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Why I’m buying Sirius Minerals after its share price fell 50% this year

Manika Premsingh

We are almost at the end of 2019 and what better time than this to take stock of our investments and plan for the next year. The one share I have been keenly observing is would-be polyhalite miner Sirius Minerals (LSE: SXX), whose fortunes tanked miserably this year. So much so that on average, its share price is half of what it was last year.

At the heart of its troubles is a funding crunch. One delayed and another abandoned bond sale later, the company’s ability to keep its operations going has become increasingly suspect. Around a month ago, it came up with a fresh new plan to keep operations going, but so far we haven’t heard of any developments on that. Can SXX now pull a rabbit out of hat?

Developing revenue pipeline

It still looks like a roll of the dice, but I think if there was ever a chance for it to get funding, it must be now as more clarity develops on its revenue pipeline. Most recently, it signed a deal with Muntajat, a state-owned distribution company in Qatar to sell its future flagship product, POLY4 fertiliser, to various countries.

Earlier this year, it signed an agreement with India’s agricultural cooperative society, IFFCO, to supply the fertiliser for 11 years. So far, things seem to be going well for SXX on this front, which reported a 38% improvement in crop yields of chick peas after a trial use of POLY4. With India being the second most populous country in the world, with growing food requirements, this could bode well for Sirius in that this is possibly a first step into a large agricultural market and if successful, can also open up other markets to it.

Buyout possibility

One of these could be China, which is even more populated than India. In fact, speculation in recent news is that Sirius Minerals may be bought out by a Chinese company for this reason. If SXX does indeed fail to raise funding and does end up being acquired, that may not be a bad thing for investors either. On the contrary, its share price could rise on such news.

I remain positive on SXX’s prospects, especially because the price is so low now that there’s little to lose on the investment and much to gain, just so long as we don’t turn our investments into a gamble. As I have said in the past, only invest what it wouldn’t hurt you to lose. If pure equities are your favoured route to investing, for every share of Sirius Minerals bought, I’d also buy one of a super-safe stock that has given consistent returns in the past. So, even if I lose my money on SXX, at the very least the loss is neutralised by gains elsewhere.

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Manika Premsingh owns shares of Sirius Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019