Buying shares in polyhalite miner Sirius Minerals (LSE: SXX) was always going to be risky, but right now, it looks more dangerous than ever.
Going underground
I bought shares in the stock a couple of years ago, when they were trading at around 30p (down from a high of around 60p). It seemed (to me) a clever move at the time, but it doesn’t look so bright today, with the Sirius Minerals share price trading at around 10p at time of writing.
Would I buy at today’s heavily discounted price? The answer is yes, but I would only use money I was willing to lose, as now it looks like an outright gamble.
In a hole
Amid all the noise about the FTSE 250 group’s crashing share price, it’s worth remembering that this remains an exciting opportunity. Sirius is developing the world’s largest and highest grade deposit of multi-nutrient fertiliser polyhalite, for which it has been striking supply deals all over the world. However, digging a mile-deep hole beneath the North Yorkshire Moors and a 23-mile underground conveyor belt to export facilities at Teesside was always going to be a cash sink.
This is the first UK deep mine in 40 years, and CEO Chris Fraser has struggled to persuade investors to dig deep into their pockets.
Investors upped their bets against Fraser earlier this month after he suspended the planned $500m bond sale needed to unlock JP Morgan’s proffered $2.5bn revolving credit facility, blaming turbulent investment conditions, which some took as a reference to the US-China trade war.
Yes, investors are nervous, but I’m not sure you can blame President Trump for this setback, which sent the Sirius share price crashing 40%. Investors are clearly sceptical about the project’s prospects if they are turning up their noses at a generous coupon of 13.5%.
It’s not over yet, though. Last week saw bargain hunters hoovering up some cut-price stock, which jumped 17% in a day, while the embattled FTSE 250 group got a further boost on Friday when it emerged that Citigroup Global Markets has taken a 5% stake.
Should you try your luck?
If Fraser can get his bond fundraising through at the second attempt in September, JP Morgan’s loan should get Sirius over the line. If not, its cash reserves will start depleting and it will have to reconsider its options. We are heading towards crunch time, but my worry is that market sentiment has not picked up since the bond sale was suspended. If anything, it has taken another lurch down.
Would JP Morgan cut and run if the bond sale doesn’t fly? If it does, construction work may well grind to a halt, and the whole project could be at risk.
Private investors will only find out after the stock starts surging or crashing at a breakneck pace. The Sirius Minerals latest share news is therefore going to make anxious viewing. At today’s price it either prove a brilliant buy or a disastrous one, with nothing in between. Is that the level of risk you are willing to take? If so, Sirius could still prove a winner.