Sirius Minerals retains City backing

Less than three weeks after upgrading his price target on Sirius Minerals by 25% to 75p, Shore Capital analyst Yuen Low is back with an 18-page missive on the North Yorkshire potash miner.

He's saying much of the same stuff, and still expects stage one of Sirius's two-stage construction financing plan to be executed sometime this autumn. Get that away and Sirius would not need to raise any further equity.

Indeed, Sirius said itself at the start of this month it had appointed six financial institutions to help raise aggregate senior debt facilities of up to $2.6 billion (£2 billion) to fund stage two of the project - fitting out of the mine, developing the Mineral Transport System and building the processing and harbour facilities.

"Dilution would cease to be a concern, and we believe the resulting improved clarity on potential equity returns could trigger a significant re-rating," wrote Low Wednesday.

"While Sirius is currently at development stage and still some years from becoming a cash flow-generating company, an investment in Sirius will become progressively de-risked and should enjoy significant value uplift as it advances towards production, we believe,

"We reiterate our 'buy' rating and risked [net present value] estimate of 75p/share."

Low actually titles his note: A star for sustainable responsible investing:

"Sustainable investment is an important – but often underemphasised - theme that is associated with virtually all aspects of Sirius Minerals. Indeed, we argue that Sirius is a compelling candidate for Responsible Investment (RI) given the comprehensive and robust nature with which it ticks Environmental, Social and Governance (ESG) boxes, its 'best in class' characteristics, and the resulting outstanding forecast investment returns."

Get it right and the company could be generating an annual turnover of about £2.3 billion, a cash profit of £1.8 billion, cash profit margin of about 78%, and a contribution to the Treasury of £260 million through income taxes.

That calculation assumes a polyhalite price of $150 per tonne. At $181, exporting all that potash would reduce the balance of trade deficit by up to 7%, it's claimed. What politician wouldn't back that kind of project all the way?

Understandably, given the rapid rise, Sirius's near-term share price performance has been erratic. The shares slumped by 38% from that 52.5p high during the last week of August and first few days of September. Technical analyst and Interactive Investor contributor Alistair Strang warned something like this could happen, writing that "any weakness now below just 39.75p will signal some relaxation toward 36.5p".

Crucially, his secondary target of 31p was not broken, ensuring that the uptrend did not fail.

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.