Yesterday shareholders in Sirius Minerals (SXX) voted for the proposed scheme of arrangement. Whether the votes actually represented the considered views of shareholders as regards the Court vote is questionable as most were not on the register and hence would not have been counted as individual members. However, this was a typical example of what happens when a company runs out of money and there is the immediate threat of administration – the winner is likely to be any other company that is willing to put up the cash to mount a rescue which in this case was Anglo American. Shareholders will not lose everything in this case as is what often happens but the many private shareholders who invested after optimistic promotions of the venture will still feel disgruntled no doubt.
I did not attend the meeting as I was never a shareholder in the company, but there are good reports in the Guardian and Daily Telegraph this morning. ShareSoc who have been running a supportive campaign for Sirius investors will no doubt be publishing a report on the meeting soon.
I never invest in mining companies that are still building a mine rather than actually in production because they always tend to run out of cash and require more investment to finish the development. The folks who make money are those that step in at that point because there are often few bidders to take it forward. In the case of Sirius billions of pounds are required and the project is high risk and always has been, even if the eventual outcome could be very profitable. So you can see exactly why current investors did not have much choice and may have been wise to vote for the takeover. The only possible alternative was some support from the Government such as loan guarantees but they chose not to do so. Why should they though when the Anglo deal will protect jobs and ensure the mine is developed? At least they will be taking the risk, not the Government.
In a previous blog post I suggested that investing in property companies might prove a good defensive strategy against the coronavirus epidemic. That was on the basis that they have reasonably secure long-term leases. But property companies that are exposed to the retail sector are probably not a good bet, I should have said. This morning Intu Properties (INTU) gave an “Update on strategy to fix the balance sheet” which is a direct way of stating what needs to be done.
The share price is down 28% today at the time of writing, and that is after a long decline since 2006. It’s actually fallen by 99% since then! The company has concluded that an equity share raise is not viable.
The business reports some positive news but in essence the company has too high debts with a debt to asset ratio of 68% after the latest property revaluations downwards. It has £190 million of borrowings due for repayment in the next year and other liabilities of £93 million also due. The company is to “broaden its conversations with stakeholders” but it looks to be a grim outlook for ordinary shareholders. A debt for equity swap is one possibility which often dilutes previous shareholders out of sight.
Share Plc (SHRE) who run The Share Centre announced their preliminary results this morning. You can see why the company recently agreed a takeover bid. Revenue was up 7% but losses rose to £133,000. Not that this is a great amount but it shows how competitive the stockbroking sector is currently with new entrants now offering free share trading. Consolidation is clearly the name of the game so as to increase scale and therefore it’s not surprising that an offer was accepted.
Stockbrokers now have high fixed costs due to the costs of developing and maintaining their IT systems and increased regulations and compliance have also added more costs. With few barriers to entry and not much market differentiation the future for smaller players does not look good.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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