2016 in review: Sirius Minerals plc
Most investors would be fairly satisfied with a 20% rise in one of their holdings over the course of a year. After a roller coaster 2016 however, some of those with stock in Sirius Minerals(LSE: SXX) may beg to differ. Nevertheless, I think investors should be delighted with the progress made by the company over the last 12 months.
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Things only really kicked into gear for Sirius in March. It was then that the company announced the findings of its two-year Definitive Feasibility Study. Based on average operating costs of $27.2 per tonne, it was suggested the company could deliver eye-popping cash margins of 70%-85% with annual earnings estimates of between $1bn and $3bn. Add in an 100-year life span for its mine and a net present value of $27bn at the beginning of production and it's easy to see why the company began courting attention.
That said, it wasn't until July and August -- while so many of us were still considering the consequences of the UK's decision to leave the EU -- that shares in Sirius began to soar. While finally receiving approval for its harbour facilities at Teeside will have contributed to this rise, the scale of the jump (from under 20p to over 50p) suggested a degree of hype was taking over. After all, funding for the polyhalite mine still needed to be found. When this didn't arrive as soon as some hoped, shares began to drift downwards.
When it eventually announced its financing solution in November -- including an open offer for existing shareholders -- Sirius was back making headlines. On learning that new shares would be issued at 20p, many holders were dismayed. Cue a mass sell-off as a proportion of investors took up the challenge of attempting to buy all their shares back at a lower price. With the share price now just below 18p, I tip my hat to those who followed this course of action.
So, how will shares in Sirius perform in 2017? I'll save my thoughts on that for when I next look at the company in January. For now, here's what I think long-term investors -- particularly those holding paper losses -- should hold on to.
While a big red mark in your portfolio is never pleasant to look at, it mustn't be forgotten just how far Sirius has come in a single year. Here's a company that has successfully negotiated all obstacles in its way -- from obtaining all necessary planning permission for the mine (no mean feat given its location in a national park) to raising the finance needed to actually build it.
Sirius Minerals was and will continue to be a share that only those with sufficiently long investing horizons and tolerance for risk should consider for their portfolios. If ever there was a project that called for steady nerves and patience beyond that usually expected for an investment to come good, this is it.
For some investors, this may be asking too much. Perhaps the biggest revelation for investors in Sirius this year was discovering just how long they're truly prepared to hold the stock for. In my opinion, this is just the end of the beginning of what could be a tremendous and highly profitable project for shareholders and the UK in general.
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Paul Summers owns shares in Sirius Minerals. 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.