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Valuation of $83.00
Added a month ago

Valuation Method: McNiven's Formula.

I've put aside my usual DCF valuation and opted to use McNiven's Formula for the first time (I will still be conducting my usual DCF valuation in the not to distant future).

This valuation is forecasted for the FY24, utilising the financials from their recent 1H FY24 report.

For the valuation, I've assumed the following:

  • RR = 10%
  • Dividend payout from ROE = 2%
  • Equity per share = $20.41
  • ROE = 23%


Forecasted Valuation = $83.42

Much like @Bear77 provided within his most recent valuation of $95, I don't expect the SP to fly up to this valuation, but I will ditto the 3ish year expectation.

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#Chris Ellison - My type of CEO
Added a month ago

The AFR released an article this afternoon titled, "Billionaire MinRes founder slams critics over balance sheet".

Mineral Resources founder Chris Ellison slams critics over balance sheet

Just a few things that made me smile, highlighting why I like this company, and love the way Chris Ellison goes about it.

  • We have so many friggin’ levers we can pull,” he said in response to the balance sheet doubters.
  • Mr Ellison suggested he felt pressure to sell a 49 per cent stake in a 150-kilometer private haul raod that connects the mine to the Port of Ashburton on the west Pilbara coast.“The pressure I’m under at the moment with everyone whining and bitching, [I’m] going to go out and sell half of it [the haul road] just to put the money in the bank and go like ‘f--- you’,” he told analysts.
  • Mr Ellison said MinRes would limit production at the Wodgina lithium mine it owns in partnership with New York-listed Albemarle until prices improved in a market dominated by China. “When Mr. China decides to pay us enough [for lithium], we’ll turn it on,” he said.


In my view, there is a lot of criticism of Chris Ellison... a man who has proven himself as a great CEO who makes very sound and strategic decisions time and time again.

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#FY24 - H1 Results
Added a month ago

Half Year Results - FY2024 - Mineral Resources Group

The SP has been hit since the start of the year, aligned similarly with commodity pricing - with highs of around $91, it has been on a steady decline to where we see it today at around $60.

6e14a89986b1cb502a48188ec4c9f7cb548ae1.png


In my humble opinion, this is an underrated company that is treated like a producer, however potentially shouldn't be treated quite the same...

A few key financial points from todays announcement:

  • Revenue increased by 7% to $2,514.7 million.
  • Statutory net profit after tax rose by 33% to $518 million.
  • Underlying EBITDA was $674.9 million, a 28% decrease.
  • Iron ore segment revenue up by 37% to $1,329.4 million.
  • Significant expansion and acquisition activities in the lithium segment.
  • Declared a fully franked interim dividend of $0.20 per share.


6bfd160dad0effe537d06fc4ad6e5195d29d06.png


They've also provided a review on their operations for the first half:

Mining Services:

  • Production volumes were within guidance and delivered an underlying EBITDA of $253 million.
  • Awarded five (5) new contracts and renewed three (3) contracts with Tier 1 clients.


Iron Ore:

  • Construction of Onslow Iron remaining on budget and on track for shipments in June 2024.
  • Sales volumes reaching 8.7 million wet metric tones, aligned with guidance.
  • Underlying EBITDA of $266.2 million, up from $37.1 million in 1H23.


Lithium:

  • Commissioning of Mt Marion plant expansion, resulting in 99,000 dry metric tons of SC6 equivalent spodumene concentrate shipped, up 39%.
  • Pre-strip activities at Wodgina were well advanced, with an increase in shipped concentrate of 36%.
  • Acquisition of Bald Hill, effective 1 November 2023, and the completion of the MARBL joint venture restructure in October 2023, which increased Mineral Resources' ownership in Wodgina to 50%.


Energy:

  • High-quality clean gas intersected through drilling activities at the Lockyer-3 appraisal well.
  • A development application for a gas processing facility was submitted, with a Final Investment Decision expected in 2H24, subject to WA Government agreement for partial export.


