Im all in favour of long-term investing, but exactly how far-sighted can you afford to be? You may need binoculars to spot the ultimaterewards of investing in AIM-listedpotash miner Sirius Minerals (LSE: SXX), as they remainsuch a distant prospect.
Homefront
Onereason investors still get excited about SXX is that its looking to dig the worlds largest polyhalite mine not in Australia, Chile, Mexico or Mongolia, but right here in the UK, in the scenic North Yorkshire Moors. Thats also why investorshave to bepatient, as the company has had to negotiate the worlds toughestplanning regulations, a process thats now largely complete, mercifully.
The next stage is likely to prove just as arduous: securing at least 2bn worth of investment to fundthe project and develop export facilities at Teeside. The fact that the mine will be dugbeneath a much-loved national park will only add to the expense and effort. As does the collapse in commodity investment, although this can be overstated, as Sirius wont be adding to the glut of metals on the market right now.
In a hole
Broker Liberum Capital has been positive about the stocks prospects despite the lengthy timeframe, setting a target price of 38p. That suggested a 110% upside last November, when the stock traded at 18p. Today, with the Sirius share price slumping to12.75p, the potential upside is nearly 200%.
One reason the share price has fallen is the wider stock market and commodity sell-off, which has dampened sentiment across the board. Since this says little about the prospects for this particular stock, somewill see this as a good reason to buy into this potash-tastic prospect at a discount. On the other hand, it could make it harder for chief executive Chris Fraser to assemble that 2bn.
Going underground
Theres another reason the stock has fallen by a third lately. On 27 January Siriusannounced a delay in its definitive feasibility study, which willnow appear in March, two monthslater than planned. Management blamed the delay on the complex amount of information itmust compilefrom various suppliers, consultants and engineering firms, essential for such a large-scale project.Investors were disappointed but they should have kept their heads. Given the long-term nature of this project, a delay of a couple of months is neither here nor there, unless it signals underlying problems.
Anybody who buys this stock must understand what they are dealing with: the mine has an expected life of more than 100 years. Piecingtogether the puzzle is laborious and you get no reward while you wait, because with no revenues, theres no dividend either. There are signs of progress, such as the various polyhalite supply agreements Siriusis striking with major agri-business customers. This includes a seven-year deal to supply Chinese import and export group Huaken International with up to500,000 tonnes a year, announced on Christmas Eve. But ofcourse that means littleuntil the mine becomes fully operational.
So yes,Siriusreally could have a 200% upside. Thequestion is: how long are you prepared to wait?
Special small cap investment strategy. To learn more about investing in small companies and the amazing opportunities they can offer, be sure to read the latest piece by Mark Rogers, our Chief Investment Advisor.He’s come up with a very special strategy. Read about this small cap strategy here.
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.
