Like Brexit, Sirius Minerals (LSE: SXX) seems to always be in the news. Yours truly even wrote about the company back in August, asking if it was a bargain buy or a value trap.
My conclusion then was that there was too much uncertainty and risk surrounding the company. That was two months ago. At the time, its $500m bond sale had just been pulled, with unfavourable market conditions being cited for the decision. With all of the recent noise about Sirius Minerals, I wanted to investigate whether my position has changed and at what price I would buy the company’s stock.
In a hole
Since I wrote about the company in August, the shares in Sirius Minerals have fallen by over 60%. They are down over 80% in the year to date, with the share price now hovering below 4p.
I have concerns with mining stocks in general. To begin with, the companies usually have to splurge vast amounts of funds to attempt to return money to investors. But if a business is not be generating any revenue and has a problem accessing funds, as is the case with Sirius Minerals, that is not going to make me want to invest.
At the start of October, it was reported that Sirius could start mining early in a bid to solve its cash-flow crisis. But approximately 300 job cuts have been made after Sirius stopped night shifts in a bid to save cash.
Another red flag for me is that the UK government has also declined to offer to back up to $1bn of bonds for Sirius Minerals. It had every incentive to support it: helping the local economy, preserving and building jobs, restoring the landscape. Even the financial benefit of at least $400m over the lifetime of the bond was not enough for the government. If the Treasury did offer Sirius Minerals a lifeline, I think I would be viewing the shares very differently at the moment.
The news about Sirius has terrible consequences. It had estimated that its project in the North York Moors would have generated 4,000 jobs. This was welcome for the region, which suffers from the highest unemployment rate in England and Wales. It undoubtedly would have influenced some local personal investors’ decisions when questioning whether or not to buy the shares.
Looking ahead
I want the company to get back on track and start returning money to investors, but I just can’t see it happening in the future. My conclusion remains the same as it was in August. In fact, I would now add that I can’t see myself buying shares in Sirius at any price.
If I currently held shares in the company, I would probably cut my losses and sell them. Unfortunately, I can’t see the stock price returning to the value that it opened the year at. With the recent slump in the share price, I’m not the only person thinking this.