Anglo American today confirmed it is weighing up a £386m rescue bid for the struggling British miner Sirius Minerals.
The 5.5p per share cash offer would offer a lifeline to the cash-strapped North Yorkshire company, which is struggling to build a huge potash mine on the North York Moors.
Sirius Minerals has run into difficulties trying to raise billions of dollars to complete the project and in November said it would welcome a strategic investor to help fund a new two-stage plan.
Anglo, which first identified the potash project as being of interest a while ago “given the quality of the underlying asset”, is now in advanced talks with Sirius regarding the offer.
The mining giant said in a statement today: “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.”
Sirius’ new two-stage project would see it first drive two 1.5km shafts into the ground to access the polyhalite and transport it through a 37km tunnel. In addition it is also building the UK’s largest mine in a generation.
Anglo American’s offer comes in at 34 per cent above Sirius Mineral’s dwindling share price of 4.1p at yesterday’s close and 61.7 per cent above the company’s three-month volume-weighted average share price of 3.4p.
“Subject to the successful outcome of ongoing discussions … the board of Sirius has indicated to Anglo American that it expects to be able to recommend a firm offer for Sirius,” the firm said today.
Anglo American has until 5 February to make a firm offer.
While Anglo stated it has been interested in Sirius Minerals’ project for some time, the company has been focused on developing a Peru copper mine and returning cash to shareholders.
Sirius Minerals’ share price soared 32.2 per cent to 5.4p, but it remains incredibly far off its 2016 peak of 45.5p.
In contrast, Anglo American’s stock dipped 2.2 per cent to 2,113p as investors weighed up the risk of the deal.
But Neil Wilson, chief market analyst at Markets.com, said the deal suits Anglo American far better than Sirius, especially considering the former’s resources to be able to turn Sirius’ project into a success story.
“If anyone can [do it], Anglo can,” Wilson said. “As one of the largest miners in the world, it has the financial clout and expertise to make this project happen.
“We also wonder whether the government may have offered certain assurances. The fact this offer is public could make raising cash for other sources very tricky now, if not impossible, forcing Sirius into something of a corner – even if the price is not the best they will have to accept it.
“The market knows they need cash … but with this offer on the table, it’s now the only show in town – they have to recommend it or it’s curtains. Anglo is picking up a distressed asset on the cheap.”
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