Mine Precious

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Image source: Fotosoroka - Shutterstock, @zen0623 - gfycat / The Lord of the Rings - YouTube

What's going on?

Anglo American wantses Sirius Minerals’ precious mine: the $30 billion global mining company announced on Wednesday it’s in talks to buy the British firm for $500 million.

What does this mean?

Anglo American makes over a quarter of its profit from iron ore, and it does brisk business mining copper, platinum, and diamonds too. Sirius, on the other hand, has no profit to speak of. What it does have is an as-yet-undeveloped UK potash mine, whose valuable mineral is used in fertilizer manufacturing.

Sirius struggled to raise the money it needed to press ahead with the mine construction last year, which led its stock price to drop more than 50%. But a tie-up with Anglo would almost guarantee Sirius’s roughly $4 billion mine would get built. And given Sirius’s plans to produce $2.5 billion worth of potash annually, it shouldn’t be long before Anglo makes a positive return on its investment…

Why should I care?

For markets: Lucky dip?

Teaming up with a larger miner was always an option for Sirius, and it probably looked like quite the bargain to would-be partners: its share price had fallen from 22p this time last year to 4p before Anglo’s announcement. After the update, Sirius’s stock rose 34%, likely as investors anticipated a windfall from the Anglo deal. But not all the miner’s investors have it so good: even Wednesday’s price jump won’t make up for the losses longstanding investors – including well-known hedge fund Pelham Capital – will have suffered.

The bigger picture: Testing investors’ mettle.

With tensions between Iran and the US escalating further on Wednesday, investors fearful of disruptions to economic growth bought up gold, pushing it to its highest price since 2012. That’s no bad thing, says investment bank Goldman Sachs, which has found gold’s a better hedge against extreme geopolitical tensions – including military action – than oil (tweet this). Goldman thinks prices of metals like copper and nickel will rise this year too, which bodes well for Anglo.

Originally posted as part of the Finimize daily email.

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