Good day everyone, and welcome to the Anglo American conference call hosted by Paul Galloway. My name is Brian and I am your Event Manager today. During the presentation, your lines will remain on listen only. If you require assistance at any time, please press star zero on your telephone and our operator will be happy to assist you. I would like to advise all parties this conference is being recorded. Now I would like to hand over to Paul. Please proceed.
Thanks, Brian. Good morning, ladies and gents. Thank you for taking the time at such short notice. I'll hand over to Stephen very shortly to give some brief comments. Then we'll open the lines for Q&A. And this is a very large but, Sirius is now in an offer period under the Takeover Code. We are being chaperoned. We're extremely limited, as I'm sure you can understand, on what we can say from a regulatory perspective. Huge apologies in advance if there are various questions that we can't answer at this stage. Hopefully you are understanding of that. Stephen, over to you.
Yeah. Thanks, Paul, and thanks everyone for joining us this morning. As you'd now be aware, Anglo American has approached Sirius Minerals Plc with a possible offer at 5.5 pence for Sirius shares, valuing the entire share capital of Sirius at approximately GBP 386 million or just a touch over $500 million. The Sirius board has stated that it expects to be able to recommend a firm offer for Sirius if it's made by Anglo at that price, subject to the satisfactory assurances as to the safeguarding of employee and other stakeholder interests and the agreement of the full terms and conditions of any offer. The Sirius team has progressed the polyhalite project over a number of years, and to date, they've put more than $1 billion already invested in the ground in the physical mine development.
You'd be aware the project is based in North Yorkshire, which has a strong history of mining. We identified the project some time ago and believe it has a clear potential fit with our established strategy in terms of focusing on world-class assets and the general trajectory of our portfolio moving towards later cycle products that support a fast-growing global population and a cleaner, greener, and more sustainable world. This asset has the potential to be a tier 1 asset in terms of scale, resource life, operating cost, and the nature and premium quality of its product. Sirius has indicated it's currently the world's largest known high-grade polyhalite deposit with a JORC reserve of 290 million tons, a grade of 88.8%, and a resource of 2.69 billion tons.
The resource indicated by Sirius has the scale, thickness, averaging around 25 meters, and quality to be mined efficiently using bulk mining methods through a relatively simple, low energy, non-chemical production process. Sirius have also indicated the project could operate in an EBITDA margin well in excess of 50%, delivering through-the-cycle profitability, combining well with a long asset life. From an Anglo American perspective, as one of the world's leading mining companies, we bring the financial, technical resources, and capabilities to help build on the terrific achievements of the Sirius team while remaining committed to our capital allocation framework. Construction's been underway for over two years, as I said, with over GBP 1 billion invested to date, but the project does require significant further capital to develop and commission the operation.
During the first two years after an offer is successfully completed, development work on the project is expected to be broadly in line with Sirius's own revised development plan that they published in November 2019. Although we do intend to update the development timeline, optimize mine design, ensure appropriate integration with our own operating standards and practices over time. The addition of this project to Anglo American's portfolio would support our ongoing transition towards supplying those essential metals and minerals that meet the world's evolving needs, picking up infrastructure, food, and particularly supporting fast-growing and urbanizing population and the undoubted need for cleaner energy and transport. As we all know, fertilizers are one of the most effective ways to improve crop yields and help meet demand caused by a fast-growing global population and limited additional land availability for agricultural use.
Sirius's polyhalite product, known as Poly4, is a premium quality multi-nutrient fertilizer with low chloride content, particularly valuable for major high-value crops. It can be used as an alternative to traditional potassium-bearing mineral products on a cost-effective basis, incorporating four of the six key nutrients necessary that plants need to grow: potassium, sulfur, magnesium, and calcium. Integration into Anglo American's global product marketing network would provide full mine-to-market capabilities to further develop the market for Poly4, building on our institutional experience in the world's major fertilizer markets. For Sirius shareholders, this possible offer could provide certainty. Whilst the prospect of Anglo American's financial, technical, and marketing resources should help progress the project over time, and so be in the interests of Sirius's broader stakeholders, including employees, customers, as well as the prospect, the broader benefits to the local communities in which the project operates.
For Anglo American shareholders, the development of this project in the years ahead would reinforce the quality of our portfolio and our longer-term growth profile, further enhancing our ability to deliver leading returns on a sustainable basis and an enduring value for all of our stakeholders. Paul?
Okay. Look, thanks for that. We'll now move to the Q&A. Again, just to repeat, we apologize but the answers to questions are probably going to be a little limited, basically to what we've already made public. We're not going to be able to go beyond that in too much. Brian, the operator, if we can open the line for questions. Final request, can we please keep it to one question per analyst at a time, please? Brian, thank you.
