Investment in Sirius Mining.
I was asked yesterday for advice on investment in bitcoin. After a little discussion I suggested that I would be more inclined to invest my money in a more transparent medium, namely minerals. Libertarians speak very fondly of gold as a safe investment in uncertain times. Gold has always been a traditional favourite and indeed it has uses in modern technology that lend merit to such thinking. There are other minerals that are equally and more valuable though. Whilst the stockpiling of gold has been a principal means of gathering wealth for as long as memory goes back it has been known since the days of Adam Smith that the economy is tied to the means of production. In those days this was agriculture as it was the food that grew on the land that powered the workers who produced the tradable commodities. In the modern era it is well known that oil is the substance craved by all governments.
The problem with these forms of power is that they have been monopolised to such a degree that the average person can not invest in them with any hope of making substantial profit. Minerals are a useful investment because we know they are limited and they are difficult to extract. In the modern era there are minerals that cross this bridge that are currently at affordable prices to warrant investment. My initial idea, by which I still stand is that dysprosium is probably going to be worth investing in. It is used in electric motors, obviously something that is going to be used more with the growth of the electric and hybrid car industry. In addition to this it is tied to the creation of power itself as electric generators are very similar to an electic motor in reverse. Add to this the knowledge that we are most likely going to be suffering shortages of dysprosium in the next five years and it seems likt it will be a mineral in which it is worth investing.
My friend asked about Potash. This is a compound containing potassium. It is tied to the old agricultural means of producing power in that it helps the growth of plants. In recent years we have been seeing a growth in world population that necessitates greater production of food. Potash is therefore something which may well see far greater demand. My friend asked specifically about Sirius mining and its plans to put a mine into a national park in Yorkshire. The analysis of this proposal is interesting and led me to the conclusion that it was probably a good investment.
About half a year ago potash deposits were discovered beneath the park that Sirius considered to be of such high quality that they have pulled out of mining other regions in the world and invested 50 million in putting together the possibility of digging up the potash that exists in Yorkshire. February saw massive investment by locals in shares and the future of Yorkshire mining. What is currently holding back the mining is that as it is a national park permission must be obtained from the parks authority in order to actually begin mining. It can be tricky to see inside the minds of such a committee so naturally a lot of people are very jittery about the chances of success.
Estimates place the cost of mining a ton of potash at just under $40 if I recall correctly. They also estimate the selling price to be about 5 or 6 times this amount. Since these estimates were made the collapse of a Russian mining cartel that was setting prices artificially high has led to a drop in the price of potash. This was only around 20% last time I checked so does not impact too severely on the possible profits to be made from Sirius. AMEC have investigated the value of the mining in the Yorkshire area and concluded that there is enough competition worldwide to suggest that there is not a particularly good argument for mining in Yorkshire as well. Both these negative influences hit last month and the result was that Sirius’ share price dropped substantially over the last couple of weeks.
The owners of Sirius do not hold with the conclusion for good reason. They already have enough commitments worldwide to ensure that they will have a massive market for potash, nearly 2 million tons. There is certainly demand. This does not even take into account the fact that Monsanto has fallen severely out of favour in Europe which may well lead to a high demand within the same customs union as the mine. Aside from Sirius’ conclusion that there is adequate demand and opportunity they also point out that AMEC have not taken into account broader considerations regarding employment and benefit for the local economy. There will be about a thousand new employees who will benefit from the mine. There will also be knock on effects and there will ultimately be a lot of money coming into the British economy. You can bet that the government will be very pleased if it gets the go ahead and there have already been a couple of million in grants to ensure it does.
The problem is the Nimbyism that will wish to keep mines out of the national park. This is probably a smaller problem that one would imagine. People in the grim north are less likely to kick up a fuss about a potential new source of massive employment than people in the already crowded and far better off south. The mine is also likely to not make that much of a negative impact on the park and will probably do a lot to counterbalance the negative view in which such operations are held. I am certain they will bend over backwards to try and please the parks committee.
Either way, mine or no mine, the recent drop in the value of Sirius shares has led to them being at almost as low a level as they were before the original announcement. This means that even without considering the possibility of the Yorkshire mine their value must be fair. The last time they made such a drop a couple of months ago they were right back up again within weeks. The current low value is undoubtedly the result of the fickle nature of the stock market. When all things are considered it is unlikely that the parks authority will not eventually be persuaded and if they ultimately are then it will be certain that it will be because Sirius have options for mining outside the boundaries of the park.
Mark Bennett has done remarkable things with Sirius in the last couple of years and I have faith that this particular investment is one of the safer ones around. There is still an element of a gamble but that is the nature of investment. There are certainly many worse places in which money is invested everyday. I think that Sirius is a good punt for the long term future given current knowledge.