This year’s most disappointing stock is arguably potash play Sirius Minerals (LSE: SXX), which is a big shame given the attention that investors continue to lavish on it – including me. People expect great things from Sirius, but 2018 was not the year.
To Sirius with love
Disappointed? Frustrated? Angry? You shouldn’t be, because this was always a long-term play. Patient? I hope so, because that is the one virtue you will definitely need if you are investing in Sirius.
As I have written before, the stock relies on positive news flow to buoy investor sentiment. It certainly cannot rely on dividends, because it doesn’t pay any. Nor can it rely on earnings and profits because there aren’t any, and probably won’t be any until around 2023.
Digging deep
That is roughly the time when Sirius will finally start selling its Poly4 polyhalite potash fertiliser product on global markets. It has a string of prospective customers, from China to Latin America, but first has to build a 23-mile tunnel under the sensitive North Yorks Moors National Park to export facilities at Teeside.
Investors are often castigated – with some justification – as short-termist, but here they need to hang on and show their mettle. It isn’t easy, and the stock has fallen 37% in the past six months as some lose interest, and others get cold feet.
Watered down
Latest estimates show the capital funding requirements creeping up from $3bn to between $3.4bn and $3.6bn, and it could go higher. This is a worry because Sirius has to raise the money somehow, and the big fear is further stock issuance, which would dilute the value of any shares you currently hold.
Currently the share price stands at 21p, a fraction below my own entry point 18 months ago, and well below this year’s peak of almost 40p. Such swings are to be expected, I have previously urged investors to buy Sirius Minerals on the troughs, and resist getting drawn in at the peaks. Warren Buffett’s famous mantra about buying when others are fearful is particularly applicable to a sentiment-driven stock like this one.
Take care
Now I am not saying you should buy Sirius. There are plenty of risks, and here are three of the biggest. I am particularly concerned by the notion that Poly4 won’t attract as much demand as chief executive Chris Fraser believes.
I have put my personal faith in the stock but have also suffered moments of doubt, and am only investing money I can lose without inflicting too much damage on my portfolio. Please do not take outsized risks yourself.
Tough it out
Sirius Minerals is likely to see big moves in 2019, probably in both directions (although today’s 21p is starting to look like a floor). These will be rapid and driven by news flow, so by the time you realise what is happening it may be too late to respond. This year was tough on the nerves and next year could see more of the same.