Notes from Business Breakdown podcast on MinRes

Fraser Christie from TDM Growth Partners was interviewed on the Business Breakdown podcast to discuss Mineral Resources.

Fraser is bullish on MinRes, describing it as “one of the best performing stocks of any business listed anywhere over the last 18 years”. He believes the business is still misunderstood by many analysts.

He splits the business into two segments. The first he calls InfraCo, which builds and operates infrastructure for mines. They design and build infrastructure in house, meaning they can do it faster and cheaper compared to others who outsource these capabilities. 

The infrastructure part of the business not directly exposed to commodity prices since they charge by volume. It’s also long term, recurring revenue, typically for the life of the mine. The InfraCo business is charging a fixed fee on volumes, and so it's not exposed directly to commodity prices.

The second part of the business Fraser describes is MiningCo which owns mines for the infrastructure part of the business to operate. MiningCo includes iron ore, lithium, and some gas. 

So the idea is to acquire a mine, InfraCo develops the infrastructure to build/expand and operate the mine. MinRes can either operate the mine or sell a stake in it.

MinRes has an emphasis on efficiency. Their lithium mines are some of the lowest-cost producers in the world. The iron ore mines have traditionally been higher-cost producers, but are moving to lower-cost, higher-volume operations.

Fraser identifies two possible risks to the continued growth of the business: 

1. loss of key personnel, such as founder CEO Chris Ellison retiring, or significant turn over in key staff, and

2. debt. Fraser argues the current level of debt is sustainable, and trusts management are experienced and incentivised to manage it well.

Fraser suggests that the current price is a reasonable entry point for longer-term investors:

…the business currently has a $12 billion market cap, but they've got an infrastructure business that could be worth $12 billion stand-alone. I would say there have been various moments in time where you could own this business just on the valuation of InfraCo and get Mining Co for free.

Are we in one of those moments right now? I'll leave up to everyone else, but that has been a core part of our thesis, is that InfraCo is undervalued by the market,

 So he thinks the infrastructure part of the business alone is undervalued, and the mining business is being valued at zero.

[Held RL and SM]