Why the SXX share price dip makes me want to buy more

Sirius Minerals plc (LON: SXX) shares have slumped. Is that a sign to sell, sell, sell or buy, buy, buy?

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.

The Sirius Minerals (LSE: SXX) share price has dipped again, losing 40% in a little less than three months.

But the only thing I find surprising is that people are surprised by it. When I bought Sirius shares, the one thing I was pretty much certain of was that I’d be facing a volatile share price ride.

Can you think of any resource-based company that has had a smooth ride in its net-spending development phase? I can’t.

I expect Sirius shares to spike when news is good, drop when it’s less good, and probably wander slowly downward when there’s no news at all. This time, it’s been the revelation of increased development cost estimates that’s done the damage.

How much more?

The bulk of the share price dip came in September, when the company updated its estimate of the capital needed to get its potash mining operation to the first stage of production. The new figure comes in at between $3.4bn and $3.6bn, and that’s $400m to $600m more than earlier predictions.

Let me pose another question. How many major engineering/infrastructure development projects of this scale can you think of that have ever come in on budget? I’m sure some do, but I can’t put my finger on one right now. In fact, I’ve seen suggestions that between 80% and 90% of development projects come in over budget, and in my 30-year software development career, just about everything I’ve ever worked on took longer and cost more than expected.

Really no surprise

There will always be unexpected costs, and humans are notoriously bad at accounting for them, even when they know they’re likely to happen. Then there’s always pressure to keep cost estimates as low as possible — even when there’s no explicit pressure, there’s an innate human tendency to err on the optimistic side.

I’ve always expected surprises from Sirius Minerals as its development progresses, but the one thing I’m absolutely not surprised by is that its cost estimate has been lifted. And I say that even though I’m convinced that Sirius has done, and is doing, a much better job in its forecasts than is typical for major engineering projects.

I’d go as far as to suggest that anyone who thinks total cost estimates at such an early stage in a project can really be anything more than reasonably well-informed guesses should, well, perhaps reconsider their investment strategy.

What do we do?

I expect to see Sirius shares continuing on a jittery path over the next few months, as the company seeks to finalise its funding some time during the first quarter of 2019. In theory, we’re heading into a make-or-break period, as the securing of funds should see Sirius financially sound right through to production. But if it can’t get the cash, we can’t be sure whether it will even be able to survive beyond 2019.

But with so much at stake, I really can’t see major investors letting such a long-term opportunity slip through their fingers.

I reckon that means we’re now in a new buying opportunity, and it’s making a Sirius top-up look increasingly attractive as I’m considering what to do with dividend cash that has built up in my SIPP.

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.

Alan Oscroft owns shares of Sirius Minerals. 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.

More on Investing Articles

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »