Shareholders in Sirius Minerals (SXX) will have to weigh a potential offer of 5.5p per share after mining giant Anglo American (AAL) tabled a takeover bid for the company.
The proposal represents a 34% premium to the previous day’s closing price of 4.1p, and values Sirius at £386m. That is a still a fraction of the 37p level seen in 2018.
Shares notes that the target’s share price shot up just before the market close on the day before the announcement, rising 12% on the day which suggests someone knew about Anglo’s interest before it was made public. Don’t rule out an investigation into insider trading.
A firm offer for Sirius has yet to be made, but Anglo American confirmed it is in ‘advanced discussions’ with Sirius and said it had identified the potash project in North Yorkshire as ‘being of potential interest some time ago’.
SHAREHOLDERS 'MUST THINK HARD'
While Sirius shareholders may view the 5.5p per share offer as a ‘derisory sum’, according to AJ Bell investment director Russ Mould, he said they ‘must think hard about the situation’.
Mould added, ‘Rejecting any bid - should an official offer be made by the 5 February deadline - could be a risky move as there is no certainty that Anglo would come back with a higher amount or that a bidding war happens.
‘Without a bid, Sirius remains in a very difficult position financially. Would it be better for shareholders to accept 5.5p per share when the alternative could be zero if the miner can’t raise the required money to keep the lights on?’
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The proposal comes after Sirius had been trying to secure a strategic investor to help raise the $600m it needs to continue the project in its revised two-stage development plan.
However, the lack of any news on this front would suggest it hasn’t had much luck, with a full takeover of the company possibly a more plausible outcome.
SIRIUS MINE 'HAS WORLD-CLASS POTENTIAL'
The potential bid may also come as a surprise to some Anglo American investors, with the FTSE 100 miner having previously signalled it was focused on developing a new copper mine in Peru and returning cash to shareholders with its share buyback programme.
But it said the Woodsmith mine has the potential to be ‘world-class’, with Sirius indicating that it’s currently the world’s largest known high-grade polyhalite deposit, and that the project could operate at an EBITDA margin ‘well in excess of 50%’.
Anglo American has until 5pm on 5 February to announce a firm intention to make an offer or walk away.
Sirius said it would recommend the offer if the price is the one set out in Anglo American’s proposal, and subject to ‘satisfactory assurances’ around safeguarding jobs and other stakeholder interests.
