Retail investors have a chance to buy Sirius Minerals (SXX:AIM) cheaper than the market price. They are being invited to take part in a $1.2bn (£0.98bn) financing to help bring its Yorkshire potash mine into production.
The aspiring potash producer is expected to confirm later today or tomorrow (3 Nov) the exact price at which discounted shares can be bought.
Sirius has already confirmed the price will be in the range of 20p to 30p. The shares were trading on the market yesterday at 36.75p.
BREAKTHROUGH MOMENT
Sirius last week secured a $300m royalty finance deal with Hancock Prospecting, which is run by Australia’s richest woman Gina Rinehart.
The miner is now looking for an extra £330m-£400m through placing new shares and $400m-$450m (£325m-367m) via convertible bonds.
HOW IT WILL GET THE MONEY
Sirius has enlisted the help of several stockbrokers and banks to help find buyers for the bulk of the new shares via something called a ‘bookbuild’. This effectively involves an army of financial sales people calling their contacts to see at what price they would be willing to buy new stock.
Once the ‘book’ of orders is filled, Sirius can then announce the firm placing and open offer price. Traditionally these events are concluded in a matter of hours, but Sirius is planning for two days.
Approximately 90% of the money to be raised via equity (equal to £297m-£360m) is expected to come from institutional investors. For example, that might be pension funds or asset managers.
The remaining £33m-£40m is expected to come from existing shareholders - namely the general public who are already invested.
HOW YOU CAN APPLY FOR DISCOUNTED SHARES
The offer will be launched on Monday 7 November. Existing investors will be able to apply for new shares via their stockbroker or by calling Capita.
Exact details will be contained in a document to be published once the bookbuild has completed.
If the bookbuild finishes today, we’re told by Sirius’ advisers that the open offer could be launched for retail investors earlier than Monday.
Open offers tend to work on that basis that if you have 100 shares, for example, you can then apply for another 100 shares at the new discounted price.
Sirius’s offer will be different. You will be able to apply for more shares than you currently own - but there is no guarantee you will get everything you want.
The company intends to wrap this fundraise up very quickly as the new shares are targeted to start dealing on the stock market on 29 November.
HOW THE MARKET HAS REACTED
The discounted fundraising understandably pulls down the share price following the announcement. In early market trading, Sirius falls 5.4% to 35p.
It is important to note that the equity placing and bond offering are both fully underwritten by JP Morgan Cazenove. This means if Sirius is unable to sell enough new shares to meet its financing requirement, JP Morgan will buy the remaining stock.
NEW STOCK VALUATION SCENARIOS
‘Now that we know broadly the post-Stage 1 financing capital structure we have significantly more clarity on the final capital structure of the business and hence the dilution impact of Stage 1 funding,’ says Liberum analyst Richard Knights.
‘This is relevant as the company does not anticipate raising any additional equity on Stage 2 financing.
‘At the bottom end of the range (minimum price, maximum equity allocation, minimum convertible allocation) we calculate a post dilution NPV (net present value) per share of 98p, or 144p on the eve of production.
‘At the top end of the range (maximum price, maximum convertible allocation, minimum equity allocation) we calculate a post dilution NPV per share of 124p, rising to 181p on the eve of production,’ adds Knights.
Knights' calculations assume peak production of 20m tonnes per year is achieved by 2027 and a polyhalite price of $125 per tonne and an 8% real WACC (weighted average cost of capital).
