MAC: Mines and Communities

British potash: a serious proposition for Anglo American?

Published by MAC on 2020-01-08
Source: Proactive Investors (2020-01-08)

Risks of mining near Yorkshire Moors

Potash contained in the mixed deposit beneath one of the UK's hallowed beauty spots has become now a target of one of the world's strongest mining companies.

A deal between Sirius and Anglo American is still in question; however statements from both of them seem optImistic.

Of course, a successful amalgamation depends, not only on shareholder sentiment, but also on whether early opposition by environmentalists will now be strengthened. [See: Sirius mine to proceed, despite growing opposition].

Sirius Minerals in advanced talks over sale to Anglo American

Proactive Investors

8 January 2020

A takeover offer pitched at £386mln, or 5.5p per share, could potentially be recommended by Sirius Minerals management, but, a formal offer has yet to be made.

Sirius Minerals PLC (LON:SXX) has confirmed that it has received a possible premium-priced takeover offer from Anglo American plc (LON:AAL), and, it is now in advanced talks with the FTSE 100-listed miner.

The proposed cash offer is pitched at 5.5p per share, which equates to £386mln for Sirius’s entire issued share capital. That represents a 34.1% premium to yesterday’s closing price of 4.1p, and a 61% premium to the three-month volume-weighted average price of 3.4p.

In a statement, Sirius’s management team indicated that it would be prepared to recommend an offer at that price.

The label may say premium price, but, the indicated offer is of course much less than the trading prices seen in mid-2019, before financing collapsed for Sirius’s partially complete mine development in North Yorkshire.

Sirius shares changed hands at around 21p this time last year, and, as recently as September they were priced at 11p.

As such, a cash takeover will likely crystallise significant losses for the company’s swathes of retail and individual private investors (there are some 85,000 small shareholders in the company, many of which reside in Yorkshire and the surrounding region).

These investors will, no doubt, hope that news of Anglo American's takeover offer will draw out rival interest and a bidding war may ensue to drive up the price – though, there is presently no indication that this will occur.

Anglo American offers ‘certainty’ to shareholders

In its own statement on Wednesday, the potential buyer said: “Anglo American identified the [Yorkshire polyhalite] project as being of potential interest some time ago, given the quality of the underlying asset in terms of scale, resource life, operating cost profile and the nature and quality of its product.

“The project has the potential to fit well with Anglo American's established strategy of focusing on world-class assets, particularly in the context of Anglo American's portfolio trajectory towards later cycle products that support a fast-growing global population and a cleaner, greener, more sustainable world.”

“Anglo American believes that the possible offer could provide certainty to Sirius' shareholders, whilst Anglo American brings the financial, technical and marketing resources and capabilities to progress the project over time.

“This should also be in the interests of Sirius' broader stakeholders including employees and customers.”

Specifically, Anglo American talked up the quality that it sees in the Yorkshire polyhalite fertiliser project.

In Wednesday’s statement, Anglo American describes the project as having the potential to be a “world-class, low-cost, and long life” asset and highlighted that it is currently the world's largest known high-grade polyhalite deposit, containing 290mln tonnes of the fertiliser product.

It emphasised, however, that: “the project requires a significant amount of further financing to develop and commission the operation that has proven challenging for Sirius to procure on an economic basis.

“Anglo American, as one of the world's leading mining companies, has the resources and capabilities to help build on the achievements of the Sirius team.”

A formal takeover offer has yet to be made, and, in its statement, Anglo American noted that it reserves the right to reduce the indicated offer price (to account for any Sirius dividends), vary the proposed composition of the offer, or make a formal offer on ‘less favourable terms’.

And, as is customary of such announcements, it added: “There can be no certainty that any offer will be made. A further statement will be made as appropriate.”

 

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