York Potash - Financial Finesse

Captain Qahn's picture

Keep it Classic : "Money works in mysterious ways. It brings out the good and it brings out the bad. Let it flow and mind thy self."   Wise weirds.

Use the Force :  "...over these last two weeks we've just about all of us experienced a 100% increase in our initial stake. Some have experienced two, perhaps three hundred percent. It's even feasible that a lucky, no, savvy, few have actually experienced over a THOUSAND, maybe two thousand, percent increase..... for God's sakes let's not turn this great site into what some sites on LSE have become: nothing more than an exchange of mutual insults about people's intelligence, motives, sad lifestyle, parentage even.... ".  Investors daze out in the field.

Who You Winking At? : "What is known is that fraser has very publicly stated  that works start from Sept...."   Balfour Beatty continue to progress the pre-construction work with a neat little schedule here:

Preliminary works and outstanding pre construction requirements via Balfour Beatty : NYM/2016/0618/CVC

These works began last March and are expected to continue to meet the NYMNPA planning conditions until November 2016.  Site prep is essential. Efficient. 

https://www.youtube.com/watch?v=J_c1xeCngxU

Mmmm ... Red Herring:  "We can actually do this without shooting ourselves in the foot as we all want the same thing - to make money...".  Erm, not quite most want to see this mine constructed and productive. Tho as time takes its toll the recent rise in the share price has given many small local investors an opportunity  to review or reap their investment to suit their own circumstances, grace or brace...  cash in, top slice, or indeed top up and take the long term view.  Practice, preach ...  Polly is on a perch... grin n bear.  Scrump n scream.  

Scrummy.  The Chairman's Statement : "Highlights

·     Completion of definitive feasibility study for the Company's North Yorkshire Polyhalite Project (the "Project").

·     Selection of preferred construction contractors for the Project - Associated Mining Construction (UK) and Hochtief Murphy joint ventures.

·     The announcement of a Project capital funding requirement of US$2.91 billion and a Stage 1 capital funding requirement of US$1.09 billion. 

Cash resources at the end of June 2016 were £16.9 million compared to £29.1 million at 31 December 2015 and £25.1 million at 30 September 2015."  http://siriusminerals.com/site/assets/files/4249/sirius_minerals_-_inves... .  

Indeed, tis a lot of money to be found, if your money can work better for you sobeit.  Investment takes time :  "Site preparation and clearing of planning conditions: 22 months Main shaft: 36months from start of main sink to first product MTS: tunnel break-through ~26 months from completion of launch caverns and portalsRamp up to 10Mtpa over three -year period from first product" P18 :

The York Potash Project is a commitment from all investors,  financial, human, technical, envrionmental  ...  resources are aquired, Pests....  emotionals?  Sighs really don't matter.  

http://siriusminerals.com/site/assets/files/4249/sirius_minerals_-_inves...

p20 : http://siriusminerals.com/site/assets/files/4249/sirius_minerals_-_inves...

p22 : http://siriusminerals.com/site/assets/files/4249/sirius_minerals_-_inves...

My lucky no... hey ho.

https://www.youtube.com/watch?v=d1yCh2WRj88

Politics Make for Strange Bed Fellows : ... mebbe we can't build this ourselves afterall (Bolivia) ...  read the bumpf direct, OK, Capitalism require Captains: 

http://www.proactiveinvestors.co.uk/companies/news/128468/stockbroker-mo...

http://www.proactiveinvestors.co.uk/companies/news/129564/sirius-mineral...

Tis a fact: "Shares have almost trebled in value in the year to date as the pieces of the jigsaw have begun to fit into place – and they show few signs of flagging.The interim results update last week, which contained little material news, has prompted an 18% rise in the share price.According to Shore Capital’s Low, the stock, currently changing 43.4p, is worth 75p, which would propel Sirius’ market capitalisation to £1.7bn."

Bollox... time shifts, stolen moments.... however, the definitive  'we don't want lectures on taxation ...'
 
No More Death Stars:   Wots the Rush?  .... 'Time for new threats and challenges.'   Dynamics.... thermals.
 
