The news flow since I last covered Sirius Minerals (LSE: SXX) in July has remained encouraging.
Even the potash digger’s detractors have to concede the impressive progress being made toward selling its POLY4 product. Just days after inking a deal with two Chinese customers in July, Eiliseng and YSA, for the supply of an aggregated 2m tonnes of product each year, Sirius declared a fresh blockbuster deal with North American agricultural products giant Archer Daniels Midland.
The accord will see the Fortune 500 company supply Sirius with a starch binder used in the production of POLY 4. And going the other way, the British firm will supply its fertiliser product for seven years, the deal also incorporating two five-year extension options for volumes that will increase to 1.5m tonnes per year in year five, with an option for an extra 500,000 tonnes per year.
Still a huge gamble
Not only does the deal theoretically provide Sirius with exceptional opportunities in the US, Canada and Mexico, but it also lends further credibility to POLY 4 as a major product for global agriculture in the future.
The point, though, as I have discussed for a long time now, is that Sirius offers investors a lot of promise but that is about it. First production from its Woodsmith Mine in the North of England remains on course for the beginning of the next decade, but the route from now until maiden loads emerge into the sunlight remains fraught with danger. And I’m not just talking about the huge sums that Sirius still has to raise to get the project off of the ground.
Wafers wonder
Those investors seeking stocks without high risk profiles would be better served by checking out IQE (LSE: IQE), in my opinion.
Latest trading details this week reinforced my confidence in the wafer product manufacturer’s long-term sales picture. Sure, profits may have fallen by 21% during January-June, to £7.6m, but this in large part reflected accelerated customer qualification programs and the cost of getting production at its Newport facility up and running.
I am far more interested in news that, despite the impact of severe currency headwinds in the first half, revenues at IQE still rose 4% in the period, to £73.4m, and that sales in all three of its main markets — namely Wireless, Photonics and InfraRed — each continued to grow by double-digit percentages at constant currencies.
This is why City brokers believe that the tech star is on course to keep earnings moving higher with rises of 6% and 32% in 2018 and 2019 respectively. Indeed, the AIM company’s outlook beyond the near term looks all the more compelling after it declared on Friday that it had more than 20 customers working on VCSEL technology for a wide variety of applications like sensing, mobile, industrial and data communications. Moreover, IQE had also renegotiated a supply contract with a ‘tier one’ wireless customer through to next September to extend the sale of its epiwafer products.
Right now IQE can be picked up on a forward P/E ratio of 26.2 times. While expensive on paper, this is a small price to pay given the company’s still-exciting sales possibilities. I would happily sell Sirius to buy into the wafer manufacturer today.