The board of Sirius Minerals has announced that it's in advanced discussions with Anglo American regarding a possible cash offer of 5.5p per share. The Sirius board indicated it expects to be able to recommend the offer, subject to the outcome of certain ongoing discussions.
The offer values Sirius Minerals at £386m, and represents a 34.1% premium to the closing price the day before the announcement.
The shares rose 34.2% in early trading to 5.5p.
Takeover talks with Anglo American look well advanced, although the lack of a firm offer means the discussions could yet come to nothing.
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 possible 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. If Anglo does make a formal offer we think the Sirius board will have little choice but to accept 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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