Anglo American said it’s in advanced talks over a possible takeover offer for troubled Sirius Minerals, which is struggling to build a $3.8 billion potash mine in the UK.
The potential acquisition of Sirius comes after chief executive officer Mark Cutifani strengthened the balance sheet of Anglo, whose mining portfolio spans copper and iron ore to platinum and diamonds. The company said it had identified the potential of Sirius’s potash mine some time ago, given its projected scale, lifespan and profit margins.
“The project has the potential to fit well with Anglo American’s established strategy of focusing on world-class assets,” the London-listed company said Wednesday in a statement.
The possible 5.5 pence a share offer values Sirius at about £386 million ($507 million), Anglo said. That’s a premium of 34% of Sirius’s closing share price on January 7. Sirius surged as much as 46%, before trading 34% higher at 8:08 a.m. in London.
Sirius announced plans in November to move ahead with financing a potash mine in northern England, after scaling back the project following its failure to raise enough money for an initial plan. The company’s plans to build a mine in North Yorkshire were thrown into doubt last year after it suspended a bond sale.
An offer from Anglo would safeguard a project that has, at times, seemed like a long shot. Sirius, which doesn’t have any other operations to generate cash flow, has faced a long battle to raise capital and its request for UK government bond guarantees was refused. It’s also had to overcome environmental opposition and concerns about demand prospects for its potash.
Sirius, backed by Australian billionaire Gina Rinehart, plans to extract polyhalite from a mine more than a mile deep. It had planned to produce the first potash in 2021 and has already started sinking two giant shafts and digging the tunnel to transport it.
Once in production, Sirius planned to employ about 1,000 people and export $2.5 billion in potash each year. That would provide a shot in the arm for an economically depressed region of the UK.
Sirius said on Wednesday that subject to the successful outcome of the discussions, it has indicated to Anglo American that it expects to recommend a firm offer at the price set out in the proposal.
Anglo said it reserves the right to reduce any offer by the amount of any dividend or other distribution by Sirius. Under UK takeover rules, the company has until February 5 to announce a firm intention to make an offer.
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