Everyone, and welcome to the Annual American Conference Call hosted by Bojal Galloway. My name is Brian, and I am your event manager today. I would like to advise all parties this conference is being recorded. And now I would like to hand over to Paul. Please proceed.
Thanks, Brian. Good morning, ladies and gents. Thank you for taking the time on such short notice. But I'll hand over to Stephen very shortly to give some brief comments, and then we'll open the lines for Q and As. But, 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. So huge apologies in advance if there are various that we can't answer at this stage, but hopefully you are understanding of that. Stephen, over to you.
Yes. Thanks, Paul, and thanks everyone for joining us this morning. As you'd now be aware with Anglo American has approached Sirius Minerals Plc with a possible offer at 5.5p for Sirius' shares valuing the entire share capital of Sirius at approximately £386,000,000 or just a touch over US500 $1,000,000 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 satisfactory assurances as to the safeguarding of the employee and other stakeholder interests and the agreement of the full terms and conditions of any offer. The Sirius team has progressed the polyhalide project over a number of years and to date they've put more than $1,000,000,000 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 to more 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. As Sirius has indicated, it's currently the world's largest known high grade polyhalide deposit with a JORC reserve of 290,000,000 tons, a grade of 88.8 percent and a resource of 2,690,000,000 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 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 has been underway for over 2 years, as I said, with over $1,000,000,000 invested to date, but the project does require significant further capital to develop and commission the operation. During the 1st 2 years after an offer is successfully completed, development work on the project is expected to be broadly in line with Sirius' 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, 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' polyhalide 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 4 of the 6 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 and further develop the market for Poly 4, building on our institutional experience in the world's major fertilizer markets. For Sirius's shareholders, 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 being in the interest of Sirius' broader stakeholders, including employees, customers, as well as the prospects, 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 and A. And again, just to repeat, we apologize that 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.
But 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. The first question is coming from the line of
Myles Alsop.
Please proceed.
Great. Thank you. Just quickly, could you talk a bit more about the polyhalide market, what the current size of that market is relative to the 10,000,000 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? But if you could provide some more thoughts on that, that would be very helpful.
Thank you.
Yes. So Miles, I'm not going to go into the full details of the fertilizer market or the broader polyhalide market. But obviously, while the product is currently out there, it's relatively new at scale. But 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're working in for the crops that they service. We believe the products will sit well within some existing markets, but also would then look to develop additional markets over time.
Remembering that this project per the serious development plan would have first production, I think it's in 2025 and fully ramping up in 2028. So there's quite some time available for us to be able to position the product appropriately.
The next question is coming from the line of
Liam Fitzpatrick.
Just a question on if the deal goes through, what the capital requirements are over the next 2 years? I've looked at the presentation and they talk about various different scenarios. So maybe if you could clarify which scenario you're referring to and what you anticipate to net debt, based on your classification, given all the restricted cash flow, net debt based on your classification given all the restricted cash was at the June period for Sirius? Thank you.
Yes. So I won't answer the second question. Obviously, you can ask Sirius in detail about their own numbers. In terms of the capital profile, per their presentation, so using Sirius's numbers, as I understand it, they've put about $1,100,000,000 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 there a capital number is that there would be a further $3,100,000,000 to spend and that in their revised development plan that they put to the market, they were anticipating around the $500,000,000 or $100,000,000 to be spent over the next 24 months. That would leave them, just simply on those sums, about $2,500,000,000 to be spent over that period from it's 2 years from now, 2022, all the way through to full ramp up per their program in about 2028. So that remaining balance of 2.5 will be spread over that sort of 6 year period. 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.
Good morning, gents. Just for me, Stephen, maybe you could give us some color on how comfortable you are with the if you like to plan on building? And ultimately, I guess back on to 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.
So I guess just some thoughts around how comfortable you are with the CapEx budget and ultimately the plan on doing this project? Ken, is it ready to be an Anglo project today?
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 2 years, we would be in under the covers and reviewing all aspects of the project. So, it's a little bit early for me to be able to comment on that. But 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. So, and given they're already 2 years into project execution, we're really talking about an existing well structured team executing over time rather than what you call a true greenfield piece of land that still is a concept. And so I have to say, we're very comfortable with the broad nature of the project and where the team has 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, I mean, obviously, you kind of had exposure to this market back a few years ago and you divested? So what are you seeing here that makes you think that this makes sense to get back into this today?
Yes. Primarily, our strategy is around quality long life assets. And so if you keep coming back to that point, that really underpins our thinking around this asset and this transaction. And 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 the multiple time frames. And 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.
So 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. And at the time, that was important in terms of resetting the balance sheet if you cast your mind back to that 15, 16 period. So it's a market that we're comfortable in, have good net results and we'd be very happy to get back in healthy.
Okay. Appreciate that. Thanks and good luck.
Thank you.
The next question is coming from the line of Ashwin Ravi. Please proceed.
Thank you, Nikky. Just a question on the Sirius timeline that you referred to. So I suppose this is the 24 month deferral of the deferred scope that you are referring to with the $600,000,000 of CapEx in the 1st 2 years. The ramp up according to that presentation would be complete by 2026. You mentioned a 2028 timeline.
So does that mean that you're kind of working with a more cautious approach to the but after that, you are going to revise the plan. Does it imply an acceleration or a deceleration as it stands?
I'd love to keep all options open if I could. It's again really early for us to comment. We haven't had opportunity to really get involved in the detail of a substantial review of the project. But 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, but very 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 your net you've got a net cost position in the UK. Would this be a benefit to you from a taxable income quality?
Listen, ultimately, possibly, Tim. So good morning, Tim. Nice to have you on the call. But yes, we're talking quite a number of years out by the time this would have used its own capital development shield before it provides those benefits. So 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.
The
next question is coming from the line of
Ian Russo.
Please proceed.
Thank you. Just a follow-up on Jason and Estrum. 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, etcetera. I guess some of the comments you've made, Stephen, it doesn't sound like you've 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?
Yes, 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. And 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. So we've had good access, but really it's just not appropriate for me to comment further today.
Some of those are 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 critical path? Is it a sharp thinking surface infrastructure and market development? Where do you understand the key risks to be in the project?
Yes. The project is not dissimilar to probably Calleveco. If you think about how we had in terms of certain aspects, in terms of how we had largely derisked the project before coming into construction, in terms of permits, community relations, development plans, etcetera. It's also, as I said earlier, relatively simple, if I can say that for mine, it's deep underground, relatively simple in construction methodology and the complexity. There's a tunnel, there's a shaft and there's relatively simple processing challenges in terms challenges in terms of delivery and time and dollars and technical issues.
It's relatively simple in terms of technical processing risk and 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. But 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.
And obviously, the Sirius team themselves have done an enormous amount of work on testing products, contracts with customers looking at market positioning, etcetera. So, while it's not without its risks, we believe it fits very well from both the project and operating and a marketing aspect into our core skill sets.
Thank you very much.
Brian, we can move to the next question.
So Dan, if you look at any more questions, this was the last question.
Okay. Ladies and gentlemen, thank you very much for your time. As I say, apologies that we can't be more expensive at this moment in time. Under the takeover code, I think we've got 28 days before we if we want to progress on this. We're around all day, of course.
So if you've got 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. But thank you very much indeed for your time. All the best.