Everyone, your question and answer session will now begin. If you wish to ask a question, please press star one on your telephone, unmute your device, record your name, then press the hash key. If you decide to withdraw your question, simply press star two. The first question is coming from the line of-
Myles Allsop
Please proceed.
Great. Thank you. Just quickly, could you talk a bit more about the polyhalite market, what the current size of that market is relative to the 10 million tons of production from Sirius and how you think pricing could evolve? If you're creating a new market, are we going to price at a massive discount to potash? If you could provide some more thoughts on that, it'd be very helpful. Thank you.
Yeah. Myles, I'm not going to go into the full details of the fertilizer market or the broader polyhalite market. Obviously, while the product is currently out there, it's relatively new at scale. The benefits and the nutrients that it contains are not. Obviously, they're all well-established and have well-established values in the marketplace, that they work in and for the crops that they service. We believe the product will sit well within some existing markets, but also would then look to develop additional markets over time. Remembering that this project, per the Sirius development plan, would have first production, I think it's in 2025, and fully ramping up in 2028. There's quite some time available for us to be able to position the product appropriately.
Yeah.
The next question is coming from the line of-
Liam Fitzpatrick
Please proceed.
Morning. Just a question on, if the deal goes through, what the capital requirements are over the next two years. I've looked at the presentation, they talk about various different scenarios. Maybe if you could clarify which scenario you're referring to and what you anticipate to be the project CapEx requirements through this year and also 2021. If I am allowed one other, can you confirm what the net debt, based on your classification, given all the restricted cash, was at the June period for Sirius? Thank you.
Yeah. I won't answer the second question. Obviously, you can ask Sirius in detail about their own numbers. In terms of the capital profile, though, per their presentation, using Sirius's numbers, as I understand it, they've put about $1.1 billion into the ground. The project is pretty much fully permitted, and the work has been going and progressing very well to date. As we said earlier, they've been putting money into the ground over the last couple of years in particular. I understand their capital number is that there would be a further $3.1 billion to spend, and that in their revised development plan that they put to the market, they were anticipating around the $500 million or $600 million to be spent over the next 24 months.
That would leave them, just simply on those sums, about $2.5 billion to be spent over that period from, it's two years from now, 2022, all the way through to full ramp-up per their program in about 2028. That remaining balance of two and a half would be spread over that sort of six-year period.
Okay.
For fully digestible, fits well with our capital allocation program and discipline that we've been very public about.
Got it. Thank you.
The next question is coming from the line of-
Jason Fairclough
Please proceed.
Yeah. Morning, gents. Just for me, Stephen, maybe you could give us some color on how comfortable you are with the, if you like, the plan on building. Ultimately, I guess back onto Liam's question, the CapEx number. If you look at junior mining companies, they'll often try and do things on the cheap, and then when seniors come in, they end up spending a lot more. I guess just some thoughts around how comfortable you are with the CapEx budget and ultimately the plan on doing this project. Is it ready to be an Anglo project today?
Yeah, listen, we really do think the Sirius team have done a good job in getting the project to where they have. You'd be aware, I'm sure, Jason, most of the individuals aren't your typical smaller mining company greenfield project people. A lot of them have large project backgrounds, particularly in terms of the project delivery team. Listen, I'm not going to comment on the specifics, and it's not appropriate for me to comment on the specifics of the numbers. As we've said in our announcement, we would intend at this stage to progress as per the plan that they've put into the public arena. Naturally, over the next two years, we would be in under the covers and reviewing all aspects of the project. It's a little bit early for me to be able to comment on that.
Remembering the project development, if you want to call it, is relatively simple in terms of both the tunnel and then getting down to the deposit itself, and then relatively simple infrastructure on the ground because of the simple nature of both the mining and the processing. Given they're already two years into project execution, we're really talking about an existing well-structured team executing over time rather than what you'd call a true greenfield piece of land that still is a concept. I have to say, we're very comfortable with the broad nature of the project and where the team have taken it to date without commenting on the specific numbers.
Okay. Thanks, Stephen. That's helpful.
The next question is coming from the line of Richard Hatch. Please proceed.
Thanks very much. Can I just ask, obviously you kind of had exposure to this market back a few years ago and you divested. What are you seeing here that makes you think that this makes sense to get back into this today?
Yeah. Primarily our strategy is around quality, long life assets. If you keep coming back to that point, that really underpins our thinking around this asset and this transaction. Really, we've often spoken about the balance that we're looking to achieve in terms of returns to shareholders, balance sheet, and disciplined growth over multiple time frames. While this one is a little bit further out, it sits beautifully from a portfolio transition perspective in terms of where we see the company and the group heading over time. Yes, we have had prior exposure. We actually quite have good memories of being involved in the fertilizer market. It was a quality asset that we sold, but we got a quality price. At the time, that was important in terms of resetting the balance sheet, if you cast your mind back to that 2015, 2016 period.
