A struggling Yorkshire mining project is set to be rescued from the brink by a takeover that will safeguard jobs but leave thousands of investors facing losses.
Mining giant Anglo American (AAL.L) said on Monday it had reached a deal to buy Sirius Minerals (SXX.L) for 5.5p per share, valuing the business at £404.9m ($525.4m). It comes around two weeks after deal talks were first announced.
The takeover will keep Sirius’s troubled potash mining project alive and potentially create thousands of jobs near Whitby in Yorkshire. It will also safeguard Sirius’s 600-or-so current employees.
But thousands of retail investors who backed the project are likely to face steep losses. Around 80,000 individual investors have invested in Sirius. The company has been working on the Yorkshire mine for 9 years and invested $1.1bn in the project. However, Anglo’s 5.5p-a-share bid is lower than Sirius’s share price has traded for the majority of the project’s development.
Sirius’s share price has fallen over 80% over the last year after running into financial difficulty. The company failed to raise enough money to unlock a £2.5bn bank loan last year, throwing the development of the mine into doubt.
Chairman Russell Scrimshaw urged investors to back the takeover, despite potential losses.
“We acknowledge that to many shareholders our decision as a board to recommend this offer will have come as a shock,” he said in a statement.
“We also recognise the returns that this offer would represent are not what either our shareholders or the Sirius board had previously hoped for.
“However, given the current cash constraints of Sirius, and lack of realistic and deliverable alternative financing and development options, we believe this to be a fair approach from Anglo American, a company committed to approaching the project in the right way, and with the resources to complete the job.”
Sirius has failed to secure a strategic backer despite an extensive search, Scrimshaw said, and was unlikely to get a better offer. As a result, the company faces collapse if investors don’t back the Anglo bid.
"We now face a stark choice,” he said in a statement. “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.”
Anglo American said it had been looking at the Sirius project for “some time” and was attracted by the “scale, resource life, operating cost profile and the nature and quality of its product.”
Potash is used to make organic plant fertiliser and demand for the product has been steadily growing in recent years. Sirius has signed multiple deals to distribute its product around the world once the mine is up and running.
Mark Cutifani, chief executive of Anglo American, said the company could lend its “financial, technical and product marketing resources” and promised the takeover would bring “significant and sustained associated employment and economic stimulus for the local area.”
Anglo said the mining project would still require a “significant amount of further financing” and expected to spend at least $300m on it for the next two years at least.
Sirius shareholders will now be asked to vote to approve the takeover — 75% must approve the deal for it to go through.