As a shareholder in Sirius Minerals (LSE: SXX), a year ago I really didn’t expect to be here today talking about a 12-month share price fall of 4%.
But that’s what’s happened, and the reason is clear. Getting the firm’s polyhalite potash out of the ground and into the eager hands of its many signed-up customers is going to cost more, and could take longer than originally expected.
I’ve already explained why, from my experience of project estimating, so I’m really not surprised by that at all. I would have been astonished had everything gone according to plan with no hiccups.
Long-term prospects
I’ve no real worries about the long-term prospects for the profitability of the business, and that puts a top-up of my existing stake in Sirius shares near the head of my buy list for my SIPP.
I will admit that Sirius Minerals isn’t really the kind of stock I’d normally recommend for a pension investment — I tend to prefer proven, profitable, dividend-paying stocks.
But in my quest to beat the State Pension (which today stands at just £8,546 per year and which I won’t be able to claim until I’m 66), I feel I can take a small risk with a growth prospect from time to time. And Sirius shares account for only a very small portion of my pension fund.
Check your emotions
But, before I buy more Sirius shares, I really need to re-examine the possible downsides and, more importantly, my own emotional attachment to the company. I’ve certainly been guilty in the past of being too attached to shares I own and insufficiently critical when I’ve re-evaluated them.
There was always going to be significant dilution for Sirius Minerals’ early shareholder base, as new equity issues were sure to play a key part in getting the second phase of funding underway.
The bear case right now is not that Sirius won’t secure its funding. Rupert Hargreaves has pointed out that there are too many big stakeholders who really don’t want to see it fail — Australian mining magnate Gina Rinehart could lose as much as $300m, for example.
Biggest fear
No, the fear is that dilution will be bigger than expectations, and that we existing shareholders will be left with a significantly smaller slice of the pie than we’d thought. And that is a genuine risk.
The presence of several large shareholders, while a positive influence in one way, will leave the company needing to ensure those investors get the deal they want to secure their further commitment.
But even with that in mind, I’m still positive about the long-term prospects for Sirius. Though the dilution risk is the real long-term bogeyman, in the short term, I feel sure the markets are pricing in a failure to get a financial deal sorted in the first quarter of this year. If, and when, it’s sorted, I expect to see a share price boost.
I’m still optimistic, and I still intend to enlarge my Sirius Minerals shareholding — but it will still only be a small part of my overall pension investments.