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.
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.
The author owns shares in Sirius Minerals.
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