 
 
.... is speculating that further offtake agreements are agreed prior to finance and move to FTSE 250.    Por Quoi? (ask the French not the bench)
 
Hold the Cuteness: The Finesse - the financing of the York Potash Project has been stated by Frazer as ... erm : http://otp.investis.com/clients/uk/sirius_minerals/rns/regulatory-story....
 
"As previously announced, the Company is seeking to finance the stage 1 capital requirement via a combination of structured capital and equity in approximately equal proportions.  The structured capital is likely to take the form of various instruments such as a royalty, debt plus warrants or a convertible note.  Various parties are in the process of conducting due diligence to support structured capital proposals and the Company will provide an update on the outcome of this process at an appropriate time.

Work on the stage 2 financing has progressed with the Company conducting a market sounding with potential senior debt lenders.  Fifteen prospective lenders participated in the sounding process with positive feedback received from the majority of participants.  The Company continues to work with a select number of banks with a view to forming a small group of mandated lead arrangers.  It is envisaged that once this process has concluded (in advance of the stage 1 financing), the Company will have indicative terms for its stage 2 financing and support from the mandated bank group.  On the basis of feedback provided so far, the Company is confident that a commercial bank transaction will be capable of meeting the entire revised stage 2 capital funding requirement of US$1,821 million."

Razor time?  Cutting cloth ... Frazer's got his work cut out :-))  

Clearly.... tis not a game for D'arts. 

Mind the world keeps spinning...  Axis:
 
Mopes ... tis MOP: "Discussions are preliminary and there’s no assurance that any transaction will be agreed on, both Canadian companies said in separate statements Tuesday, confirming an earlier story by Bloomberg News about the potential combination. A deal could be announced as soon as next week, said people familiar with the matter, who asked not to be identified because the deliberations are private.

Based on today’s closing share prices, Potash is valued at about $14.9 billion, with Agrium at about $13.2 billion. Potash surged 11 percent in New York trading, while Agrium jumped 7 percent. Other fertilizer producers, including Intrepid Potash Inc. and CF Industries Holdings Inc., also climbed."

"preliminary talks about a possible merger of equals as the industry contends with slumping earnings amid persistently low prices for crop nutrients.However, the companies also said no decision had been made, and there is no assurance the discussions would result in any potential deal, which would create a company with a total market value of more than $28 billion."
 
Sterling. Starlings.
 
 
 
"The Company's financing plan was articulated in the announcement of 17 March 2016 and updated in the capital funding requirement reduction announcement of 24 June 2016.  The Company continues to make good progress with its two stage financing plan.

Following a market sounding with potential senior debt lenders the Company has now mandated a group of six financial institutions experienced in mining and infrastructure project finance as Mandated Lead Arrangers (the "MLAs").  The MLAs - Export Development Canada ("EDC"), ING; J.P. Morgan; Lloyds Bank plc; Societe Generale, Corporate & Investment Banking;  and The Royal Bank of Scotland Plc - have been mandated on the basis of a non-binding but mutually agreed term sheet, having undertaken initial due diligence of Project documents.

Once approved the Stage 2 financing is expected to comprise of aggregate senior debt facilities of up to US$2.6 billion (the "Facilities") to fund the Stage 2 capital funding requirement and costs relating to financing the Project.  Financial close for the Facilities is expected to take place in 2018....

"The appointment of the MLAs does not constitute an offer of financing or an underwritten commitment by the MLAs to provide financing.  The MLAs' appointment is subject to market standard conditions including due diligence, credit and other business approvals, and execution of legal documentation acceptable to the MLAs.  Similarly, IPA's prequalification does not constitute an offer of financing or an underwriting commitment.  IPA requires its normal processes to be undertaken in addition to due diligence, such as satisfaction of conditions, HM Treasury credit process, risk committee, credit committee and ultimately Ministerial approval. 

The Company intends to progress the Stage 2 financing, with the MLAs and IPA commencing detailed due diligence, following the successful completion of the Stage 1 financing.  The Company continues to progress the Stage 1 financing and is in active discussion with a number of parties undertaking due diligence.  The details of the Stage 1 capital structure and timing will be subject to further announcement at an appropriate time. "

 
 
 

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9 Comments

Captain Qahn's picture

SXX: Oh Dear .... Grating.

