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Sirius Minerals among best ideas for 2016
By Harriet Mann | Wed, 6th January 2016 - 13:13
After years of meticulous planning, 2015 was the year Sirius Minerals finally got the green light for its York Potash project. It wasn't an easy win for the wannabe fertilizer miner, but a first half littered with delays, last-minute amendments and multiple trading suspensions gave way to the hotly-anticipated permit approvals in July.
Patient investors were rewarded as the shares rocketed by over two-thirds. They've struggled since, but, if house broker WH Ireland is correct, 2016 could be even more exciting.
Sirius will build a plant with initial capacity to mine and process 6.5 million tonnes of potassium-rich polyhalite each year, but this could increase to 20 million tonnes in two extra phases. A delayed Definitive Feasibility Study (DFS) should be published this month.
Focus has now turned to how Sirius will fund the mammoth project. With some estimates at around $3 billion (£2 billion), the reality of this project's long timeline caused the share price to tail off at the end of 2015.
But Sirius shouldn't find it too hard to find financial backers. The project is already interesting a number of debt providers and the UK government could issue treasury guarantees for some of the debt through Infrastructure UK.
With a life of over 100 years, WH Ireland reckons the plant will be highly cash generative when it's up and running. This will be exactly what long-term investors like pension funds are looking for.
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Ultimately, the York Potash project has the potential to be disruptive in the fertilizer market, reckons WH Ireland analyst Paul Smith. After mining for the polyhalite, Sirius will only need to granulate the fertilizer before it's sent to customers.
"Sirius continues to demonstrate that there is a great interest in its multi-nutrient (naturally-occurring) fertilizer product and we anticipate further take-or-pay offtake agreements to supplement the +3.5 million tonnes per annum it has already delivered," says Smith.
Plans for its port, which are currently with the Minister of Transport, must still be approved, likely before the summer. An approval could provide another positive catalyst for the share price, thinks Smith. Financing news and the start of construction could, too.
Smith still reckons Sirius is worth 50p a share, more than three times the current 15p.
Six more to deliver substantial returns
Joining Sirius in WH Ireland's 2016 tips list is wholesale drinks seller Conviviality (CVR) and oil company Pantheon Resources (PANR), a favourite of regular Interactive Investor contributor Malcolm Graham-Wood.
2015 was a "defining year" for Conviviality after its acquisition of Matthew Clark, and WH Ireland analyst John Cummins belives the group can continue its strong share price performance into 2016, especially as the group trades at a 30% discount to its peers and has potential for guidance upgrades.
"Backed by an attractive near-4% dividend yield and strong cash generation, we maintain a buy recommendation with an increased price target of 270p - still representing a 15% discount to the wider peer group," says Cummins.
Supported by a strengthening UK economy, global consultancy group WYG (WYG) is also tipped to do well. A number of potential catalysts give the shares 23% upside with a 173p target price, says WHI.
Commercial passenger aircraft company Avation (AVAP) is also set for a transformational 12 months after last year's $100 million bond issue significantly increased its fleet. Currently trading at a large discount, WH Ireland reckons the shares could double to 260p.
Uranium miner Berkeley Energia's (BKY) share price could quadruple to 100p this year, supported by its new management team, and the Zona 7 discovery and prefeasibility study at its Salamanca project in Spain.
Fine art and collectibles firm Scholium (SCHO) could be worth 50% more at 60p. Current pricing reflects just over half its net asset value, making it "an attractive value play", and there is plenty of opportunity to consolidate what is a fragmented market. "Scholium should offer value and excitement in 2016. Buy."
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.