For most of a decade, North Yorkshire has dreamed of gold hidden under the brooding beauty of the heath.
A deep mine on the eastern edge of the North York Moors, the first in the United Kingdom for 40 years, has promised to bring work, investments and spectacular returns to anyone who has plunged into their pockets to help finance it. But in the end, no one but a handful of hedge funds and a global mining giant will likely make any money from the buried treasure of North Yorkshire.
In 2011, a little-known company called Sirius Minerals unveiled plans to dig in Sneatonthorpe, a few kilometers south of Whitby, the coastal city known for fish and chips and a starring role in Bram Stoker Dracula.
The Woodsmith mine will extract polyalite, a mineral so singularly rich in nutrients that agricultural buyers would queue to buy it, offering profits every year for hundreds of millions of pounds.
For 85,000 small investors, the £ 4 billion project seemed like a once-in-a-lifetime investment opportunity, not to mention the possibility of bringing 1,000 permanent jobs to a region that has suffered the industrial decline of neighboring Teesside.
“We felt like a family that if there had been a long-term benefit to the area, we would have been almost obliged to put some effort into it,” says John Cook, the local farmer, whose cows provide milk for Morrison supermarkets. .
Cook leads a group of 450 landowners from the Yorkshire Coast Minerals Association, who will earn all copyrights once the mine is up and running. In the meantime, a return on equities would have been highly appreciated, given how precarious agricultural incomes can be.
But now those dreams are hanging by a thread of gossamer, after Sirius’ funding plans collapsed dramatically last year. Those who bought stocks when they hit 40p in August 2016 have seen their investment drop since then.
Global mining giant Anglo American is now proposing to buy the company short of liquidity for just 5.5 percentage points.
“Think” Oh crikey, when 38p was supposed to sell, “says Cook, whose family has been fortunate enough to have bought the shares relatively cheaply.” But there are stories of people who pulled out their life savings and you feel very sorry for them. It’s a real shame, it’s that. “
Scarborough Conservative MP Robert Goodwill agrees. “What is really sad is that people have invested more than they can afford to lose, even by collecting their pensions. There is a boy in Middlesbrough who has received £ 250,000 compensation for an injury he has had in the army and put everything.
“Many people invested because they heard about people in the pub and they could see it start to take shape. People wanted to support the local economy.”
Sirius’ ambition from time to time began to lose ground when a £ 400 million bond sale fell in September last year, triggering a drop in the share price which caused similar damage to small investors.
CEO Chris Fraser blamed factors such as Brexit and a lack of government support, which refused to provide a loan guarantee for the mine, despite its potential for winning the northern industrial project.
The success of the bond sale was a key condition for unlocking an additional $ 2.5 billion (£ 1.9 billion) in loans from Wall Street banker JP Morgan, funds which have duly evaporated.
The Woodsmith mining plan involves sinking two mine shafts and excavating a 23-mile tunnel under the North York Moors to bring polyalite to a complex on the Teesside coast, to be shipped to buyers around the world. It is a plan widely considered ambitious – a slow burner – but feasible. The buyers have already signed “derivation” agreements for millions of tons of polyalite.
Yet without funding, the mine is little more than a hole in the ground.
Now, the small shareholders are preparing for one last chance to make their voices heard. Anglo’s 5.5p-a-share offering puts the company at £ 405 million, or £ 524 million including debt, which is well below the returns they were hoping for.
But the mining company, which also owns the De Beers diamond group, says its offer is fair and stresses that it will have to invest an additional $ 3 billion before mining any polyalite. Sirius’ board of directors recommended shareholders to accept the offer with a vote in London on March 3, to prevent the company from collapsing into the administration and wiping out the value of the stock.
For the agreement to continue, two obstacles need to be removed.
Investors who own 75% of the company must support the deal, but the acquisition also requires the support of the majority of those present at the meeting, in addition to those who vote by proxy. It is indeed a shareholder system and a vote that minimizes the effect of the financial muscle and maximizes the power of the 85,000 disgruntled small investors, who could theoretically vote against the mass offer.
It may seem illogical, but some have pledged to vote against online bulletin boards, in an act of revenge for the perceived mismanagement of the company. Others, such as the group of shareholders of the web-based Sirius fund, believe that there must be an alternative way to raise funds or find another buyer.
