I remember when I first noticed Sirius Minerals (LSE: SXX). The company had found a vast deposit of some sought-after potash fertiliser stuff, but there were planning permissions needed, and we had no real idea of how such an undertaking could be funded.
It looked like so many of those ‘jam tomorrow’ growth prospects I’ve seen over the years, and it seemed like a big risk.
But the good news started to roll in — permissions for digging its big hole under the North York Moors, and to build its harbour facilities, and successful fund raising. So I began to wonder what flavour of jam it would be rather than whether we’d get any at all.
The share price soared back in August last year when all of this was coming together, and I thought the time to get in while it was looking super cheap had gone. Then price fell back again, as so often happens with spikes like this… but unusually, it fell right back to the same level it was at before those chunks of good news came through.
Seeing the same price I was looking at a few months earlier but with the risk considerably reduced, I bought some at around 18.5p. The price has now risen to 24p, but are we still in a volatile up-and-down phase or are we looking at a sustainable new price level?
A couple of things are swaying me towards the latter.
Stability and progress
Firstly, the company’s move to a main market listing and away from AIM is an important one. Many small growth companies start on AIM for the very good reason that regulation is considerably looser and a lot less expensive to comply with. But the downside is that it leaves the way open for unscrupulous companies to con their investors through questionable accounting and other shady activities — and the AIM regulatory folk don’t exactly have a shining track record of doing much about it.
Now, I never for a moment suspected Sirius to be anything but squeaky clean — the company was refreshingly honest and open about its dealings. But being subject to the main market’s tighter rules does lower risk, and that boosts confidence among the City’s big investors.
On entering the FTSE 250, the company’s shares will also find their way into various index tracker funds, and that should provide a bit of a boost and add some stability.
And, the mainstream press is getting interested too, with the Mail on Sunday recently tipping Sirius as “an adventurous long-term buy“.
The other thing is news flow. With stocks like this, we typically see a price hike whenever some progress is announced, and then a slow decline all the way back again in the newsless months that follow. Sirius, however, has decided to report on its progress every quarter, and that should help keep the eyeballs glued.
In the first such update in March, chief executive Chris Fraser reminded us of the £1bn in funding secured last November and said “we are pleased to be progressing in line with schedule and budget” — and hearing that every quarter would be nice.
All in all, the Sirius story seems to be coming together nicely, and I can see today’s sub-30p price levels being history before too much longer.
I think I avoided the error of buying Sirius Minerals too early, while the risks were too high, but there are plenty of other traps that investors fall into only too regularly.
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Alan Oscroft 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.