Although some are still holding out hope of a counter-bid, the only firm offer on the table at the time of writing was at 5.5p a share, barely a quarter of the price a year ago and down even further on the peak of more than 40p in 2016.
If there are any crumbs of comfort from Anglo’s approach, it does mean the project will have a much larger backer behind it (Anglo’s market capitalisation is just under £30bn) and stands a better chance of success, bringing with it jobs and supporting the local economy. But that will be scant consolation for those investors who lost money, in some cases substantially so.
Some degree of criticism has been directed at Sirius’ management with the suggestion that they are selling out on the cheap. Others point the finger at Government for not getting behind a project of such national importance.
In my view, neither accusation has merit. The harsh reality is that the UK stock market does not have a good track record of funding large scale infrastructure projects. There are simply too many things to go wrong. It isn’t enough just to have a great project – a huge amount of cash is usually required in the early years to get the project through to the point it becomes cash positive.
This is what tripped up Sirius. Although it had made great strides in the operational aspects (navigating the thorny subject of planning and signing long-term off-take agreements), it ultimately could not find all of the substantial funding required. It is no coincidence that neither of our two funds – the CFP SDL UK Buffettology or the CFP SDL Free Spirit – hold a single natural resources company, not even a behemoth like Anglo American.
We find it near impossible to value the equity. And to a shareholder, equity value is the main thing we are interested in.
On the point of the business being sold on the cheap, as soon as Anglo flagged its interest on 8 January, this put Sirius in the shop window as an available asset for any interested party to step forward. Better still, it gave them a steer on how much they might need to pay to acquire the business. As yet, none have - or rather none with a plan that Sirius’ management deem viable enough to seriously consider.
The fact that the clock is ticking – Sirius is currently losing money and has stated current cash resources will only last until around the end of March – provides a further hurdle for someone to ride to the rescue of shareholders.
It was Charlie Munger, long time business partner of the world’s most successful investor, Warren Buffett, who said that he likes to rub his nose in his mistakes so he didn’t repeat them.
What lessons can investors learn from the Sirius debacle? I have three to offer:
1) One of the oldest stock market mantra’s is never invest more than you can afford to lose. It’s there for good reason. Stories abound of Sirius investors losing very substantial sums of money including in some cases money that was saved for retirement. This was, I would argue, money they couldn’t afford to lose.
2) When investing in early stage or start-up projects, always check the funding requirement and how realistic it is that someone will be good for stumping up the cash – either as equity or debt. Big projects usually require big cheques up front, long before there’s a payback. You are in effect betting against history - the UK stock market has a poor track
record of funding this type of project.
3) Finally, never put all your eggs in one basket. Although holding a balanced portfolio means that you may not make the spectacular returns of being lucky with one stellar investment, it should also protect on the downside.
After all, one Sirius experience in a portfolio of, say 20 holdings, will not be as painful as only holding Sirius. Diversification is common sense.