The Sirius Minerals share price is up 35%. Here’s what I’d do now

Sirius Minerals (LON: SXX) is in takeover talks. What should investors do now – and what will happen next?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The Sirius Minerals (LSE: SXX) share price rose by 35% on Wednesday morning, when the Yorkshire-based firm revealed it was in takeover talks with FTSE 100 miner Anglo American.

If confirmed, the proposed cash offer of 5.5p per share would represent a 60% premium to the average SXX share price over the last three months. In total, Anglo would be paying about £386m for the shares and the right to develop the Woodsmith mine.

Management have said that they will support the offer, if it’s confirmed. Under UK takeover rules, Anglo American has until 5 February to make a firm offer or withdraw.

Here’s what this week’s news means, and what I think shareholders should do now.

A big disappointment

I know that many private investors are sitting on big losses on this stock. The SXX share price hasn’t traded much below 7p since 2010 and reached highs of 45p in 2016.

Boss Chris Fraser did a good job of selling the project to the local community. Many people believed that this would be a long-term cash cow, generating valuable employment and dividends for shareholders.

If the mine is developed, then it should still make a valuable contribution to the local economy. But the project’s $3bn+ financing requirements were always going to be a challenge, especially after management announced early cost overruns in September 2018.

As I’ve discussed here on a number of previous occasions, I couldn’t see how the mine could be financed without outside investors taking ownership of at least part of the project. That seems to be the situation we’re in now.

Are management selling too cheap?

I’ve seen suggestions on social media that management are selling the business too cheap – or that Anglo’s potential offer of 5.5p is just an opening bid. Unfortunately, I think that’s unlikely to be true.

The harsh reality is that without new funding, Sirius could run out of cash by April and be forced into administration. In this situation, the company’s existing lenders would likely to take a leading role in looking for a buyer. Small shareholders would not be able to provide the cash needed to develop the project on, so would get nothing.

My personal view is that Anglo’s proposed offer is very fair, given the project’s funding requirements. I’d be very surprised if a higher bidder appears.

What should you do now?

As I write, SXX shares are trading at about 5.4p, just below Anglo’s proposed 5.5p offer level.

If you’re a Sirius shareholder, you could sell now into the market and get most of the proposed bid cash.

Alternatively, you could hold on and hope that the takeover is confirmed (or that a better offer emerges). In that case you’d get the full amount in cash without having to pay any dealing charges.

Ultimately it’s your choice. I can’t tell you what to do.

Unfortunately, Sirius has provided us all with a painful reminder of why it’s important to have a diversified portfolio.

Loss-making early-stage businesses like Sirius are always risky and can deliver big losses unexpectedly. In situations like this, I reckon it’s best to only investing money you can afford to lose.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of 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.

More on Investing Articles

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

How I’d invest my first £20k ISA to target £4,900 a year from dividend shares

Looking for dividend shares in a new Stocks and Shares ISA, and want diversification too? Here's how I'd go about…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »