Pinned straw:
This is VERY good news
Min have sold a 30% stake in their lithium assets. The price is MUCH higher than what the implied market valuation has been.
Plus the cash generated will reduce debt and therefore risk
A kind of "double-whammy"
Agreed with the commentary here – this is good news. Further evidence of wheeling and dealing from CE, who again and again continues to demonstrate the ability to negotiate favourable outcomes for this business. This reduces the high leverage to lithium, shore’s up the balance sheet but keeps healthy exposure to lithium.
Two years ago, many people would have called you mad if you suggested MIN would not need to sell any interest in either the mining services business or Onslow, and further, wouldn’t need to tap shareholders up for extra cash.
This is a bit opportunistic given the recent rise in lithium prices/sentiment, and like anything you need a bit of luck, but at the same time that is cyclical mining investing. CE has made some errors in the last decade (personal behaviour aside, speaking from a business sense), but more often than not he makes sound, targeted moves that benefit the business in the long term. The story behind MIN’s acquisition of Wodgina supports this – worth a look for those not familiar.
@Slomo a lithium services play does make sense. I wouldn’t be surprised to see an expansion to Onslow as another ‘what next’ for CE too.
I am expecting strong results in the next quarter; Onslow should be spitting cash, mining services will keep doing its thing and Lithium should be serviceable. This bodes well for further debt repayment.
I am not trimming (yet). My position size is nearly 14% - obviously pretty concentrated, but I am comfortable at the moment. I am keeping a close eye on Iron ore and lithium – if these remain at current levels, MIN remains attractive imo. With a market value of $3b for the lithium side of the house, Mining Services alone is worth the remaining 6-7b (as I noted here over a year ago). That is a free hit with Onslow.
i have to admit, this is the riskiest stock i own, and I have been sweating on it, and that is not my style, i like less risk
. This deal adds $6 to my valuation to $71/ps, for what's that worth, not much. But it does bring down that debt, and the existential risk is all but gone.
This is almost a free gift, the Lihtium assets i had at $2.5b for the lot,
it may bring back investors as the risk is reduced and shows the rabbit out of the hat, Ellison is still around.
held.
@Solvetheriddle, in case it helps you sleep better at night, I did some analysis on the Onslow ownership structure back when the debt concerns were rising and the share price was falling.
CFO Mark Wilson and CEO Chris kept saying they had a lot of options and we started seeing them pull the trigger on a few like selling most of their energy asses to Gina and 49% of the haul road to Morgan Stanley.
So I had a look at what they might do with divesting part of Onslow. I didn't consider Lithium divestment as prices were in the toilet back then.
The below is my analysis of what it might look like - the most complicated part is the JV's that make up the Onslow ownership structure.
The least certain parts are the EBITDA number and the multiple it might fetch.
The TLDR is that MIN could sell 10% of Onslow (16.5% of their stake) and still hold 50.3% with no other single party holding more than 28.7% afterwards. This could raise about A$1bn.
Selling 10% of Onslow would obviously reduce debt but also reduce their direct exposure to Iron Ore prices. Similar to what they just did with their operational lithium assets.
From the way mgmt talk, they don't seem to be contemplating this, nor do they need to given their falling debt, production ramp up and bond market appetite.
But I would expect they've done a similar analysis for Onslow as they did for Lithium assets, maybe just not as pretty as my XL spider web below!
The market seems to have been anticipating it, given the run up in the share price in the lead up.