The Motley Fool

The Sirius Minerals (SXX) share price. Buy, sell or hold?

Image source: Getty Images.

In an article earlier today, I reviewed the shifting risk/reward history of Sirius Minerals (LSE: SXX) and looked at some of the lessons for investors. Here, I’m going to discuss the potential outcomes for those who may be considering buying, selling, or holding the stock right now.

Binary outcome

According to Sirius’s board of directors, shareholders face a stark choice. Vote in favour of Anglo American‘s 5.5p-a-share offer on 3 March, or face “a high probability that the Sirius board will place the business into administration or liquidation.”

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Sirius has substantial liabilities, including Gina Rinehart’s royalty, “secured over the assets of the project.” And the company is due to run out of cash by 31 March. As things stand, administration or liquidation would be almost certain if shareholders reject Anglo’s offer. In this event, I can only see Sirius’s equity being worthless.

I’ll look first at the mooted binary outcome of 5.5p a share, or 0p (zero) a share. And go on to look at some possibilities — remote ones, in my view — that could produce different outcomes.

Sell or buy

Shareholders who want out have the option of waiting for Anglo’s 5.5p, but at the risk of the offer being voted down. Alternatively, they can sell in the market before 3 March. The shares are trading at 5.16p to sell, as I’m writing. So the price of the certainty of banking your cash is currently to accept 6.2% less than the Anglo offer.

For any investors mulling a quick-buy trade, the shares are 5.2p to buy. The potential upside to Anglo’s 5.5p offer is 5.8%, but with the risk of total loss if shareholders vote against it. This is a poor risk/reward prospect, in my book.

Other outcomes

A group of retail shareholders are trying to revive Sirius’s attempted $680m keep-the-company-going funding package by raising money themselves. A consortium of institutional lenders previously pulled out of this, due to Sirius’s inability to find an institutional anchor investor to provide a substantial chunk of new equity. I don’t think the retail shareholders’ initiative has any legs.

There was news last week that hedge fund Odey Asset Management has bought shares in Sirius (at an average price of 4.9p). I think Odey’s talk of accepting 7p, or above, from Anglo is a red herring. The hedge fund’s here to turn a fast buck. As FT Alphaville noted, all it’s really saying is: “We’ll take what you’re paying unless you’ll pay more, in which case we’ll take that.” There’s no reason I can see for Anglo to sweeten the deal.

What about a rival to Anglo appearing with a higher offer? Again, this looks unlikely to me. Despite trying for a number of months, Sirius has had no success in finding a strategic equity investor. And there’s been no whiff of any interest in the company other than Anglo.

Bottom line

At the end of the day, I think it’s very much on the cards it’ll come down to one of the aforementioned binary options. I imagine most Sirius shareholders still holding have decided to hang on come what may, and leave the outcome to fate.

Meanwhile, I can see little upside incentive for other investors to get involved with the stock. As such, and also due to the downside risk, I’d avoid it.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

G A Chester 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.