I’ve been arguing for a while that the best time to invest in Sirius Minerals (LSE: SXX) for the long term is likely to be just before the mine and infrastructure project is almost complete.
What can sometimes happen in mine-building projects like this is that the share price, and investors’ sentiment, can become so exhausted on the journey towards production that the shares often trade at their lowest in years, even though the end of the build is not far away and the risk is at its most-reduced.
Waiting for the sweet spot
That’s the sweet spot I’m waiting for with Sirius minerals because I want to avoid all the sharp reversals along the way. Wiggly share prices like this are a boon for traders, but if you want to invest for the long haul, I don’t think the time is right yet. I want the shares to go as low as possible because I’m after making a good-value long-term investment when the conditions are right.
That’s why I was heartened by the news released on 6 September that the firm’s stage two funding requirement had increased by between $400m and $600m! That bombshell pulled the rug from the share price and sent it down to where it is today. The company said in the statement it is reviewing “the most cost-effective and efficient sources of capital to fund the additional capital requirement.” So, the costs have shot well over the initial estimates. Don’t they always on big projects?
I said in an article in early 2015 that building a potash mine and all its associated infrastructure is an uncertain pursuit, adding “who knows what problems the firm will face along the way that may create delays and budget increases?” I argued back then that I’d seen share prices wilt during the building process with other firms that were engaged in mine-development projects “and that could happen here.”
A long way to go
In fairness, the shares were only at 9p when I wrote that article and Sirius Minerals had yet to secure the planning permissions or to raise the finance it needed to build the mine and infrastructure. If you’d held on since then you’d be well up at today’s price, but the ride has been ‘white knuckle’. Today, the project is much further advanced, and chief executive Chris Fraser said in the September update the signing of contracts for the remaining tunnel drives and the materials handling facility meant the procurement phase was almost complete.
But the financial stakes are high, and any further rise in costs could drive the share price even lower. However, Mr Fraser said in the report that “the Project’s economics remain extremely compelling and we are confident they support the expected additional funding requirement.”
There’s still a long way to go before Sirius Minerals mines anything at all and plenty of potential for more slip-ups along the way. So I’m watching from the sidelines and if the opportunity I’m hoping for doesn’t come along, there will be plenty of other opportunities on the stock market to choose from instead.