Yorkshire-based potash minerSirius Minerals (LSE: SXX) has been atrue stock market darling this year, its share price triplingfrom 15p to 45p bythe end of August. However, lately it appears to have lost its charm, falling25% in the last month. Where did it all go wrong?
Dig deep
Actually, Im kidding. It hasnt gone wrong at all. This is the exactly the kind of dipthat Ive predicted before. Why? Because accessing some of the worlds largest polyhalite reserves beneath the North York Moors national park andbuildinga 23-mile tunnel to a purpose-built export berthin Wilton, Teeside,is a long-term project, and investor attention spans are notoriously short. When firing out thesewarnings, I suggested thatany share price slips in the interim would be the ideal time to buy.
Heres what I wrote on 1 September: The news will come in fits and starts. In between, the share price has a habit of sliding asinvestor attention wanes, and more volatility is likely. If it dipsagain, thatcould beyour next big opportunity to buy into this highly fertile prospect.
Sirius in the black
Well, Sirius has slipped again and forno good reason, as far as I can see, aside from that aforementioned investor impatience. It has cleared the many planning hurdles that lay in its path, and seen off all the nimbies, wrapping up all of itsplanning, development and judicial approvals earlier this month. It has the green light to start digging. This landmark lifted its share price, whichhas subsequently trailed down simplybecause there has been no further news. Investors have pocketed their profits and drifted away, no doubt to seek instant gratification elsewhere.
Perhaps investors are worried that Sirius is doing things back to front. It has arranged $2.6bn of stage two financing but has been slower to fund stage one, which is expected to involve a $1.09bn mix of debt and equity. Building major infrastructure products is never easy, especially in the UK, where they typically cost more and take longer than expected.
Po-faced
Theres the danger of dilutions if costs overrun and the company has to raise more funding, which will come at the expense of existing shareholders. Sirius has arranged a string of contracts forits multi-nutrient fertilisers, mostly with Chinese companies, which is encouraging butmust be offset against the fact that first polyhalite production could be as faras five years away.
In the meantime, anythingcould change. Demand for potash could plunge, if supply elsewhere rises, or a better fertiliser is discovered.Were inthe very early stages of what could bea 100-year project and there will be a lot of bumps along the road. This is why its better to buy SiriusMinerals at times like now, when investors are bored and theshare price is depressed, rather than when its riding high on the back of goodnews. Positive news on stage onefinancing would give it another boost, but brave investors might want to buy ahead of any announcement. Understand the risks, though.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.