A few risk areas from my point of view:

Lithium and iron ore price along with market and economic conditions:

  • An obvious one, however the lithium and iron ore segments of the business could take a hit dependent on the price of both.
  • The lithium segment already saw some performance issues, despite the offset of lower costs due to higher plant recoveries and increased volumes.
  • To some extent, the global economic environment with overall fluctuations in commodity prices and demand for these resources.


High capex and failure to execute:

  • They've made some significant capital investments through the development of Onslow Iron, the expansion of Mt Marion and the acquisition of Bald Hill - Yes, there is no doubt that these are strategic investments, they were also a substantial outlay of funds.
  • If these investments don't hit the mark for the expected returns, or their delayed, the market may not look at them too favorably.


The following is directly from the Director's Report:

Underlying operating cash flow before financing and tax7 of $820.8M was up $261.5M on pcp, representing a conversion rate from Underlying EBITDA of 122 per cent.

  • Progressed development of Onslow Iron, with all major approvals received and equipment orders placed. Construction is expected to be within budget and remains on track to deliver first ore-on-ship in June 2024. Drill and blast and load and haul operations commenced in the period. The Onslow 300- room construction village has been completed and is fully occupied. The transshipping wharf was completed and the shiploader was installed in December 2023. Successfully completed first transhipper sea trials, with the first two transhippers scheduled to arrive in 2H24.
  • Mt Marion expansion commissioned and ramping up.
  • Pre-stripping of Stage 2 and 3 at Wodgina.
  • Continued focus on gas exploration in the Perth Basin. Commenced assembly of a new automated drill rig, expected to be operational from mid-2024.
  • Investment to support new Mining Services contract wins.
  • Acquisition of Bald Hill with project control assumed on 1 November 2023.



As I write this today, the market has seen these results as positive, and the SP has increased by around 4% to $61.50.

I'll be doing my own valuation on the financials this evening (pending my 11 month old daughter's sleep routine... which is ever-changing) and I'll post that at some stage. Might even give the McNiven's Formula a whirl, thanks to @Rick's presentation the other night.


Cheers,

Tom.


Disclosure: I hold both in my real-life portfolio and on Strawman.

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## Lithium Market Overview
Added a month ago

An Overview of the Lithium Market - Why Prices Needed to Fall

Author(s): Daniel Ortisi

Date: 8 February 2024

An Overview of the Lithium Market – Why Prices Needed to Fall

Much has been said about the rapid rise and fall of lithium. It was the hottest sector on the Aussie market from 2020 to the peak in November 2022, driven by an incredible 600% increase in lithium prices. We saw developers such as Liontown Resources (#LTR) go from a penny dreadful 10c stock to one of the largest takeover stories for a pre-production mining company in years, at an eye-watering $6.6 billion valuation (which was torn apart by Gina Rinehart). The country's largest hard rock lithium mine, Greenbushes, made (almost) the same profit as Commonwealth Bank (#CBA) in FY23 at over $10 billion. One operating asset making more money than a nearly $200 billion behemoth bank is truly incredible.

The Cyclicality of Commodities

But as quickly as commodity prices rise in times of mania, they fall in times of desperation. The response by mining companies was to increase output as quickly as possible to take advantage of mania prices, no matter the cost. Analysts at Wood Mackenzie suggest that the supply grew 45% in 2023, putting the market into surplus. It gets bleaker once you look at the supply forecasts produced by the investment banks. Goldman Sachs believes the lithium market will be in surplus until 2030. If true, we cannot expect lithium prices to rise above current levels. However, we should consider that mining and mineral extraction is a tough business and relies on variable factors such as:

  • The ability to obtain project finance (take a look at Liontown’s recent updates)
  • Government and ministerial permitting, approvals and regulations (~5 years in Aus, ~10 in Canada)
  • Ability to mobilise large machinery and equipment (constrained by availability and cost)
  • Sufficiently trained workforce; and
  • Infrastructure is needed to transport material from the mine site to the end customer (spodumene is a bulk material).

In my view, it would be almost impossible to generate the level of anticipated supply growth as the forecasts suggest over the next 5 years, particularly in geographic locations that may lack the required level of infrastructure (Africa, South America) or lack geologically gifted orebodies (China lepidolite). Therefore, if demand continues to rise and prices do not appreciate meaningfully, the industry will not experience anywhere near the anticipated supply growth. Hence, the cure for high prices has been high prices, and the cure for low prices in time will be low prices. This may spark a commodity price rally sometime within the next 12 months, so long as the demand for lithium ion batteries continues to grow.

The risk to this thesis is that:

  • The supply of lithium remains robust and ahead of demand.
  • Demand for electric vehicles slows and remains in line with lower supply estimates or
  • The lithium-ion battery chemistry is displaced by new technologies such as sodium. It is a genuine possibility and something to follow closely.

 

Source: JPMorgan estimates

Where Are the Opportunities

Higher-cost producers and small-scale operators are being forced to turn off operations. In my view, these represent the most significant risk of financial deterioration and should not be considered investment grade (#SYA, #CXO).

Lithium explorers and developers will struggle to raise finance at reasonable terms and hence may suffer dilutive capital raising or be forced to sell their projects to larger companies. Betting on a buyout is a highly speculative method of stock picking and not a part of our methodology at Stock Doctor.

Finally, the large producers with sufficient balance sheets and excellent assets who continue to make profits will be the best placed to take advantage of a weak market (consolidation, growth, minimal dilution).

Stock Picks

My top pick has been Pilbara Minerals (#PLS), who have a warchest of $2.1 billion in cash, a mine life in excess of 30 years and 100% project ownership to drive their own outcomes. Its valuation has been more resilient than its peers, but it should trade at a premium given its history of operating performance.

Secondly, Mineral Resources offers investors a diversified company underpinned by one of the highest-quality mining services businesses on the ASX. Its operations may have higher costs and come with lower project ownership. Still, the market should have faith in a management team that is highly aligned with shareholders and has a history of excellent dealmaking and flexibility.

Arcadium Lithium (#LTM) exposes investors to the lowest-cost form of lithium extraction in brine operations. The merger, at this point, remains a black box. Still, the company has an asset portfolio that can support a 200% increase in output over the medium term, which means the stock will likely have the highest leverage to recover lithium prices.

Finally, IGO Limited (#IGO) has had a terrible news flow in the past 6 months. Its 25% interest in Greenbushes is the jewel in its crown, but its minority ownership means the business may not have its interests aligned with its larger partners. Tianqi and Albemarle are reducing their spodumene offtakes and forcing the asset to stockpile ore likely until a recovery in market conditions. It is very unusual for a world-class asset to act like a marginal cost producer, which has been to IGO's detriment. At this point, long-term investors should be willing to be patient as the new CEO clears the decks and market expectations are revised. The quality and value of Greenbushes is worth a pretty penny, and it is the sole reason we retain its Star Stock status at this point.

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#Broker View
Added 2 months ago

The core to the investment thesis for MIN is the rapid growth occurring across its iron ore and lithium mines, which result in significantly higher mining services volumes. Unlike traditional mining companies, MIN benefits from having an integrated mining services company which scales with volume growth – and hence has less reliance on commodity prices to earnings. Given iron ore price strength in the near term, I view MIN as one of the highest quality growth companies to play commodity (whereas BHP, RIO and FMG have miniscule growth) while maintaining diversification.

The market does not understand MIN's business model well in our view, in particular how MIN continues to recycle capital from asset ownership to volume expansion (i.e, build, sell down, operate)– chasing the highest return profile possible and reducing reliance on commodity prices.

Longer term, MIN has ambitions to expand into the energy market with the discovery of the Lockyer Gas project in Western Australia. Whilst awaiting a formal investment decision, some analysts suggest the project is capable of delivering over $400m in annual earnings.

