressive movement here. From the last I wrote about it to the latest close, the price is up 17%. It’s also at the highest levels since early October.

Faster tunnelling, lower costs

One of the reasons for the run-up is faster than expected progress in tunnel development. As per SXX’s latest update, it has achieved the fastest tunnelling rate recently. The tunnel is being constructed to aid in transporting the polyhalite mineral being mined for the production of SXX’s POLY4 fertiliser. This is good news on the cost front for the cash-strapped company which is still at a pre-revenue stage.

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While it looks for new funding sources, cost cutting is one of the things keeping it going. The latest progress can’t replace the funding requirements by any stretch, but it does contribute to cost reductions, which will at least marginally improve SXX’s financial situation.

Strong support, better funding chances

It doesn’t reduce the risks from the Woodsmith mine project either, which will be materially diminished only once SXX has some funding under its belt. The company is yet to acquire the £600m in funding as per its re-structured requirements after it dropped its bond offering earlier this year. It reached out to the government, and there was even a petition in place looking for enough signatures to get it discussed in the Parliament, but that didn’t yield results.

However, there seems to be enough support for the project. Just in the past week, a Conservative party member was quizzed about their views on funding SXX. This follows reports of the Labour party encouraging support for the project and even a letter to Prime Minister Boris Johnson from business and political leaders as well as policy makers in the region last month to consider investing in it. There’s no way of knowing what will happen next, but I think the upcoming elections can throw up new and favourable circumstances for SXX.

One for millennial investors

The potential upside, if all goes right, is huge for SXX. It’s the story of a disruptor to the fertiliser market that may just make it despite all the odds. But the story will take a while to play out fully. For investors with greater appetite for risk, like the millennials, I would still suggest this share to the extent that it that doesn’t keep you up at night (or come anywhere close). For retirees or closer to that age group, thinking this investment through very carefully would be best, particularly because there are no dividends to this share yet.

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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.

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