Australia

Danakali watches Anglos move on Sirius as potash space heats up

Danakali Ltd (ASX:DNK) (LON:DNK) (OTCMKTS:SBMSF) is closely watching the progress of Anglo American plcs (LON:AAL) takeover bid for Sirius Minerals PLC (LON:SXX) as the potash market heats up.

The global mining giants offer for Sirius, which owns the Woodsmith Potash Project in the UK, values the target at £386mln (US$508mln).

Danakalis keen interest comes as it is in the pre-development stages of the world-class Colluli Potash Project in Eritrea.

Demand for world-class projects

A report prepared for Danakali by Numis said: “Anglo American's potential offer for Sirius Minerals … highlights the potential for consolidation in the potash space and the demand for world-class projects, of which Colluli is one.

“In contrast to Woodsmith, Colluli is near-surface, with lower capital intensity and produces a product for which there is an established global market and pricing mechanism.”

Anglos proposal represents a premium of 34.1% to the closing price of 4.1 pence per Sirius share on January 7, 2020, and 46.5% to the volume-weighted average price of 3.75 pence per share since the September 17, 2019, strategic review announcement.

The Board of Sirius has indicated to Anglo American that it expects to be able to recommend a firm offer for Sirius if made at the price stated in the initial offer.

Strong interest in potash

Danakali said that Anglo had the resources to develop the asset and was looking to shift away from commodities such as thermal coal.

The LSE and ASX listed company said the offer indicated that major miners were taking a strong interest in potash and other green commodities.

In its report, Numis said: “We retain a Buy recommendation for Danakali and a target price of 70 pence based on 0.6x NAV, with the main upcoming catalysts being finalising the project funding package and commencing development.

“DNK achieved a number of key milestones in 2019, securing both project debt and a strategic investor to underpin the development of Colluli.”

“Fits well with Anglos strategy”

Anglo said in a statement: “Anglo American identified the project as being of potential interest some time ago, given the quality of the underlying asset in terms of scale, resource life, operating cost profile and the nature and quality of its product.

“The project has the potential to fit well with Anglo Americans established strategy of focusing on world-class assets, particularly in the context of Anglo Americans portfolio trajectory towards later cycle products that support a fast-growing global population and a cleaner, greener, more sustainable world.”

Anglo went onto say: “The use of fertilisers is one of the most effective ways to improve agricultural yields and therefore help to address the anticipated future imbalance between food, feed and biofuel demand and supply caused by a fast-growing global population and limited additional land availability for agricultural use.”

Numis report

Following are extracts from the Numis report:

Sirius has faced material headwinds with the funding package for its Woodsmith project in North Yorkshire, with the shares down 75% in the past 12 months and 86% from their peak in August 2016.

As a Tier I diversified miner with a market cap of £30bn, AAL would be better positioned to fund and develop an asset of this scale.

In our view, this would be a strategic move by AAL that recognises the importance of potash in a world where maintaining Read More – Source