Struggling Sirius says private investors may have been seriously mislead

Shares have fallen dramatically on concerns over fund raising, but now the boss of Sirius Minerals suggests retail investors may have been misled.

Article updated: 14 October 2019 9:00am Author: Michael Baxter

No less than 85,000 shareholders and around 12,000 of them live in Yorkshire — the local area. Sirius Minerals has a lot of investors — in fact, for a company of that size, the number of shareholders is huge.

I am not so sure that the motivation of all these shareholders to buy a stake in the company was the right one. The allure of investing in what promised to be the biggest new mine in Britain for decades, and smack bang in the North Yorkshire Moors, proved too much. I can’t help feel that many of these investors let their sense of nostalgia get the better of them. Such was the scale of the Sirius project that it could have revitalised the local economy. Coupled with that, Sirius was a big contributor to local charities. The company had a narrative that appealed to many investors.

We are all suckers for a good story. That is why great communicators lean so heavily on metaphors. That is why advice that startups are often given is to ‘tell a story.’ It probably has something to do with our evolution — when we were hunter gatherers, the tribe might gather around the fire telling stories, in the process cementing social cohesion. But also, stories are great memory aids. Stories were the means by which the wisdom of previous generations were passed down.

I suspect that the reason why Leave won the EU election was because it sold a more attractive narrative.

Facts and figures are boring and difficult to recall. Gut instinct is what makes us human.

And in the investing game, human traits can be dangerous, facts and figures must rule our decisions.

The Sirius potash mining project was always going to be high risk. Recently the company failed to secure a £500 million loan with a knock on effect on other credit facilities. It’s got enough cash to soldier on for six months, but to move its mine project, it needs cash and lots of it. Any funding arrangement would be complex. There is a feeling that the company needs to get a broad deal for the funding to be in place long before its six month window is up because there will be a time lag between getting an outline of a deal and receiving the funding.

Chris Fraser, the CEO, has been trying to present himself as the friend of retail investors whom he seems to be suggesting had been unduly influenced by people who are not qualified to give advice.

In a recent interview in the Sunday Times, he said: “I read stories where people seem to have over-invested or probably not taken the right advice. I feel very bad for those situations, but we have been clear about the opportunities and also the risks.”

He was also highly critical of bulletin boards calling them a disgrace. He said that he was concerned that “unregulated, unlicensed” individuals were giving advice.

“Go and speak to a professional,” he said, “otherwise it is gambling.”

Well, I am a believer that people are quite capable of making their own decisions on investing objectively. There is nothing wrong with listening to the views of other investors providing...

Providing you remember that any one off investment is tantamount to a gamble. You remove gambling from investing by appropriate diversification.

See How to diversify your portfolio

You hear stories about investors putting all their money into Sirius shares, that’s crazy. You might as well put all your money on a roulette wheel.

Sirius may or may not turn around. The share price, that has fallen from 25p to 3p over the last year may recover, but it may fall all the way to zero.

If you want to take a punt on the company, that’s up to you, but just remember, unless your investment is a small part of of your portfolio, and the investment is part of your well thought through strategy, then you are in danger of being ruled by emotion or the motivation of a gambler.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.