I've been enthusiastic about Sirius Minerals(LSE: SXX) for some time, and when the shares soared to 45p in August 2016 I wondered if I'd missed the boat. But experience tells me that 'jam tomorrow' shares often go through such gyrations in the years leading up to eventual profit (if there is any), with short-term punters jumping in and out on the merest scraps of news.
Not that last July's news leading to the share price spike was a 'scrap', of course. It was actually a pretty momentous event as the company confirmed it had gained approval for the final major project it needed to turn its North Yorkshire polyhalite project into a going concern -- its crucial harbour facilities.
But just as the price ascended, so it descended again, equally sharply -- and with that final approval in place, I was happy to buy some shares back at the 18p level.
Do I think the price will hit 45p again in the relatively short term? Yes, I do. In fact, I think it will probably happen several times over the next few years, as erratic share price movements are pretty much inevitable for young growth stocks.
I fully expect some bit of news, I've no idea what (but possibly during the course of 2017), to get the short-term traders wetting their pants with excitement again, piling-in and pushing the price up. Then we'll see it deflate again when people realise the company is still not expecting full production to be achieved until 2027.
But current prices, short-term spikes, breaking 45p and other 'magic' levels... all count for nought to serious investors who are peering forward to considerably more distant horizons.
Sirius currently estimates the net present value of its polyhalite fertiliser project at a little over $15bn, and suggests that revenue by 2027 could reach $3bn. Mature miners tend to be valued at a price-to-sales ratio of around three, suggesting a reasonable 2027 market cap for Sirius in the region of £7bn -- it's currently valued at just £750m.
Of course, that's a vast oversimplification, and a true per-share valuation would depend on earnings and debt at the time, coupled with the number of shares in circulation (which is likely to be considerably more than today based on future equity issues), real timescales and costs of development... and a whole host of other unknowns.
My colleague G A Chester has made an informed stab at it and suggests we could see a share price of around 270p by 2027. That would be a 15-fold increase from today's 18p, which I find a much tastier prospect than any thoughts of a 45p share price in the near future.
Regular news flow
Conscious of the effects that infrequent news reports can have on investors and share prices, in January Sirius announced a new plan for keeping the market informed. The firm told us that it will henceforth issue regular quarterly updates on its construction and development progress, with the first coming at the end of March.
We'll still get key milestone updates too, but if this approach creates a steadier stream of expectations we should hopefully see a bit less share price volatility. But it's still going to be up and down for some time yet, I'm sure.
And 45p? Pah!
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Alan Oscroft owns shares of 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.