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#Broker View
Added 2 months ago

Publish Date: 25 Jan 24

Research Analyst: Daniel Ortisi

Diversified miner and services company Mineral Resources (MIN) provided a 2Q24 update. Overall, production volumes and shipments look slightly ahead of expectations however this is offset by lower realised pricing for lithium concentrate. No changes were made to FY24 production or cost guidance.

Importantly, management commented that its lithium operations remain profitable (before growth investments) despite the low pricing. We are seeing evidence of lower costs and higher throughputs at Mt Marion and Wodgina which is a major factor in our investment thesis.

Analyst View:

The thesis for MIN remains intact and we are confident in its long term growth prospects. Short term volatility is anticipated to continue given its large debt profile (due to growth expenditure) and low lithium prices.

Quarterly Summary:

  • Mining services volumes 72mt, up 9% QoQ
  • Iron ore shipments 4.8mwt, up 23% QoQ
  • Mt Marion SC6 shipped 60kt (50%), up 54% QoQ
  • Wodgina SC6 shipped 63kt, up 162% QoQ
  • Wodgina chemicals sold 6.4kt, up 50% QoQ


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Valuation of $95.00
Added 2 months ago

Latest updates are at the bottom.

This starts two years ago:

16-Jan-2022: (yes, 2022) MinRes (Mineral Resources, ASX:MIN) are a very good company. They regard themselves as a mining services company however the majority of their revenue is now derived from iron ore mining - from their own mines, so they are really now a miner with a mining services division who provide digging, loading, hauling and crushing services for iron ore miners large and small.

I'll go into some more depth on their business and their high ROE and profitability in a minute but first, why $77, apart from it being one of my favourite numbers? Looking at their share price chart, I don't think they should have too much trouble punching through $70/share, however I think $80 may be a bridge too far in the shorter to mid-term. I'm sure that they will eventually punch through $80/share as well, but I wouldn't be surprised to seem them trading in that $70 to $80 range for a little while first. That said, they are not usually a range-trading or sidewise-moving stock. They tend to trend very well both up and down, as their chart clearly shows. Since early November (10-Nov-2021) the trend has been very definitely UP.

OK, MinRes' main exposure currently is undoubtedly to iron ore, both through their own iron ore mines, their vast iron ore infrastructure, and the amount of mining services they do from clients like BHP and RIO right down to some of the smaller players in the industry.

However they also have a significant presence in Lithium, despite most of their lithium assets currently being either on C&M (care and maintenance, i.e. temporally mothballed) or still under construction. They regard their Wodgina lithium mine as the world's largest hard rock lithium deposit, and they've been busy partnering with battery metals company Albemarle to create a vertically integrated lithium business from the lithium-rich spodumene concentrate that Wodgina produces to the lithium hydroxide that Kemerton will produce.

It's important to understand that MinRes is run by its founder Chris Ellison, and he tends to polarise views towards him; people tend to either love him or hate him. He can be a fairly ruthless businessman when it comes to takeovers and acquisitions and most of his detractors tend to have come from the other side of many of the deals that he has made over the years, which have tended to benefit MinRes a lot more than they benefitted other parties. I'll copy in a little history below from an investment thesis I prepared for MIN a couple of years ago. I refer to MRL which is often how MinRes refer to themselves, it's short for Mineral Resources Limited.

49de274654f6e9a044cccb7664140793f832ac.png

Chris Ellison, pictured above, has HEAPS of skin in the game - some 22,261,431 MIN shares worth $1.46 Billion at Friday's $65.62/share closing price, so Chris owns close to 12% of the company. 

He was the MD of MND (Monadelphous Group Ltd) back in 1988 after they went into receivership, and he got them back to where they were able to re-list in late 1989. He was the founding shareholder of all three of the private companies (PIHA, CSI & PMI) which were merged to form MRL originally, and he has been in charge of them and then MRL (Mineral Resources Ltd) since inception.

At their November 2019 AGM, MinRes (MIN) avoided a fourth consecutive strike on their remuneration report with a vote of 84 per cent in favour. The breakthrough came after changes to the remuneration policy and talks with proxy advisers blamed for the report being voted down for the past three years. Some of those changes included Mr Ellison having his base annual salary as managing director cut from $1.5 million to $1.2 million and his capacity to earn bonuses increased from 50 per cent of base salary to 100 per cent.

While Ellison and his associates can sometimes be viewed as somewhat ruthless and uncaring when it comes to corporate maneuvering (acquisitions, takeovers, etc.), he has always been opportunistic and has built the company up partly via a series of opportunistic takeovers and the purchase of distressed assets at fire sale prices. When it comes to his own employees however, he is apparently a great boss, very loyal, looks after his own, and the word is that MinRes as a company have a very strong emphasis on positive company culture within the business. 

It is this "MRL first, MRL’s clients second, everyone else third” approach that does rile some of his business rivals, particularly the little guys with the assets he often ends up acquiring at less than what the previous owners may have thought was a “fair” price. In one respect, that is one of MRL’s “edges” or competitive advantages – that they have the balance sheet and experience to identify opportunities in distressed assets and forced sellers and take advantage of those situations. 

Another side of that is their ability and track record of selling assets at or near the top of the market, as they did with the 60% sale of Wodgina to the global battery metals giant Albemarle during the lithium bubble. By the time that deal was settled, the bubble had burst, but the contracts had been signed and were enforceable, and MRL got their money, as agreed. As they have done historically, when they sell a mine, or part of a mine, they always retain a life-of-mine or multi-decade mining agreement with the new owners, so MRL always continue to provide the mining services for that mine. In the case of Wodgina, that agreement is for at least the next 30 years. While Wodgina is currently on “care and maintenance” due to a current low lithium price, it is arguably the largest hard rock lithium deposit on the planet and one of the top 5 lithium mines (from an infrastructure point of view) globally, so when the lithium price rises again, Wodgina will absolutely be fired up again, and it will be MRL doing the work there – and being paid by the tonne, regardless of the prevailing price of lithium. Also, in the case of Wodgina, they (MRL) have retained a 40% stake, so they also will receive 40% of all sales receipts in addition to the mining services income (as long as they pay 40% of the costs). 

That is the sort of dealing that Ellison’s enviable reputation is based on. Because Albemarle is a massive corporation, nobody is crying poor about this particular deal, even though MRL clearly got the better of it. When the counterparty is a small struggling miner with cashflow issues and lenders breathing down their necks, the reporting tends to paint MRL – and Chris Ellison – in a much less favourable light. We always like to feel sorry for the little guys – the underdogs.  I have come to the view that Ellison is primarily a very astute businessman.

Here are some of the Pros (positives) of MIN (MRL/MinRes) as an investment that I jotted down in early December (last month):

  • Exposure to iron ore.
  • Exposure to lithium.
  • They own some serious infrastructure, including rail wagons, port assets, hundreds of trucks, and a huge amount of mining equipment (both fixed and mobile plant).
  • Consistently profitable, with very healthy ROE.
  • Diversification of revenue via multiple commodities and various mining services divisions.
  • Opportunity to trade in and out due to very volatile share price, with an underlying business that is very solid with no net debt and over $200m of net cash.
  • Good, innovative management who have a focus on positive company culture.
  • Balance sheet strength: MRL have no net debt, a rock-solid balance sheet, a large cash buffer (currently over $200m), and an excellent dividend payment and total shareholder return history.
  • Good potential upside from exploration and development, as well as from multiple diversified business units, including new divisions that are yet to make a positive financial impact.
  • Innovation focus; meaning they don’t stand still; they are always working on something new while leveraging their strengths within their existing business units.
  • While MIN failed to acquire AWE a couple of years ago, they have assembled a collection of energy assets anyway and are actively drilling for gas on their own tenements with a view to hopefully becoming energy-self-sufficient at a number of their own mine-sites and reducing their annual diesel bill – which is currently in the hundreds of millions of dollars in total – across their entire operations. The market may be forgetting that the first 10 years of Chris Ellison’s (MRL’s founding shareholder and managing director’s) career in the mining and resources industry was spent on constructing, developing and operating in the gas industry. For more on their Energy division – see here: https://www.mineralresources.com.au/our-business/energy/
  • MRL has the proven ability to safely deliver high quality production facilities in the mining and resources industry on time and on budget. The Company has a stellar reputation as the industry leader for delivering and operating world class projects at a low cost. They tend to be faster and cheaper than their competitors. 
  • MRL have a large collection of used crushing, screening and other mine-site-related equipment which are “off-balance-sheet” assets. They either buy the equipment at “fire sale” prices when companies fold, or else they get the stuff for free by agreeing to rehabilitate or clean-up old/disused mine-sites in exchange for salvage rights. Sometimes they get paid to clean up other people’s sites, AND they also get the salvage rights. The equipment often has little value (other than as scrap metal), but some of it is refurbished and/or re-purposed and used in/at either MRL’s own mine-sites or their clients’ mine-sites. The large bank of used equipment that MRL own gives them a cost advantage over their competition - who generally have to source everything from scratch when taking on additional contracting work.
  • Recurring revenue from multi-year crushing contracts (CSI division) and other multi-year contracts for provision of services by MRL’s other mining services divisions. MRL’s CSI division have multi-year iron ore crushing contracts for Australia’s two largest iron ore producers, Rio Tinto (RIO) and BHP Billiton (BHP), as well as for a number of smaller companies.
  • The recent pullback from over $60 to below $40 presented a good opportunity to get back into a company that looks even better now than when I last invested in them. They have begun rising again, however, they are still below $50 with plenty more room to run in my opinion based on their fundamentals as well as current investor sentiment having turned positive on them once more. They tend to trend well.


cfdc211d5ddd06866a92c6b1ad225d2f7484d6.png


And that's where I bought back in, at $47.10 on 10-Dec-2021. They are now $65.62/share, so there's less upside from current levels than there was 5 weeks ago, but I think there's still upside. I haven't yet added them back in to my SM portfolio, but I do hold them in real life. As I have said, I need to sell stuff to buy stuff here, as I don't have any cash left here.

OK, here are the Cons (negatives) of investing in MIN (MRL/MinRes):

