Sierra directors form preliminary view

Sierra Rutile directors have formed a preliminary view that an on-market takeover from US-based Gerald Group, which owns bidder PRM Services, is an opportunistic and inadequate offer.

On March 20, the mineral sands producer told the market it had received an offer from PRM to acquire all remaining shares that it didn't own at a cash price of 9.5 cents per share. Upon receiving the offer, Sierra told its shareholders that the Board would consider the offer and to not take any action until more information and a decision had been made public.

Sierra's chair Greg Martin said the offer didn't appear to be in the best interests of either the company or its shareholders.

"We have formed the view that the offer is opportunistic, inadequate and undervalues the company, following the Board’s preliminary review of the unsolicited on-market takeover offer from PRM," he said.

"PRM has opportunistically timed its offer ahead of key value catalysts, such as the Sembehun (deposit) definitive feasibility study, and we do not believe it reflects Sierra Rutile’s significant strategic value as a major participant in the global mineral sands industry.

"However, the Board will continue to assess the on-market takeover further and issue an official target’s statement containing a formal recommendation from Sierra Rutile’s directors in relation to the offer.

"In the interim, the Sierra Rutile Board unanimously recommends shareholders continue to take no action in relation to the offer.”

It's been a rough start to 2024 for Sierra, which has been engaged in lengthy negotiations with the Sierra Leone government. 

On January 29, the Perth-based company announced plans to suspend its Area 1 operations in the country from March 11, after being advised of the SLG's decision to amend its third amendment agreement between both parties.

As part of this amendment, the SLG said it was keen to return to the fiscal regime implemented on November 20 2001, meaning that Sierra would be required to pay a substantial amount to the SLG for the 2023 financial year - and further dent its economic viability.

On March 11, the first day of operations being suspended, Sierra announced it was required to make 25 per cent of its workforce redundant by the end of the month. Along with remaining hopeful of successful negotiations with the SLG, the company said it would continue to provide support for employees affected by the redundancies. 

A day after receiving the on-market takeover offer, Sierra received a section 249D notice from PRM, under Gerald Group, which called for a shareholders meeting and recommended that four Sierra directors - Gregory Martin, Graham Davidson, Patrick O'Connor and Joanne Palmer - be removed from the Board and replaced by Craig Dean, Wara Serry-Kamal, Stephen Palmer and Zhuoying Jing.

Yesterday, PRM told Sierra it had revoked its resolution to have Mr O'Connor removed from the Board.

With these variables in play, Sierra said its share price had been affected and didn't represent the company's true value. In addition, the company's share price had not dipped to 9.5 cents per share since the offer had been received.

In some welcomed news for the company, chief executive officer Theuns de Bruyn announced that Sembehun's capex estimate had been reduced by $US36 million, from $US337 million to $US301 million.

"We are delighted to report a significant reduction in the estimated capex requirement to bring the Sembehun project into production," he said.

"This reduction was driven by Sierra Rutile’s dedicated management team and in house expertise implementing a range of efficiencies to the project, with a cost-effective, “fit-for-purpose” approach suited to our dedicated ownership and approach to Sembehun."

Sierra last traded at 11.5 cents per share, as of 10.23am AWST.