ANGLO American has made an all cash £386m offer for UK-listed Sirius Minerals which is developing a project to mine fertiliser from a prospect in the UK’s North Yorkshire region – a transaction that if successful would represent a major diversification for Anglo.
Anglo confirmed an earlier statement by Sirius today that it had submitted an offer worth 5.5 pence per share which is a 34.1% to the closing price of 4.10 pence per Sirius share on January 7. Sirius said it expected to recommend the offer.
Following two years of development at a total cost of $1bn, Sirius had run into funding problems for Woodsmith, as the project is known. Woodside is focused on the development of a product called polyhalite, a naturally occurring mineral that can be processed to produce POLY4, a multi-nutrient.
In terms of a revised development schedule announced in November, Sirius limited initial upfront capital expenditure to $600m. “The additional works required to reach an installed and ramped up production capacity of 10 million tonnes a year contemplates up to $2.5bn of capital expenditure,” said Chris Fraser, MD and CEO of Sirius at the time.
Stephen Pearce, Anglo CFO, said today Anglo intended to follow this capital profile in a staged manner. This would “derisk the project before committing major capital,” he said, adding that Anglo’s capital return plans in respect of dividends would be unaffected.
Anglo is already committed to funding a 60% share of its $5bn to $5.3bn Quellaveco 330,000 tons/year copper project in Peru. “It’s about a balance,” said Pearce of Anglo’s planned capital returns on growth.
The need to establish food security has been likened to the early stages when water security was identified as an important future requirement some 30 years ago. Anglo said the offer was in line with its interest in late-stage of the cycle commodities.
The investment would not necessarily usher in a move away from riskier assets such as those in South Africa, said Pearce in response to media questions. “We have said we will invest $5bn to $6bn in South Africa from 2019 to 2024 and there’s no move away from that,” he said. Woodsmith’s ‘green’ profile, however, would dovetail with a decision to divest from its South African export coal assets. Anglo may address its approach to extant thermal coal assets when it publishes its sustainability report around April.
Anglo said in a statement today that Woodsmith was the world’s largest polyhalite project with a JORC reserve of 290 million tonnes, with a grade of 88.8%, and a resource of 2.69 billion tonnes. The resource includes four of the six key nutrients that plants need to grow – potassium, sulphur, magnesium and calcium, it said.
“The use of fertilisers is one of the most effective ways to improve agricultural yields and therefore 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,” it said.
“Sirius has indicated that the project could operate at an EBITDA margin potentially well in excess of 50% leaving the Project well positioned for strong through-the-cycle profitability with a long anticipated asset life,” said Anglo in a statement.
Shares in Anglo American edged down less than one percent in early Johannesburg trade today whilst Sirius Minerals closed nearly 12% higher in London on January 7.
Sirius Minerals announced last year that it was seeking a partner after struggling to progress funding for the mine. From Anglo’s perspective, it said it had identified Woodsmith “some time ago” given its cost profile and resource life among other features.
It would take about two years to get the project back on track following the potential investment by Anglo, the UK group said. Anglo added it intended to optimise the design of the mine. In addition it would integrate the project into its marketing network.
Anglo said it reserved the right to lower its offer in the event that a competing bid was submitted for Sirius Minerals. The put up or shut up deadline as set by the UK Takeover Panel is February 5.