Is Sirius Minerals PLC The Perfect Partner For Rio Tinto plc In Your Portfolio?

Should you buy both Sirius Minerals PLC (LON: SXX) and Rio Tinto plc (LON: RIO) right now?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While Rio Tinto’s (LSE: RIO) (NYSE: RIO.US) share price has fallen by 3% since the turn of the year, Sirius Minerals (LSE: SXX) has seen its shares rise by 21%. The reasons for this are clear: the iron ore price has fallen to a ten year low and, with the vast majority of Rio Tinto’s profits coming from the sale of iron ore, investor sentiment in the company has declined. Meanwhile, Sirius Minerals has been the subject of takeover speculation and has announced positive news flow regarding its crop trial results, which has boosted its share price.

Differing Futures

Clearly, the recent past has been very different for investors in the two companies, with Sirius Minerals having been a better company to hold than Rio Tinto since the turn of the year. However, that could be about to reverse over the medium term, since the outlooks for the two companies are very different.

For example, Rio Tinto has a very bright future ahead of it and evidence of this can be seen in the fact that it is forecast to increase its bottom line by 23% next year, as increased production and efficiencies start to make a positive impact on its bottom line. And, looking further ahead, the price of iron ore could increase substantially from its ten year low, since the global economic outlook is improving and there is potential for further Chinese stimulus.

Meanwhile, Sirius Minerals has a far less certain future than Rio Tinto. In fact, the next few months are set to be crucial in determining whether Sirius Minerals ever becomes a viable business, since a decision regarding planning permission for its proposed potash mine in York is set to be taken. This could happen as soon as next month, although delays to the process would not be a major surprise. Should it be approved, then the company’s share price is likely to soar and a bid could be on the cards, while a rejection (or even delay) could cause the value of shares in Sirius Minerals to fall significantly.

A Combination Play?

This, then, could lead investors to decide that a combination of the two companies is a worthwhile approach. After all, they provide exposure to different commodities, are of very different sizes and have very different risk profiles. However, Sirius Minerals remains a very difficult company to invest in – even if it is paired up with one of the largest mining companies in the world.

That’s because it has no revenue, is burning through cash and seems to be wholly dependent upon one decision from one planning authority to determine whether or not it will ever fulfil its goal of developing a potash mine in York. Certainly, it could gain approval and see its share price soar, but it seems to be a bet rather than an investment at the present time. And, with Rio Tinto having such a bright future ahead of it, the most logical option could be to simply buy Rio Tinto and leave Sirius Minerals on your watch list.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Rio Tinto. 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.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »