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Sirius Minerals - Formal offer from Anglo-American

Nicholas Hyett | 20 January 2020 | A A A
Sirius Minerals - Formal offer from Anglo-American

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No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Sirius Minerals plc Ordinary GBP 0.0025

Sell: 5.50 | Buy: 5.50 | Change 0.00 (0.00%)
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The Board of Sirius Minerals has received, and recommended, a firm offer from Anglo American for the entire business. Under the terms of the offer Sirius shareholders would receive 5.5p per share.

Alongside the announcement Sirius Chairman, Russell Scrimshaw, commented:

"If the Acquisition is not approved by Shareholders and does not complete there is a high probability that the business could be placed into administration or liquidation within weeks thereafter. This outcome would most likely result in Shareholders losing all of their investment, as well as put the future of the entire Project, and its associated benefits for the local area and the UK, at risk."

The shares rose 1.9% in early trading to 5.5p.

View the latest Sirius Minerals share price and how to deal

Our view

A formal offer means Sirius's future is now in the hands of shareholders, and investors will shortly be asked to vote on whether or not to accept the deal.

The Sirius Chairman has urged investors to back the deal in the strongest possible terms - indicating that with no other options on the table, the company would likely fall into administration if the deal is rejected.

From Anglo's perspective the deal rationale is fairly straight forward. Polyhalite fits nicely into the group's 'consumer driven commodities' strategy, and its substantial balance sheet gives it access to the long term funding that Sirius has struggled to raise. That funding is vital to Sirius completing the project. Anglo seems to be broadly in agreement with Sirius management about the long term potential of the mine, and is even supportive of the group's existing development plans. The deal looks like it would leave the Woodsmith mine project broadly unaffected, just under new owners.

This will undoubtedly be a big disappointment to long-term shareholders in Sirius Minerals, especially as the possible offer price is well below where the shares were trading just a year ago. However, without additional funding it's difficult to see how the company can continue to operate as an independent entity - and there's been no evidence the group has found a way to close the funding gap. That leaves the Sirius board with little choice but to recommend it.

There will inevitably be speculation about potential competing offers from the likes of BHP and Rio over the next few days and weeks. While a bidding war could improve the offer that's on the table, shareholders certainly shouldn't count on it. The list of companies that could make the sizeable, and long term, investment that the Woodsmith Mine requires is short. And a polyhalite mine isn't a natural fit for more industrially focused portfolios.

Find out more about Sirius shares

The author owns shares in Sirius Minerals.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.