Small shareholders in cash-strapped Sirius Minerals are trying to raise £460m through a bond issue in a desperate attempt to thwart a takeover bid by mining company Anglo American.
The last-ditch move to prevent heavy losses for thousands of private investors comes ahead of a meeting in London on Tuesday to agree the bid. Anglo American is offering 5.5p a share in cash for Sirius, valuing the company, which ran into financial difficulties last year, at £405m, excluding debt.
Sirius has captured the imagination of thousands of retail investors with its plan to build a huge fertiliser mine below a national park on the North York Moors. It is the UK’s biggest mining project in a generation and will generate thousands of jobs for the local community.
Most retail investors bought in at around 25p and face heavy losses if the deal proceeds. Some have invested their entire pension pots and life savings into the company.
Sirius says there is no alternative and if the Anglo takeover is blocked it is likely to be placed into administration, which would result in shareholders “potentially losing all of their investment.”
Those warnings have been ignored by retail shareholders. Now, a group of private shareholders have issued a dummy bond prospectus and claim to have received more than £42m in pledges. Those investing at least £50,000 over eight years in the bond would receive a coupon of 8 per cent while those lending £5m plus over 10 years would get 15 per cent.
Yashmin Ismail, a member of Sirius Minerals’ Shareholder Action Group, accused Anglo American of buying the company on the cheap because of its financing problems and said she would vote against the deal despite the threat of losing all her money.
“The board said there was no appetite to fund it but they never asked the shareholders. They have not explored other options,” said Ms Ismail, a freelance copywriter from London. “We need to get the institutional investors on side. Even half the money would get us another year and it [Sirius] will be producing in less than two years,” Ms Ismail said.
Sirius says it needs £470m to cover the next two years and has looked exhaustively for alternative funding without success.
The Sirius action group is also working with Share Soc, a not-for-profit campaign group. It says retail investors have been let down Sirius should vote on Tuesday.
The takeover requires approval by a majority of Sirius investors present or voting by proxy at the meeting, and by 75 per cent of shareholders by value. That means there is effectively a one-shareholder, one-vote system, which hands considerable power to Sirius’s small shareholders.
Tuesday’s vote — being held in the grounds of the Honourable Artillery Company in the City of London — also has to be approved by a judge. Share Soc hopes to convince them to stay the decision to give shareholders more time to demonstrate there are alternatives.
Advisers to both companies say it is difficult, if not impossible, to predict the outcome of the vote. Shares in Sirius fell 11.4 per cent to 4.4p on Friday on concern the deal could fall through.
The takeover has also been opposed by some professional investors. Hedge fund Odey Asset Management, which has built a 1.4 per cent stake in Sirius, has already voted against the deal. Odey will not change its decision unless the offer is increased of declared final.
Sirius’s Yorkshire project involves sinking two 1.5km-deep shafts to access a huge deposit of polyhalite, a mineral that can be used as fertiliser, and building a 37km tunnel to take the material to a port on Teesside.
The company was plunged into crisis last year after it was forced to pull a $500m bond deal, which was needed to unlock a $2.5bn funding package from US bank JPMorgan.
The company then launched a strategic review with the aim of finding a partner to help finance the project. That process failed and Sirius had little option but to recommend the bid from Anglo.
Anglo American has defended its offer describing it as “fair and reasonable” in light of the project’s huge capital expenditure budget.
