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

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »