Sirius Minerals shares are looking like one of the favourite buys on the UK stock market this week despite having plummeted by almost half their value in the last year alone. Yet there seems to be a strong consensus between brokers and traders that this is a stock to load up on this week. But what is causing all the enthusiasm?
The mining firm has been seeking financing for its Yorkshire project in the region of GBP 3.8 billion. More equity has been issued via an open offer to existing shareholders, which would give them one share for every 22 they own. The miner has also been prepping a big corporate bond issue in the region of GBP 400 million.
Shore Capital in particular has been enormously bullish on the Stage 2 financing for the project, describing it as having the scope to unlock “vast potential” and catalyse a major re-rating for Sirius Minerals shares.
Sirius Minerals has been selling more shares, equating to 28% of the company, as it seeks to raise capital. These have been priced at between 15p and 18p and are reportedly oversubscribed.
It has been a bit of an up and down ride for Sirius Minerals shareholders in April, with shares trading between 21p and 16p over the last few weeks. However the company is still looking undervalued from a historical perspective. Investors are obviously hoping this will be a project that will bring tremendous positive cash flow, but the dilution of existing shareholders has been putting pressure on the Sirius Mineral share price.
All the brokers who cover the stock have it rated as a buy, including Berenberg most recently, which rated the shares a buy on 8 May with a target price of 35p.
Sirius Minerals is currently engaged in the development of a major polyhalite mine in Yorkshire. It is in the process of sinking two shafts to a depth of 1600 metres at the site in Woodsmith. It completed the construction of the 35 metre wide service and production shafts last year. A third, 360 metre shaft, is also being sunk, which will be used by a tunnel boring machine that will support construction of the mineral transport system.
Polyhalite is a fertilizer. It is considered to be a safe, environmentally friendly product that is used for sustainable farming. It is very easy to process into polysulphate, which is used by the end farmers. It is regarded as a major potential source of much-needed sulphur for crops. Currently the world’s only operational polyhalite mine is being run by ICL Boulby, which went online in Cleveland, UK, in 2010.