Sirius Minerals PLC (LON: SXX) was a fascinating attempt to bring to market a globally sized fertiliser resource. Within the story is a series of warnings to us as investors. The project itself may well, eventually, come to market but it won’t be in the hands of the original investors. Given that we look at all such projects as investors that’s what the warning is in the tale.
The background is that modern fertilisers are vital to civilisation. So, new sources of minerals that go into fertilisers are always welcome. It’s also been – arguably so but likely so – observed that the fertiliser minerals market was subject to an oligopoly. Few suppliers, prices well above where a free market might put them. So, an attractive market if a suitable mineral resource to mine could be found.
Something a little different from the normal potash rock was found under the North Yorks Moors, so why not develop that? At which point we get to see how difficult life as a junior – that is an independent with no revenue trying to develop a new deposit – can be. There was much insistence that there could be no mining in a national park, for example, this necessitating an expensive tunnel as a method of delivery to the docks of the completed product. Polyhalite was indeed different from those more normal minerals so there was doubt about who would buy it. To the amusing extent that the bureaucrats tried to withhold the mining licence because they couldn’t see who might buy the output. The concept of new customers for a new mineral never occuring to them.
So, there were those worries about customers and pricing. The problems of fighting the planning permission system. Obdurate bureaucracy, which is always with us. None of this being about the actual mineralisation, which is an example of the dangers junior miners face. Even when you’ve found – and that polyhalite is definitely there – a decent mineral resource that doesn’t mean that value will accrue to the investors. There’s much fighting to be done gaining permission to mine as well.
But the biggest problem with Sirius Minerals was simply that the project was too large for the capital base. Largely funded by individual investors when push came to shove and the hundreds of millions of £ necessary to go into production were needed they couldn’t be raised from that extant shareholder base. At which point a part completed but capital bare mine turns out to be worth very little indeed. Which is why Sirius Minerals was taken over by Anglo American PLC (LON: AAL) at what most think to be a bargain-basement price.
That Sirius Minerals project may well come to market but it won’t be owned by those original shareholders. Which is, again, a warning of the risks of junior miners. They may or may not find worthwhile minerals, they may or may not gain planning and licensing, and even if they do all and both of those they can still run out of money.
Anyone still with Sirius Minerals shares, they’re not tradeable. Contact your broker to see how you might – still – be able to accept the Anglo American cash offer. If the broker doesn’t know or can’t help then start here at Sirius Minerals and work through their documentation.
Any cash received is most unlikely to be an interesting sum given the takeover price but the consolation – the only one left – is that formally closing out the position will produce a tax write-off.
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Tim Worstall is a freelance writer specialising in economics and the financial markets.