Why Sirius Resources N.L. jumped 11.8% today

Investors excited about nickel miner Sirius Resources N.L's (ASX:SIR) prospects

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published February 4, 2015 6:27 pm AEDT

Prospective nickel miner Sirius Resources N.L. (ASX: SIR) saw its share price jump 11.8% today to $2.94.

Sirius is developing a number of huge nickel deposits in Western Australia and gave a presentation to investors today. Clearly they liked what they saw.

Sirius's Nova prospect is billed as the one of the best undeveloped nickel sulphide mines in the world. The Bollinger deposit close by is not quite as good, but still a substantial find.

The company is planning on mining around 1.5 million tonnes per annum from Nova, giving it an initial 10-year mine life. But that is highly likely to be extended, as additional exploration takes place in and around the deposit over time.

Thanks to several factors, Nova will also be one of the lowest cost nickel mines in the world, even better that Western Areas Ltd's (ASX: WSA) Flying Fox mine, and Independence Group NL's (ASX: IGO) Long mine.

Add in the falling Australian dollar and several other potentially prospective deposits, cheap debt to finance the development of Nova, and you can see the attraction.

But there's still a long way to go before shareholders see decent returns on their invested capital, and there is still a high risk it won't turn out to be as bountiful as the company is portraying it.

Many resources companies have been in a similar situation and have been unable to deliver returns shareholders may have expected.

Gold miner Beadell Resources Ltd(ASX: BDR) was one such prospect. Billed as having ultra-low production costs at one stage, those costs have now spiralled while the gold price has collapsed from highs above US$1,800 an ounce. Tiger Resources Limited (ASX: TGS) was another that was expected to produce tonnes of copper and begin paying proceeds to shareholders. As yet, Tiger hasn't paid a dividend, and the share price has crashed.

For me, Sirius is still too risky, and I'd prefer to invest in solid, already-profitable industrial companies.

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