Sirius Minerals could disappear after bid from Anglo American

After 14 years, the potash miner’s days as a listed company may be numbered, but at what price?

Mining heavyweight Anglo American (LSE:AAL) has launched a bid to take over the Yorkshire potash miner, but the money on offer is not what long-term shareholders had in mind when they backed Sirius Minerals (LSE:SXX) as far back as 2005.

Sirius announced this morning that it is in advanced discussions with Anglo American regarding a possible all cash offer of 5.5p per share, valuing the entire business at about £386 million. A firm offer must be made by 5pm on 5th February.

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While the offer price is indeed a 34% premium to last night’s closing price of 4.1p, and significantly more than the 2.1p low recorded last September, it is a fraction of the 50p they were worth in the summer of 2016 and 39.6p as recently as August 2018. 

In fact, when optimism around funding and execution of the Woodsmith mine project was at its peak, a share price target of 60p was the consensus among equity analysts, and as much as 122p if one thought the high-risk project would be a 100% success.

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Now, there’s not much for shareholders to do. Many are throwing in the towel, taking the opportunity to sell now at 5.52p, rather than wait for months to receive 5.5p if the takeover deal goes through. Clearly, the risk remains that it might not happen, at this price at least.

Making a $4 billion mining project work in the UK was always going to be tough, but Sirius did succeed in passing several key milestones, not least permission from local authorities to start digging, but also agreeing £1 billion of funding from eager professional investors.

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In the end, the project proved too much for a small company like Sirius to pull off. Instead, the North York Moors near Whitby will hum to the sound of Anglo American’s construction team completing the massive engineering feat that will finally get this money pit up and runn

“Anglo American are far better placed in our view to manage the financing, construction and operation of the Woodsmith mine in Yorkshire,” said mining analysts at broker SP Angel this morning.

So, what happens when Anglo gets the keys?

“During the first two years after an offer is successfully completed, development work on the project is expected to be broadly in line with Sirius' revised development plan, although Anglo American intends to update the development timeline, optimise mine design and ensure appropriate integration with its own operating standards and practices,” said Anglo Wednesday.

“Anglo American believes that there is the potential for long-term benefits from Anglo American's technical expertise in both the development and operational phases, as well as from Anglo American's recognised Operating Model to drive safety and productivity to world-leading standards. 

“Integration into Anglo American's global Marketing network would provide full mine-to-market capabilities and build on Anglo American's institutional experience in the world's major fertiliser markets.”