Whitby miner digging deep
THE outlook for the tens of thousands of small investors in Sirius Minerals remains highly uncertain after chief executive Chris Fraser’s less-than-reassuring strategic update.
The company, which had to abandon an attempted £400m bond issue in September, has come up with a revised two- stage plan it thinks will be more palatable to investors.
There is no guarantee this will be the case. Stage one is to raise $600m, possibly with a strategic partner, so it can finish sinking shafts beneath the North York Moors National Park near Whitby.
Stage two is to raise a further $2.5bn from banks and infrastructure investment funds to complete construction.
A project like this was always going to be a big gamble. Assuming it could still pay off, bringing in a strategic investor will dilute small shareholders, who have seen their holdings plunge in value, despite a bounce yesterday.
Fraser will be looking to recruit one of the mining giants, a large fertiliser company or a sovereign wealth fund – but getting a strategic investor on board is easier said than done. Potential backers might well ask a simple question: Why should they pile into a project that the Government has declined to support?
The assumption, since Fraser is looking for new investors, is that existing ones including the Qataris and Gina Rinehart, Australia’s richest woman, are not rushing to put in more cash.
Sirius is in a very weak negotiating position. It has failed to raise the funds it needs once already and nothing has fundamentally changed since then. If Sirius does attract a partner it will be at a price.
Despite its claims for the vast potential market for its fertiliser polyhalite, any investor would be taking a big risk and would demand terms commensurate.
Sirius and its mine raised high hopes in North Yorkshire and Teesside for jobs and prosperity and the hope must be that these still come to fruit.
Even if they do, the small shareholders, including thousands of local people wishing to support a project on their home turf, continue to face a rocky ride. Hopes that polyhalite would do for Whitby what North Sea oil did for Aberdeen look like a long shot.
Steel deal
BRITISH Steel did not have many options. Apart from the victorious Chinese bid, the other offer on the table was from Liberty House, a UK-headquartered company run by tycoon Sanjeev Gupta.
He has been hailed as a saviour of manufacturing but has also faced questions over the funding of his empire. Whether this was the reason the Liberty bid was rejected or whether it was because it would have involved job losses at an inopportune time for the Government, we do not know.
A question mark also hangs over Ataer, the Turkish military pension fund, whose interest fell away for reasons that are unclear.
The Chinese are right to see potential in the British steel industry, which contrary to popular myth is not bombed out.
The Government, whoever is in power, will need to play its part by creating a more conducive environment. Steel plants here are at a competitive disadvantage due to heavy business rate bills and far higher energy costs than their French and German counterparts. Successive governments have also been reluctant to advance a helping hand in cyclical downturns, when other countries have taken a more enlightened view.
Against this backdrop, the resilience shown by the industry has been remarkable.
Manufacturers here still produce 8m tonnes of high-quality steel a year and the industry employs 32,000 people directly and more than 52,000 in the supply chain.
There should be plenty of demand in future, both from the developing world and the west as mature economies renew ageing infrastructure and move to a lower carbon model. That is likely to create a need for steel for wind turbines, electric cars, public transportation – the list is almost endless.
Only 43pc of the steel procured by the Government is sourced domestically at present. Why not 100pc, or at least much nearer to that? A cynic might conclude that the Government has set aside any reservations it might have about a Chinese owner in order to pull off a job-saving rescue in the middle of an election battle.
Be that as it may, the signing of this deal is not the end but the beginning of any salvation for British Steel. If the Government hands over the keys and forgets about Scunthorpe until the next crisis that will be a truly grotesque betrayal.