Today's Sirius Minerals action is par for the course for an AIM stock

If you trade in stocks on AIM (Alternative Investment Market) you need to accept that unlike investing in a FTSE 100 company, swings in the share price of over 10% in a day aren't an uncommon phenomenon. AIM stocks tend to have a large private investor base which can mean a lot of trading in and out on news flow, market makers setting the price and relatively low liquidity (because the number of sellers to buyers and vice versa can quickly move out of equilibrium) resulting in big price spikes up or down.

A wonderful illustration was Sirius Minerals (SXX) today. After rising 10% on Thursday and Friday, an RNS was released this morning with the analytical results from the North Dakota potash drill which has been awaited with great anticipation for the last 6 weeks. First thing the price moved up again to 22p, but it was downhill all the way to 17.25p, a fall of 17%. The shares have had a great run over the last couple of months, from the 8p level in early December (and even lower earlier in 2010) so there are undoubtedly many investors who have made 300%+ gains. So expectation for this latest North Dakota RNS was sky high. There has been talk of this potash reserve being worth $1 billion etc. etc. - i.e. massive hype and expectation. So when the RNS finally came out, the news was relatively underwhelming and probably raised more questions than it answered. Many private investors were probably anticipating confirmation of a massive potash find there and then.  So then the sell off started and gathered pace throughout the day.

Was the North Dakota RNS really so bad? The drill results released today were from the first drill with more to follow over the next couple of months. The depth of the Potash looks positive (over 30 feet) but the concentration looks to have raised concerns. It is interesting that Sirius management chose to release the results early since previous communication had confirmed mid-February as the period when the results from the analytical analysis of the seams would be available. The question is why release the results early when although they weren't bad, they weren't overwhelmingly positive either? Perhaps the board believe future news flow over the coming weeks will drive the share price much higher e.g. progress at York Potash or further updates after the Memorandum of Understanding (MOU) with with Sino-Agri Mining Industry Co. Ltd (a division of China’s second largest fertilizer distributor), to develop Sirius’s property overlying the Adavale Basin in Queensland, Australia. It was probably no accident that the York Potash deal was announced last week to take the pressure off news in North Dakota.

I was annoyed that one of my positions closed on a guaranteed stop at 18p today, especially as I don't usually use stops on AIM stocks. But I still have two significant positions running. I believe that North Dakota still holds strong promise (the company has only done one exploratory drill), there is the potential for a transformational deal with the Chinese in Australia, York Potash seems a sound acquisition and there was a fairly large director buy last week at 17p. Sirius seems to be serious about becoming a major global potash producer and step by step they seem to be moving in the right direction. Global potash use is forecast to grow strongly in coming years so the demand side of the equation doesn't seem to be an issue.

It's volatile and frightening at times to be in these AIM stocks but that's half the fun of it. If you do the homework on fundamentals, then the volatility shouldn't faze you as an investor. Although Sirius is not a "done deal" like Xcite Energy (XEL), it would be surprising if the share price wasn't a lot higher in 2012.