Shares in potash miner Sirius Minerals (LSE: SXX) climbed 7% to 14p on Thursday, after the firm gained the first of two planning approvals needed to develop its potash mine in the North York Moors National Park.
The firm’s shares have now risen by 45% over the last year, despite having hit a 52-week low of 6.4p in January.
In contrast, Kurdistan oil producer Gulf Keystone Petroleum (LSE: GKP) has pumped increasing amounts of oil out of its prize Shaikan asset over the last year, but the firm’s shares have fallen by 55%.
Both companies look cheap compared to the potential value of their main asset, mainly because both are running out of cash, leaving shareholders in an uncertain position.
Sirius 3, Gulf Keystone 0
On the face of it, Sirius has three key advantages over Gulf Keystone in terms of fundraising.
Firstly, Sirius operates in a stable political environment, where companies do not face the risk of disruption or loss, as a result of conflict or regime change.
Secondly, Sirius doesn’t have any existing debt to speak of, whereas Gulf Keystone already has more than $500m of quite costly debt, and requires further investment to maximise production from Shaikan.
Finally, unlike Gulf Keystone, Sirius, it doesn’t have $100m of bad debt owed by its main customer, the Kurdistan government, which has so far refused to pay for much of the oil Gulf has exported.
It’s not that simple
On the other hand, Gulf Keystone does have some advantages of its own.
Gulf has fully-functioning production facilities pumping nearly 40,000 barrels of oil per day straight into export markets.
Demand for Kurdish oil is proven, and there is growing confidence among all operators in the region that the Kurdish authorities will establish a regular payment cycle this year.
What’s more, oil prices now seem to have bottomed out.
In contrast, Sirius only owns the rights to a large mineral deposit in the ground.
Several years of construction and an estimated $2.5bn of investment is expected to be required before the firm can hope to receive any revenue, with first production targeted for 2018.
The size and value of the fertiliser market Sirius is targeting are also less well understood.
I’d say evens
Interestingly, the US investment giant Capital Group recently increased its stake in Gulf Keystone from 5% to 7%, suggesting it believes there is upside for shareholders.
However, I think it’s too close to call: I suspect both companies will deliver a rollercoaster ride over the coming months.