Sirius Minerals plc: time to buy in or bail out?

Hands catching potash.

In today's quarterly update, Sirius Minerals(LSE: SXX) informed shareholders that site preparation works at its North Yorkshire polyhalite mine were "well advanced", with the project "on time and on budget".

"It has been a productive quarter with timely progress made on site preparation works in advance of shaft sinking commencing in quarter three. The team on site and at our headquarters has grown considerably as we continue with the delivery of the Woodsmith Mine and its associated infrastructure," said CEO Chris Fraser.


The company also said it was looking at ways to shorten the project schedule, and has already incorporated some of these changes into its development plan by optimising its shaft design. And as this should mean that Sirius would get towards production earlier, it would help to de-risk its development.

It's the latest in a string of good news for the fertiliser development company. Earlier this year, it secured some major off-take deals and now has a total of 3.6m tonnes in binding 'take or pay' off-take agreements. And only last month, it joined the FTSE 250 stock index, after it moved to the Main Board of the London Stock Exchange.

Analysts from Shore Capital think the 'risked' net present value of Sirius shares are worth between 65p to 83.5p, which implies an upside of potentially more than 100%.

Long term

Nevertheless, Sirius is still very early in the development phase, meaning the company will likely encounter setbacks before it begins production. As such, Sirius shares fell by as much as 4% today as investors took profits after a year-to-date gain of 63%.

Despite the risks, I still reckon Sirius is a long-term value play -- and I'm looking at starting a position should its share price dip below 28p.

Drilling results

Sirius is not the only small-cap miner with promising growth prospects. SolGold (LSE: SOLG) reckons there's a significant chance of finding huge copper and gold deposits in Ecuador.

Shares in the miner soared as much as 7% today after the company announced that it had discovered "one of the most outstanding drilling results in copper and gold exploration history" from the rich Alpala copper-gold deposit in its Cascabel project.

This forms part of the growing evidence that the Cascabel deposit in Ecuador has the potential to rival the scale of the largest existing mines, such as Grasberg in Indonesia and Oyu Tolgoi in Mongolia. Such new discoveries of large copper deposits have become extremely rare in recent years and companies have had to spend ever bigger sums to find similarly large deposits.

More tests

However, the miner is still at a very early stage, and many more drill tests are needed to confirm the size and economic value of its project. As with all mining operations, but particularly for an early-stage project, we need to understand that the road from discovery to producing significant quantities of mineral is never easy, nor predictable.

Certainly, the stock has huge potential if the Cascabel deposit turns out to be as big as some have predicted. However, after a near 1,200% surge in its share price over the past 52 weeks, I'm anxious about getting into a stock that has already done so well.

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Jack Tang has no position in any shares mentioned. 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.

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