Last week, equity investors got support from investment firm Odey Asset Management, which built up a 1.3% stake and started waving just as the saga was approaching its climax. The company, run by multimillion-dollar hedge fund guru Crispin Odey, said in an open letter that Anglo’s offer makes a “hoax” of Sirius’ true value.
Odey says that Anglo has not declared his final offer because he wants to keep the option to increase it again, in case a rival is willing to pay more. Anglo, he said, must raise the price to 7 cents per share or declare his definitive offer, otherwise the fund would vote against it.
Odey’s profit with a 7p offer is around £ 1.4m, which represents a chump change in the hedge fund world, but not bad for a couple of weeks of work and an open letter.
Cook, who is in regular contact with other small investors, says that Odey’s intervention has changed things: “This will affect some smaller investors, so it will be very interesting. It’s really a bit overhanging.”
Peter Dodge, a Radcliffe Chambers London attorney specializing in financial services law, points out that Odey has no obligation to do what is best for anyone except Odey.
“They [Odey Asset Management] they have a duty to their investors to maximize the fund’s return. What they are doing is a form of risk arbitrage: buying in an acquisition situation on an opportunistic basis. The risk is that if they put a little advantage in the pencil of the faltering shareholders, they could collapse the whole deal, which would mean losing jobs in the local economy and wiping out the shares of small investors. It’s a chicken game. “
Of course, investing in stocks always involves risk and anyone who has invested more money than they could afford was making the wrong choice. But Dodge fears that some of those who have done so may not have been adequately warned of the risks, both by stockbrokers and unscrupulous financial advisors.
“People will suffer big losses and someone will end up sniffing around to see if they have been badly warned or at least not adequately warned,” he says.
Robert Goodwill’s deputy, who also owns Sirius shares, is urging other shareholders to follow suit and accept Anglo’s offer, swallow the losses, but make sure the mine continues.
“They spent £ 1.1 billion, so it’s not just something that could happen: there is a big hole in the ground. Tunneling is taking place and Chinese, Indian and American customers are signing agreements for millions of tons,” he said. “People need to realize that there is no plan B.”
Polialite: a guide for beginners
Polialite, a rare mineral salt that acts as a powerful fertilizer, is at the heart of Anglo American’s offering. Sirius Minerals – and its would-be buyer – want to extract it in large quantities from a mine nearly a mile below the North York Moors.
What is that?
Polyalite is a hydrated potassium, calcium and magnesium sulphate, essentially a form of high quality potash. It’s exciting stuff – or at least more exciting than it looks – because it’s an extremely potent fertilizer that’s also completely organic.
What is it for?
Growing crops. Advocates claim that its unique mix of nutrients makes it superior to other fertilizers, including the simpler forms of potassium.
Where does it come from?
Mainly the North Yorkshire coast. While polyalite is found in other parts of the world, the only seam that has been mined is 1,500 meters below the ground south of Whitby, extending into a considerable area under the North Sea. It was deposited some 260 million years ago, when the Zechstein Sea, which once covered much of modern Europe, evaporated.
What does Sirius want with it?
Polyalite is already being mined in the Boulby mine, further north. Sirius Minerals wants to dig a much deeper mine, called Woodsmith, where it would extract the polyalite and grind it into powder to produce pellets under the trade name Poly4 – or K2SO4MgSO42CaSO42H2Or in short. It could therefore be transported to the coast via a 23-mile underground conveyor belt for export.
What’s so cool about Poly4?
Plants need six key minerals and Poly4 contains four – potassium, sulfur, magnesium and calcium – making it ideal for use in agricultural fertilizers. Sirius says that pellets are cheap to produce, certified for organic use and offer high yields.
Sirius believes he has a resource of 2.6 billion tons of polyalite, although only a part of it is likely to be recoverable. It could begin mining within two years and continue for another 100, up to a maximum annual production of 20 million tons. Unfortunately, he ran out of cash to develop the prospect, but his likely buyer, Anglo American, has much deeper pockets.
Is there a market for this?
Some skeptics have questioned the presence of sufficient global demand for polyalite to support Sirius’ plans. However, an expanding global population means an ever increasing need for food production and, therefore, for fertilizers. Sirius already has “derivation” agreements with customers who claim to buy millions of tons of material.