LSE: Smithy7123

"Every time we take out a bet on the price dropping it pops back up and we lose more money. I am really fed up with it. I could do wiv a bit more back up from my fellow shorters. Its no good coming on first thing wiv a few vague attempts to worry shareholders into selling, you need to include some detailed research and future price forecasts like what I do. I see you have all shut up now. I suppose you are all busy trying to close your short positions.I hope you have had more luck than me with that.You so called LTHs make me sick. Why don't you sell up all your shares so that I can make a profit. You are all really selfish. Its not fair.."

pmsl. 

Chille or Cheese ?

"They are really rubbing it in now. I keep on loseing my money.

Its just not fair."

http://www.proactiveinvestors.co.uk/companies/news/129904/sirius-making-...

;-)) https://www.youtube.com/watch?v=CCNyHprEZK8

Captain Qahn's picture

SXX: The Gruff ... 'Inches'

String theory :

"Sirius Minerals, the company looking to build a polyhailte mine under the North York Moors national park, has lined up lenders to provide it with stage 2 funding.

Polyahilte is a mineral that combines potassium, sulphur, magnesium and calcium and is used in fertiliser. Sirius is gambling that a growing world population with more mouths to feed will fuel demand for crops and, in turn, its product.

The company said today it had lined up six backers – JP Morgan, Lloyds Bank, Société Générale, RBS, Export Development Canada and ING – to supply $2.6bn in debt facilities to support the second stage of the mine's development, such as boring underground tunnels.

The agreement is non-binding and depends on certain due diligence checks as well as – crucially – Sirius’ ability to secure stage 1 funding, which will pay for higher-risk tasks such as sinking shafts into the ground.

Chris Fraser, managing director, said the deal was a major milestone: "The company is now focussed on the finalisation of the Stage 1 financing to enable construction to commence as soon as possible.  This positive step on the senior debt financing should provide stage 1 investors with greater clarity and confidence on the total financing of our world-class fertilizer business."

Sirius is in “active discussions” with a number of parties over its stage 1 financing, which will comprise a mixture of debt and equity.

The company, which has attracted interest from retail investors in the area, has promised to create hundreds of jobs in North Yorkshire, in one of the biggest mining projects the UK has seen for decades. It has sought to answer critics who say it will blight the national park by pointing out most construction will be underground, with a 25-mile long subterranean conveyor belt carrying rock samples to the port.

Earlier this year Sirius revised down the projected total cost of the mine by 18pc; it will now cost $2.9bn to build and could be operational by 2021. At full capacity it could turn out 20 million tonnes of polyhalite a year. Last month the company cleared its final planning hurdle when the Department for Transport gave it the green light to build new harbour facilities on Teesside to load up its shipments.

"Technical challenges remain for Sirius but we are impressed with progress and with the team that the company has assembled to bring this project to completion," said analysts at Investec.

Sirius shares were down 4.8pc by mid-morning, but are up 166pc in the year to date.

Sirius’ progress comes after neighbouring firm ICL UK, which operates a potash and salt mine at Boulby in North Yorkshire, announced last month it would also focus its efforts on producing polyhalite. It is seeking approval to extend planning permission in the national park for another 40 years while downgrading production of potash, which is dwindling in supply at Boulby and has been hit by a massive downturn in prices.

The restructuring means that 140 jobs out of its 770-strong workforce are to go at the mine, one of the few still operating in the UK. ICL is currently in the 45-day consultation phase with workers."

http://www.telegraph.co.uk/business/2016/09/01/sirius-minerals-inches-cl...

Hmmm ...  Rock Samples.

 

Captain Qahn's picture

SXX: A Risk Assessment

from the LEgend

"Your 1209:

"As the money for stage 1 will not all be required at once, it is after all a 5 year construction project, then the initial money required may only be US$300m if the stage 2 money can be accessed early."

They cannot do that.

The whole reason d'etre around choosing this 2 stage financing process is to find the minimum total cost to build all this. The early parts of the build - shafts for mine and tunnels - are a high risk construction undertaking, that cannot be financed by the usual low/medium risk bank, debt market or Govt backed sources that the Stage 2 money will comprise. That type of lower cost financing will only become possible to obtain once the high risk aspects of this build are completed. That - amongst others - will be a condition imposed by St2 lenders.

But this first part of this build (Stage 1) costs a considerable sum and will take a specific time. So they have to look elsewhere to fund it - structured capital and equity to raise a stated $1.09bn, with a targeted 50/50 split. Both more expensive than St2 lending (higher interest and share dilution). But other routes would cost even more. St 2 may get arranged and conditionally delivered, but nothing can be drawn from St2 until the St1 work is complete.

Once that is achieved ST2 money can not only be accessed to cover the remaining lower risk aspects of the build, but also more than that requirement can then also be borrowed to pay off the providers of the earlier structured capital. So reducing the total interest burden ahead from then for the whole project as it moves to production. Where all debt can then be paid off.

It should also be noted that if too much debt was to be piled on to the co with this first St1 financing it would put the co at higher default risk if the high risk early build stages were to run into issues.

GK."

Now about those high stakes ... erm wasn't the MTS moved into Stage II or was that phase II.

No impaling tethered goats.

Benefitz Betty's picture

SXX: Time to Get ....

https://www.share.com/blog/2016/august/is-it-time-to-get-sirius-about-co...(1)&utm_content=

"...Take Sirius Minerals. Now here is a company that underwent something of a management overhaul earlier this decade, and under the leadership of Chris Fraser, now looks a lot different. At one point in 2010, shares were at around 2.13, today they stand at 45.26. But things really started to take-off for the company just before the EU referendum – although the timing is a coincidence. Since early June, shares have more than doubled – indeed they have risen five fold since the year’s low.

But it would have been difficult to have foreseen the rise. These days, the company is focused on a polyhalite project in Yorkshire. Polyhalite is a naturally occurring mineral that has certain properties making it effective as part of a fertiliser. The company has begun to look more attractive; in part, because science has been throwing up some positive findings about polyhalite, Sirius’s estimate of the cost of extracting the mineral has been reduced, and to cap it all there was the government approval. If you had gone away and done your homework, and had concluded that polyhalite really was a wonderful product and its potential was being underestimated by the markets, then well done you. Frankly, the Sirius plan in Yorkshire has had attractive elements to it from day one, but it was always a plan carrying risk.

That risk has not gone away, the company has to fund £1 billion to fully exploit the Yorkshire opportunity, and some question whether it can do so. On the other hand, the higher its share price, the more likely it is to be able to raise the money. Ironically, or so it seems to me, the higher the share price, the less risk associated with this stock..."

Erm, not quite ... there are at least two fixed 'factors'. 

Liquidity ;-)

https://www.youtube.com/watch?v=_dirQmAGIXA

Benefitz Betty's picture

SXX: Thawing

".... this is the biggest thing to happen in our neck of the woods that I can ever remember, as much as I'm a shareholder to see the level of offspin that local business will pick up from York Potash over its lifetime is going to be tremendous, that in itself is something I'm proud to support anyway and always, it's often quoted "never fall in love with a share" I most certainly haven't I have fallen in love with a project that will have a serious positive impact on the wellbeing of the area I've lived 40 years of my life, so with that in mind I hope you all can unterstand my sometimes tetchy remarks about certain posts and posters.

I've never quite understood why some seem to have spent an age trying every imaginable angle to discredit what's actually happening here in a UK listed company, considering the stage that this company is now at I wonder if they ever step back and see just how meelly mouthed their continued attempts are, others seem to just talk their trading patten, some in a most subtle way.

I'm sure we have all constantly heard and to a degree taken part in the old " The UK doesn't produce anything anymore, we used to be such a strong manufacturing country, well this mine will manufacture and produce a huge contribution to our exports as well as the internal local area wealth creation, given what ICL deceptively hid from the NYMNP during the planning now shows just how greatful we should be to those people on the planning committee who supported YP with their vote to pass planning permission.

UTP"

Well said.

.... : -))

https://www.youtube.com/watch?v=fVnBBjjjAnY

 

Captain Qahn's picture

Potash Boring?

Yep, to some (UTP) Sirius Minerals may win the most boring of mining &  potash co in the world award ... tis environmental, underground, no one will know it is there ...  however, to others 'tis elemental .... transformational, world class, global and the most exciting project in this region for decades .... I got to see  Benefitz Britons, albeit just the once ... btw  do they have Koalas in the Congo?

http://www.theaustralian.com.au/business/opinion/barry-fitzgerald/elemen...

"It was that need-to-feed-the-world thematic that drove prices for the crop nutrient potash to more than $US900 a tonne back in 2009-10. That prices have fallen away to less than $US200 in the June quarter does not change the thematic.

It was for that reason that last week’s news of a potential merger of Canadian heavyweights Potash Corp and Agrium did not come as a surprise. The industry is signalling that the bottom has been reached and that leverage to the upturn can be enhanced by some sensible consolidation.

Closer to home, the standout potash news was the breakthrough for Elemental Minerals (ELM) and its Kola project in the Republic of Congo. After some false dawns, Elemental has now got on the development pathway (2021 is the target for first production) courtesy of a $US50 million ($66m) equity injection and associated potash offtake agreement.

The equity subscribers were no less than Chilean fertiliser and industrial minerals group SQM, the sovereign wealth fund of the Sultanate of Oman, and the private equity group Summit.

Kola’s main attraction is that it has the promise of being one of the world’s lowest-cost producers with operating costs of less than $US100 a tonne. That’s because it is shallow, high grade, and close to port.

The market’s initial response to the equity and offtake deal (SQM, which is 32 per cent owned by Potash Corp, and Oman’s fund have put their hands up for 40 per cent of annual production) was to push Elemental shares 3c or 18 per cent higher to 19c.

Assuming Kola delivers on its low-cost promise (and the $US1 billion development cost is secured), Elemental is set to become something much bigger than it has been. SQM, Oman and Summit wouldn’t be there otherwise.

Hannes Soll, Summit’s chief investment officer, said: ‘There is no doubt that potash as a mineral will increasingly become a key nutrient to ensure food supply can meet demand. In addition, as Africa’s population increases and its emerging economies grow and improve, the continent presents itself as one of the major growth markets.

“Yet amid all of these growth opportunities, affordability of food supply will remain key and as such potash prices will be challenged as suppliers strive to balance the supply and affordability scales.’’

“Taking all these factors into consideration Summit feels there are very few other potash resources which can, at the scale of Elemental, produce potash at sustainable good prices while remaining profitable …”

Kidman’s lithium bet

In its first excursion into the world of corporate newsrooms, BHP Billiton’s commodities guru has dived into the impact that the rise of electric vehicles will have on future oil demand.

Don’t worry about oil demand, was the point, with lower but continuing growth in demand, and natural depletion of existing fields, putting ever increasing pressure on oil supplies and by extension, oil prices.

But today’s interest was in BHP’s estimates on the growth in electric vehicles and what that might mean for lithium given that for the foreseeable future at least, it is lithium-ion batteries that will be powering the growth.

BHP says in its “Prospects” blog that there is currently 1.1 billion cars in the world’s light duty vehicle fleet, of which about one million are electric vehicles. It estimates that by 2035, about 140 million of them would be on the roads, or 8 per cent of the total fleet of 1.8 billion.

All of that partly explains why the lithium space has been a hot one in the last couple of years. Add in lithium-ion batteries’ role in grid storage and no-grid storage of renewable energy, and it’s clear lithium has a bright future, notwithstanding the debate about whether the supply response will overwhelm demand at some point.

Canaccord Genuity has had a look at that issue and reckons that a slightly more aggressive supply-side response than it was expecting has impacted its medium-term pricing expectations. But it adds that the lithium sector is littered with examples of poor capacity utilisation, project delays and even failures.

“We highlight that any project delays/deferrals could see current tight market conditions (and prices) persist for longer than forecast,’’ Canaccord Genuity said.

It is against that backdrop that Kidman Resources (KDR) is expected this week to be confirmed as a major lithium player on the strength of its Mount Holland project near Southern Cross in Western Australia.

Kidman is already a $100m company thanks to the historical knowledge of widespread lithium-bearing pegmatites at Mt Holland, a former gold producer. And the results from its own first holes have produced 100m-type intersections of good grade. Kidman went into a trading halt of Friday pending the release of its drilling results.

If the results come in anything like it hopes for, analysts will be doing their own back of the envelope resource estimates, and it won’t be any surprise if Mount Holland gets rated as a seriously big lithium deposit.

How that will impact Kidman’s value — it last traded at 32c a share — remains to be seen.

What is known is that the combined market capitalisation of Pilbara Minerals (PLS) and Altura (AJM), the two companies that share the already confirmed seriously big Pilgangoora lithium deposit on the Pilbara, currently stands at a coo l $830m."

Polly Pirates...

Captain Qahn's picture

Potash on Tap

http://www.bangkokpost.com/business/news/1078652/state-push-for-more-pot...

"The Industry Ministry will continue to promote potash mining in Thailand to meet rising demand from the fertiliser industry and reduce imports, says Industry Minister Atchaka Sibunruang.

She said demand for potash, a major element in producing fertiliser, is growing along with rising demand for crops as populations increase. The growth of biofuel crops has also created an additional need for potash, said Ms Atchaka.

The move to promote potash mines is expected to help reduce imports of the crop nutrient by at least 9 billion baht a year, she said.

The Food and Agriculture Organization of the UN said world potash demand is forecast to rise to 38.7 million tonnes in 2018, up from 34.9 million in 2014. Of the total, 56% of the demand growth is in Asia, 27% is in the Americas, 11% in Europe, 6% is in Africa and 0.4% is in Oceania.

"On the supply side, global production is expected to be 51.4 million tonnes, with major producers in the Americas and Europe each claiming production capacity of 17 million tonnes. Asia is expected to produce 8.5 million tonnes.

The Asean region imports around 4.5 million tonnes a year, of which 470,000 tonnes are from Thailand.

Thailand has the potential to produce up to 2 million tonnes of potash a year, allowing it to export to other Asean countries, said Ms Atchaka.

"The government expects more potash mines would help reduce imports of fertiliser. Thailand has several major potash basins that can be dug up to create added value for the country," she said.

Thailand has total potash deposit basins covering 17,000 square kilometres in Nakhon Ratchasima and Sakon Nakhon.

Recently the Industry Ministry granted two concessions to two potash miners. One was for Asean Potash Mining Co with an investment value of 45 billion baht and another was for Thai Kali Co with an investment budget of 3 billion.

Chat Hongtiamchant, director-general of the Industry Ministry's Department of Primary Industries and Mines, said 39 mining companies have applied for concessions to operate a business in Thailand. Of the total, six are under ministry consideration.

"We have not approved any concessions yet as some companies have conflicts with villagers. The government has to spend a long period of time creating an appropriate understanding between the miner and the villagers before taking any action," he said.

Potash mining creates by-products such as sodium that are used in paper, waste management and detergent."

https://www.youtube.com/watch?v=fBGSJ3sbivI

http://www.cbc.ca/news/canada/saskatchewan/encanto-and-muskowekwan-first...

"The CEO of Encanto says his company and the Muskowekwan First Nation will continue to move their proposed potash mine project forward and will continue discussions to supply an Indian trading company with fertilizer. The partners are also working on raising funds for the project.

Stavros Daskos was appointed to the company's board of directors close to a year and a half ago. He has extensive experience with high level government contracts from his work as president of World Defense Holdings, a contractor specializing in infrastructure and national security projects.

He says this deal with India would be for the lifespan of the mine, which according to a pre-feasibility study from 2013 is expected to be over 50 years. For this reason, Daskos said current potash prices do not worry him. 

"The strategy beyond Encanto potash is to really develop a First Nations trading company," Daskos said. "That would allow for the First Nations people — who are basically the owners of these resources — to benefit first for themselves, for their communities, then to establish an international position in big industry."

Encanto and the Muskowekwan First Nation have had a formal agreement with Metals and Minerals Trading Company of India (MMTC) — the government of India's largest international trading company — for almost a year now. In April of this year the agreement expanded to include a commitment for the potash mine to supply a minimum of two million metric tonnes of potash annually to MMTC.

Under the agreement, MMTC will act exclusively as Encanto's worldwide distributor of potash. The company says this is expected to provide access to markets and increased pricing outside of India...."

The proposed $3 billion project is set to be built 100 kilometres northeast of Regina, near Lestock. The development is unique because the Muskowekwan First Nations will have a 100 per cent share and full control over the mine. When this mine is completed, it will be the first potash mine in Saskatchewan on First Nations land....

In 2014, band members voted in favour of the proposed mine. However, some band members still have concerns, including elder Stan McKay.

McKay is worried about how his band will benefit from this mine. He also questioned the chief's role as both the president of the resource company and as leader of the First Nations community. "It's a conflict of interest," McKay said.

McKay said he also wants to see the chief and the president of Encanto conduct more consultations with band members.

The First Nations community and Encanto still haven't announced a start date for construction on the mine."

https://www.youtube.com/watch?v=1RaKSRU60bw

 

Captain Qahn's picture

Yahoo: Sirius Showers

"While some profit-taking was to be expected and accusations of market maker 'tree shakes' inevitable, last week's price falls in Sirius Minerals (LSE: SXX) suggests a toxic combination of unrealistic expectations and impatience led some investors to sell and others to panic and follow suit. But here's how long-term investors can hold their nerve.

Once upon a time...

As humans, we love stories. In the investing world, Sirius Minerals is the ultimate tale: a future FTSE 100 company, capable of producing £1bn of profit every year for the next century with shares currently priced in pence rather than pounds.

But at such an early stage in this story, investing decisions tend to be driven by expectations than facts. As most memory experts will tell you, when we don't have complete knowledge, we tend fill in the gaps using our own (sometimes erroneous) beliefs about how the world works. Doing so in large groups sometimes leads to extreme thinking and herd behaviour.

Having unrealistic expectations about a company (whether it relates to releasing information, future profitability or anything else) increases the likelihood of being disappointed. This is why value investing exists. To keep their expectations in check, it may be better for investors to question the extent that Sirius has delivered on its promises so far. And here, the polyhalite producer shines. All planning permissions applied for have been granted, a positive update on Stage 2 financing for the mine (promised before Stage 1 could be finalised) was issued last week and those responsible for its construction have been appointed.  

Since investing involves recognising our limited ability to control events, investors in Sirius Minerals might reflect that a lack of news on Stage 1 funding isn't necessarily cause for concern.

Don't just do something, sit there! 

In a study in the 1960s, psychologist Walter Mischel demonstrated how some children were unable to resist eating a marshmallow, despite being assured they would get a second if they refrained from gobbling the first for a few minutes. Follow-up studies revealed those who were able to delay gratification tended to have better life outcomes.

A more recent study altered things by exposing one group of children to unreliable experiences (being promised better crayons but never receiving them) and another to reliable experiences (being promised and duly receiving better crayons). The marshmallow test was then repeated. Those who didn't receive crayons were less likely to trust researchers to bring the second marshmallow and tucked in to the first. Those who received crayons were able to recognise the benefits of delaying gratification because, like the directors at Sirius Minerals, the researcher kept their promise.

As investors, one of our biggest challenges is delaying gratification. We sell our 'winners' too soon, measure performance in weeks not years and always want answers yesterday. This is unfortunate but totally human. Given recent performance, one can only imagine the temptation felt by some long-term holders of Sirius Minerals to sell their holdings. The question is whether, like the children, they trust the 'researchers' and can resist the veritable marshmallow currently on offer for the possibility of a full bag in five-to-seven years time. To get them through, it may pay to heed the words of Warren Buffet: "The stock market is a wonderfully efficient mechanism for transferring wealth from the impatient to the patient."

Play the long game

Behaving irrationally or impulsively is bad for our wealth. Remaining patient and maintaining a realistic outlook are just two things that investors need to master. Those unable to look beyond short-term setbacks (if any) often make the mistake of selling companies with excellent prospects far too soon...."

Paul Summers owns shares in Sirius Minerals.

https://uk.finance.yahoo.com/news/investors-psychology-sirius-minerals-p...

Motley n Mutleys ;-)

https://www.youtube.com/watch?v=q_bq5mStroM