It's a market that we're comfortable in, have good memories of, and would be very happy to get back involved in.
Okay. Appreciate that. Thanks, and good luck.
Thank you.
The next question is coming from the line of Ephrem Ravi. Please proceed.
Thank you, guys. Just a question on the Sirius timeline that you referred to. I suppose this is the 24-month deferral of the deferred scope that you are referring to with the GBP 600 million of CapEx in the first two years. The ramp-up, according to that presentation, would be complete by 2026. You mentioned a 2028 timeline. Does that mean that you're kind of working with a more cautious approach to the project? Related to that, you said in the first two years, you're going to basically stick to the Sirius plan, but after that, you are going to revise the plan. Does it imply an acceleration or a deceleration as it stands? Thank you.
I'd love to keep all options open if I could. It's, again, really early for us to comment. We haven't had that opportunity to really get involved in the detail of a substantial review of the project. You're right, it is our intention to progress with that, what I'd call that deferred development program, the 2-year, smaller spend prior to ramping up the project in those following years. At this stage with what we're seeing, we're comfortable with that program. Obviously, as we get under the hood and really get to know the detail, we'll form our own opinions. I just can't really comment on that detail today.
Thank you.
The next question is coming from the line of-
Tim Clark
Please proceed.
Thanks. Good morning. Just a clarification on tax matters. I would imagine that if you've got a net cost position in the U.K., would this be a benefit to you from a taxable income point of view?
Listen, ultimately, possibly, Tim. Good morning, Tim, nice to have you on the call. We're talking quite a number of years out by the time this would have usually-
Yeah
its own capital development shield before it provides those benefits. While they would be out there in the longer term, they don't particularly add much in terms of value from an NPV perspective today.
Thanks.
The next question is coming from the line of Ian Rossouw . Please proceed.
Thank you. Just a follow-up on Jason and Ephrem. Just wanted to get a sense of how much due diligence have you done or sort of opportunities to go through some of these technical and your statements, et cetera. I guess some of the comments you've made, Stephen, it doesn't sound like there has been much sort of work from your own side on the actual ramp-up and actual sort of technical aspects of the project.
Ian, thanks again. Thanks for joining the call. Listen, we have had really good cooperation from the Sirius team and have had what I call appropriate access as an external party coming in to look at their information. You'd be aware from their own announcements that they were in fact running a little bit of a process looking for potential strategic partners. We've had good access, but really it's just not appropriate for me to comment further today. Some of those further views and further discussion can happen in due course.
Okay. Thank you.
The next question is coming from the line of-
Brian Morgan
Please proceed.
Hi, guys. Thanks very much, and thanks for the call. Could you just chat to us about where you see the risks in this project in terms of the critical path? Is it shaft sinking? Is it surface infrastructure and market development? Where do you understand the key risks to be in the project?
Yeah, the project is not dissimilar to probably Quellaveco. If you think about how we had, in terms of certain aspects, in terms of how we had largely de-risked the project before coming into construction in terms of permits, community relations, development plans, et cetera. It's also, as I said earlier, relatively simple, if I can say that for a mine that's deep underground. Relatively simple in its construction methodology and the complexity. There's a tunnel, there's a shaft, and there's relatively simple processing facilities and port facilities on the ground. It's not without its challenges in terms of delivery and time and GBP and technical issues. It's relatively simple in terms of technical processing risk, and as I say, fully permitted, and they're making good progress to date. The market and the product, a couple of questions have been asked about that.
Again, we're very comfortable with our view of the market and the product and how that would sit over time. We've obviously had our own internal people that have been involved in the market. We've had some external people involved in the review as well. Obviously, the Sirius team themselves have done an enormous amount of work on testing products, contracts with customers, looking at market positioning, et cetera. While it's not without its risks, we believe it fits very well from both a project and operating and a marketing aspect into our core skill sets.
Cool. Thank you very much.
This time, the name wasn't recorded. If you press star one, please proceed. Your line is open.
There's someone hanging out there. Perhaps, Brian, we can move to the next question.
[Could we then] look into any more questions. This was the last question.
Okay. Ladies and gents, look, thank you very much for your time. As I say, apologies that we can't be more expansive at this moment in time. Under the Takeover Code, I think we've got 28 days if we want to progress on this. We're around all day, of course. If you've any further questions, we'll try and be helpful, but we're probably not going to be able to go beyond what we've already said. Thank you very much indeed for your time. All the best.
We have just concluded your conference call for today. You may now disconnect. Thank you for joining. Enjoy your rest of the day.