Anglo American has confirmed that it is in talks to buy the UK's embattled Sirius Mining.
Sirius produces polyhalite, a mineral salt which is used as a fertiliser and for other industrial applications. The company plans to become a global leader in the mining of the mineral through the development of its North Yorkshire polyhalite project, currently the biggest UK mining project.
But the project is in serious trouble after Sirius abandoned plans to raise £400m to fund it last year, blaming a lack of government support and Brexit. It warned that it only had enough cash to last a couple of months. Sirius' shares lost more than 80% of their value last year.
Anglo said in a statement on Wednesday that it 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."
"Anglo American believes that the possible offer could provide certainty to Sirius’ shareholders,whilst Anglo American brings the financial, technical and marketing resources and capabilities to progress the Project over time,"it said.
It confirmed that it was in "advanced discussions " with Sirius in relation to a possible offer.
"The proposal would value the entire issued share capital of Sirius at approximately £386 million (R7bn)," read a statement issued in Wednesday.
In a statement on Wednesday, Sirius said the takeover offer is subject to discussions with various stakeholders and that its board has indicated to Anglo American that it expects to be able to recommend a firm offer at the price set out in the proposal.
The offer represents a cash offer of 5.50 pence for all issued Sirius shares, as well as shares to be issued, said a statement adding that "there can be no certainty that any firm offer will be made". Sirius was trading around 3 pence before the offer. It was trading at 22 pence a year ago.
Sirius added that Anglo American had a right to reduce the offer consideration by the amount of any dividend or other distribution or return of capital which is paid or becomes payable by Sirius after the date of this announcement.
Anglo American South Africa has in recent years been offloading some of its coal mines in the country, amid a push towards cleaner energy resources. In 2018, the company sold its New Largo coal project to a group of black-controlled companies for R850m. The mine supplied coal to power stations operated by the struggling power utility Eskom.