Anglo American confirms possible £386m offer for Sirius Minerals

Anglo American confirmed it is in advanced discussions with Sirius Minerals in relation to a possible offer, it said on Wednesday, at a value of 5.5p per Sirius share, in cash.

The FTSE 100 mining giant said the proposal would value the entire issued share capital of Sirius at about £386m.

In September, Sirius announced that it was undertaking a strategic review in order to assess the development plan for its North Yorkshire polyhalite project, and an appropriate financing structure to provide relevant funding.

It also said at the time that the strategic review would include a broader process to seek a major strategic partner in the project.

In November, Sirius provided an update on the progress of that strategic review, including a revised two-stage development plan.

Anglo American said it identified the project as being of potential interest some time ago, given the quality of the underlying asset in terms of scale, resource life, operating cost profile and the nature and quality of its product.

“The project has the potential to fit well with Anglo American's established strategy of focusing on world-class assets, particularly in the context of Anglo American's portfolio trajectory towards later cycle products that support a fast-growing global population and a cleaner, greener, more sustainable world,” the Anglo American board said in its statement.

“Anglo American believes that the possible offer could provide certainty to Sirius' shareholders, whilst Anglo American brings the financial, technical and marketing resources and capabilities to progress the project over time.

“This should also be in the interests of Sirius' broader stakeholders including employees and customers.”

Anglo American outlined a number of key attributes from its initial assessment, including that it believed that the project had the potential to become a “world-class, low-cost and long-life” asset.

Sirius had progressed the development of the project to an advanced stage, with construction now under way for more than two years.

It had indicated that it was currently the world's largest known high-grade polyhalite deposit, with a JORC reserve of 290 million tonnes and a grade of 88.8%, and a resource of 2.69 billion tonnes.

“The resource indicated by Sirius has the scale, thickness and quality to be mined efficiently using bulk mining methods through a relatively simple, low-energy, non-chemical production process,” Anglo American said.

Sirius had indicated that the project could operate at an EBITDA margin of potentially more than 50%, leaving it well-positioned for strong through-the-cycle profitability, with a long anticipated asset life.

“At this stage, the Project requires a significant amount of further financing to develop and commission the operation that has proven challenging for Sirius to procure on an economic basis.

“Anglo American, as one of the world's leading mining companies, has the resources and capabilities to help build on the achievements of the Sirius team.

“Anglo American remains committed to its disciplined capital allocation framework.”

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

Anglo American said it believed that there was the potential for long-term benefits from its technical expertise in both the development and operational phases, as well as from its recognised operating model to drive safety and productivity to world-leading standards.

It added that integration into its global marketing network would provide full mine-to-market capabilities, and build on its institutional experience in the world's major fertiliser markets.

“Sirius' polyhalite product, POLY4, is a multi-nutrient fertiliser certified for organic use and has the potential to generate demand at a competitive cost that supports a strong margin,” Anglo American noted.

“POLY4 is an attractive low-chloride alternative to traditional potassium-bearing mineral products on a cost-effective basis.

“It includes four of the six key nutrients that plants need to grow - potassium, sulphur, magnesium and calcium.”

Anglo American said the use of fertilisers was one of the most effective ways to improve agricultural yields, and thus help to address the anticipated future imbalance between food, feed and biofuel demand and supply caused by a fast-growing global population and limited additional land availability for agricultural use.

The company said it reserved a number of rights, including to reduce the offer consideration by the amount of any dividend or other distribution or return of capital which was paid or became payable by Sirius after the announcement on Wednesday.

It also said it could introduce other forms of consideration, or to vary the composition of the consideration, and had the right to make an offer for Sirius at any time on less favourable terms with the agreement or recommendation of the board of Sirius, if a third party announced a firm intention to make an offer for Sirius on less favourable terms, or if Sirius announced a "whitewash" transaction.

“There can be no certainty that any offer will be made,” Anglo American said, adding that a further statement would be made as appropriate.

At 0902 GMT, shares in Anglo American were down 2.25% at 2,111.5p, while Sirius Minerals shares had surged 33.41% to 5.47p.