[On :freetrade:] Sirius Minerals - SXX 👾

It isn’t just 4000 jobs though but an investment in a community. Trickle down of money from suppliers and workers.

As to why don’t they borrow from elsewhere, that assumes that there is a lender willing and able to lend at a reasonable price - far from always the case. That doesn’t make the project not worth investing in.

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But if the product is not competitive (which nobody knows yet) it could be just a literal waste of tax-payer money.
Also this argument is basically asking for state ownership and funding of companies and thus communism. Just throwing money at everything to keep people employed.

A lender is specialised in deciding if projects are worth investing in or just too risky. They’re much more qualified to say if it’s worthwhile than some local MP who wants re-election.

Suppliers will probably be wherever is cheapest (included abroad) unless the government placed some restrictions on where they could get supplies from.

If the government was going to waste 66% of market cap then they may as well just let it fail and buy the mine on the cheap and nationalise it after investors are wiped out

£2.5bn to dig for a replacement for cow dung, which will probably also be bad for the environment from all the mining (despite what they say)…that money could be spent in university labs across the country finding an alternative scientific solution

For heavens sake, no one is talking about state ownership (which isn’t remotely the same as communism anyway - the State owns plenty of investments in companies that compete in the market). Furthermore the State already underwrites (which is not the same as owning or even investing in) plenty of projects that it seems to be worthwhile for the public good - that includes some industries that would fail without state support.

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“A lender is specialised in deciding if projects are worth investing in or just too risky”

Seriously? How many lenders really understand even mid size capital projects? Most of the lenders I’ve seen involved in capital projects absolutely don’t have the expertise or understanding to evaluate the risk - despite their best efforts. Even assuming that the lender does have an understanding that doesn’t mean they have the capital necessary to lend or that they would do it at a rate that would work for a particular project.

There’s an astonishing amount of naivety being displayed from a group of potential investors!

How much do you have invested in SXX?

Just some spare change mate. Less than I would bet on Brighton to win their next football match.

I invested about 2% of my portfolio because I know it’s risky. Can I ask something without being judged? Why is Sirius risky? From what I understand there’s stuff in the ground, worth a lot of money, and all Sirius has to do is get it out of the ground. IIRC there is only one other polyhalite mine in the world. Can someone explain why this isn’t a sure thing, or why this is any different to buying a gold mine or oil well?

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I think predominantly because they may never get to that point - they are about to run out of cash and they will either secure the funding or they won’t. The risk is that they will disappear before they even get started.

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I am not too familiar with SXX but getting that stuff out of the ground takes a lot of capital and there are many political and pricing risks.

Adding to the 2 answers above:
It’s a new product. Nobody knows if the agricultural community actually will use it. Depends on the price, which is unknown. So there are no rentability projections possible even if they get financing and succeed to haul it out of the earth.
There are only unknowns in this company, no knowns. It could be a 100x if it survives and it can profit on first-mover advantages but most likely it will just go bust.
Mining is incredibly capital intensive and price sensitive. Even gold- and other miners do not run constant profits every year, but occur losses in many years.

Thank you! (And to David and Nick). :smiley:

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True. This one is extremely risky and in my opinion nobody should buy any share unless you are ready to lose 100%

I read people in the area are buying shares ‘using an old pension pot’, Nuts: https://www.gazettelive.co.uk/news/teesside-news/sirius-minerals-could-handed-government-16859137

“I invested because it was a guaranteed income”

That is how people lose their pensions right there.

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Cash flow negative mining / chemical company. I believe they’ve been cash flow negative since 2009. It’s ripe for death spiral financing.

If my data is correct, number of outstanding shares was 100M in 2009, today it’s 7 Billion. Think about this one. They’ve issued billions of shares diluting mainly retail investors!

I explained death spiral financing here -

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Is there a calculation of how much the shares will be worth if the project is successful and goes as planned? There are figures for the volume of the mineral down there and a market value for the product. They’ve also stated the tonnes that will be mined per year.

What would be the standard way to calculate the value, using discounted cash flow?

I think more frightening is that when they came to market in 2017 there was 4B outstanding. Thats a 75% increase in shares outstanding in 2 years! The expected debt/EBITDA rate is expected to stay around 3.5x through to 2035 so there is little chance of shares being bought back in the medium term.

Current data based on analyst estimates (which aren’t likely to be accurate) are:


None of that is really useful since they wont be pulling anything out of the ground for those estimates so its a little unfair to judge by those numbers. Revenue is 0 for FY2021.

@AchillesFirstStand I’ll have a go for you, but these numbers are very rough.
Latest EBITDA margin is expected to be 67-80%. And the first year of production should bring in about $1.3B based on average market prices. so that should equate to about EPS of $0.12 to $0.14.

So based on todays price of around 10p per share the first year of production should make you’re money back :slight_smile: But that is based on the following IFS:

  • If they get there at all
  • If they can sell at the average price of $130 per tonne
  • If they can mine 13M tonnes
  • If they can sell of those 13M tonnes
  • If the operating costs of business are in line with their expectations
  • If the cost of their debt is in the 7% range they expect
  • If CAPEX stays flat
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Awesome. Carrying on with those assumptions, if we look at established mining companies they have P/E ratios of around 10, on average.

To calculate the share price, do you literally just times the earnings by the P/E? So share price would go up to $1.20 in this instance, about 10x from what it is now.

Long term mining companies have P/E’s of around 15.5 (30 year average of FTSE 100 mining companies) but this is skewed heavily by larger diversified mining companies that have a higher P/E.

The number you have right now (10) is factoring in that all mining companies are looking ‘cheap’ because of a global economic slowdown (we buy/consume less commodities during a recession). So markets are pricing in a fall in earnings for these companies in the short to mid term.

A couple of points based on your post:

  • Yes you could use P/E to get to that conclusion but that would be based on all of my above “ifs” remaining true. I think this nicely sums up why people are so interested in this stock, when you break it down to the numbers that might be possible then it looks like a very good investment.
  • Personally for an asset intense business I wouldn’t be using P/E. To value that company fairly you need to take account of what is stuck in the ground & what the costs per tonne are going to be.
  • That conclusive number of $1.20 is based on FY 2022 as this will be there first year of production. A lot can happen between now and then (see above ifs).

I stand by earlier statements on Sirius:

  1. I think you’d get a better return on your investment by setting fire to your money
  2. I cannot see how a reasonable person can value a big hole, a few forwards contracts and a load of debt
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If you do a P/E calculation on SXX you get a division by zero error

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