Anglo American (LON:AAL) is expanding into fertilizers after agreeing to acquire Sirius Minerals (LON:SXX), the British junior struggling to build a huge fertilizer mine beneath a national park, for £405 million pounds ($527m).
As part of the deal, Sirius shareholders will receive 5.5 pence per share in cash, a 34.1% premium to the closing price on Jan. 7, which was the day before Anglo confirmed it was in talks to buy the mine developer.
The offer values Sirius at just over £400 million, one-third more than the targeted company’s market value by the time it was presented. The firm, however, was worth more than £1.8 billion ($2.3bn) 18 months ago, before its funding plans failed.
The $3.8bn Woodsmith project is set to be one of the world’s largest in terms of the amount of resources extracted — around 10 million tonnes per year of polyhalite, a form of potash used in plant fertilizers
Sirius, which is midway through building its Woodsmith
fertilizer mine in the North Yorks Moors national park, has seen its share
price collapse after warning last September that multibillion
dollar funding for the next stage had fallen through. It warned at the
time it only had enough cash to last another six months.
The company has already spent £850 million ($1.1bn) developing
Woodsmith, but has struggled to secure a further £2.4 billion ($3.1bn) it
needs to turn it into the world’s biggest producer of polyhalite, a
multi-nutrient fertilizer.
As a last resource, Sirius launched in November a rescue plan involving the participation of a potential strategic investor and a revised two-stage development plan for the mine.
Anglo seems to be just what Sirius has been waiting for, with the British junior urging shareholders to approve the transaction, which it sees as the “only feasible option” to save its North Yorkshire mine.
Sirius noted it deeply regretted being unable to fund the
project alone, but warned shareholders that if they did not accept the deal
there was “a high probability that the business could be placed into
administration or liquidation within weeks thereafter.”
If all goes well, Anglo’s intervention could save more than
1,000 jobs in one of England’s most underprivileged areas, which goes hand in
hand with Prime Minister Boris Johnson’s pledge to revive poorer regions of the
UK.
Long time coming
Anglo American, which is looking to retreat from thermal coal, has been looking
at Sirius as a way to return to the fertilizers market. It noted earlier this
month that it had identified the project as being of potential interest “some
time ago” due to its quality in terms of scale, resources and costs.
“We are unashamedly transitioning our portfolio to later
cycle products that we believe the world will need as it goes forward,” chief
financial officer, Stephen Pearce, said on a call with reporters on Jan. 8.
If successful, the takeover would add a second major project
to Anglo’s $5bn Quellaveco copper mine in Peru, at a time when
most rivals are reluctant to expand.
“We fundamentally believe part of our responsibility is to
keep an eye on growth over all the aspects of different time frames,” Pearce
added.
Analysts, such as Humphrey Knight, senior potash analyst at
CRU, consider Anglo’s move risky.
“Sirius’ planned production is around 30 times larger than
the total polyhalite market size in 2018. The company’s plan to rapidly
increase production to over 10 million tonnes only a few years after starting
operations, which adds to concerns of significant disruption to wider
fertilizer markets — even with its numerous offtake agreements,” Knight told MINING.COM in September.
He noted that the underlying uncertainties around
polyhalite, including potential market size and pricing, remain.
Sven Reinke, senior vice president and lead analyst for
Anglo American at Moody’s Investor Service, has said that a successful
acquisition of Sirius would increase Anglo’s financial risk profile for a
number of years.
“This is driven by the very material capital investment
needed over the next few years to complete the Sirius polyhalite mining
project,” Reinke wrote.
Ed Sterck, metals & mining analyst at BMO Capital Markets, said in a note to investors earlier this month that, while there are question marks over the nearer-term demand for POLY4, Anglo American was clearly attracted to the scale of the project.