  • Commodity price/outlook risk – mostly Iron ore & Lithium.
  • Mine life risk - Mines have finite lives and more ore will need to be discovered or acquired at some point in the future.
  • Grade/Costs risk – If MRL’s costs blow out, and/or grades fall, profitability may fall.
  • Exploration downside risks – Amounts spent on exploration may not yield positive results. (i.e. bang for bucks might not be as positive)
  • Key man risk – Chris Ellison might leave or retire. However, as Chris has the vast majority of his personal wealth tied up in the company (his MIN shares are currently worth over $1.5 billion dollars), it is unlikely he would do anything that was not in the best interests of MRL and its share price.
  • Acquisition risk –future M&A activity may not result in the expected synergies and other benefits that are expected by the company’s management, or the benefits may not turn out to be a great as expected, resulting in possible goodwill write-downs, or unexpected costs (which may impact on profitability). This risk also extends to JVs, which might not all provide the expected benefits and returns on invested capital as previous ones have.
  • Execution risk – MRL’s management need to execute well on their plans and be reasonably accurate in their forecasts. Chris Ellison tends to be fairly optimistic and bullish with his forecasts and while he does meet them, he doesn’t always hit them within the original timeframes that he first sets for them. It sometimes takes longer. It might be helpful if he tried to underpromise more, so that he can consistently overdeliver. Managing market expectations is another way of framing this particular risk.
  • Client/contract risk – MRL have a number of mining services businesses and each carries risk associated with clients and contracts. For instance, in MRL’s crushing business (CSI, Crushing Services International, MRL’s largest mining services division), Fortescue Metals Group (ASX: FMG) decided to take their iron ore crushing & screening back in-house back in 2013, after an electrician died while working at one of the crushing plants being run by MRL at an FMG site. There was a large one-off payment made by FMG to MRL as part of the contract termination (break fee, transfer of equipment, etc), but MRL lost the annual recurring revenue that the FMG crushing contract had previously provided to them. These sorts of events can occur within these mining services divisions and are something to be mindful of. Losing contracts to competitors also falls into this category, although – to their credit – MRL have never lost a client to a competitor in their history so far. [that statement was true in 2019 – I have not verified it since then, so not sure if it still stands in 2022.]
  • Director Selling - The Chairman (Wade) and MD (Ellison) were both selling shares on the 28th to 30th November 2017, when MIN were trading at between $19.33 and $20.01.  In Chris Ellison's case, it was ~$37m worth, around 8% of his shares. The fact that Peter Wade sold 39% of his shares for $4m at exactly the same time, as well as their preference for using shares to pay for as much of AWE as possible (rather than cash) – as part of their bid for AWE that was ultimately unsuccessful – does seem to suggest that they believed that the MIN share price had got ahead of itself at that point in time. In hindsight, they were correct. After peaking at just over $22 on 1-Jan-2018, the MIN SP retraced over the next 11 months right back to $13.39 on 12-Nov-2018, then traded broadly sideways before bottoming at $12.70 on 14-Nov-19, being a 42.3% drop from top to bottom. The SP then went into a very strong uptrend from 14-Nov-19. I bought back into MIN at $14.94 on 25-Nov-19 and they were trading at over $17 within 3 weeks.  There has been little evidence of this director selling since 2017, however it is certainly something to monitor – if they start selling shares in significant quantities once again.
  • Village accommodation risk – the experience with both Fleetwood (FWD) and Decmil (DCG) suggest that there is a reasonable amount of risk in owning remote manufactured accommodation villages, particularly asset write-down risk when the mining and energy sectors experience a downturn. MIN’s exposure to this sector is a reasonably small part of their overall business mix, with the main village accommodation asset being their Poondano Village in Port Hedland, but they also build and operate accommodation and provide site services for their own mining operations, as well as for a number of their clients (on a smaller scale than Poondano), including the Onslow Highway Camp as well as a number of remote site services operations and exploration camps.  December 2021 Update:  According to their website – see here: https://www.mineralresources.com.au/about-us/our-companies/ And here: https://www.mineralresources.com.au/our-business/ ...MRL (MIN) have streamlined their business units now, and they do not appear to still be involved in Accommodation Villages, on-site catering, and those types of ancillary services. At least, if they are still doing that, it’s such a small part of their total business as to not even rate a mention on their website now, or in their annual reports and company presentations, so if there is any risk remaining there – it is negligible.
  • Wide range of estimates amongst brokers and analysts.  There is a risk in relying on other people’s forecasts, however I'm not relying on them and I'm largely ignoring them.
  • There have been various allegations made occasionally over the years of unfair and/or unethical behaviour by Chris Ellison and his previous CFO, Bruce Goulds (now retired). This is not uncommon in business and is quite similar to allegations that have been made against Kerry Stokes, such as during the Nexus Energy takeover, when Stokes began building SGH Energy (part of SGH, ASX code: SVW).  These rumours and unsubstantiated allegations are something to be aware of, as we want to be confident that management can be trusted to act in the best interests of ordinary shareholders, as well as to act well within the law, and in an ethically sound way as well.  What I have found is that these matters get reported completely differently depending on whether MRL is considered to be the David or the Goliath in the story. As the David, the “brilliant” deal MRL managed to pull off with Albemarle buying 60% of Wodgina which settled on the day they shut down production and placed the mine on “care and maintenance” was hailed as a triumph for Chris Ellison. However, if they had enforced that same deal (which was inked back when we were in the middle of a lithium bubble with massively higher lithium prices) on a small junior miner who was struggling financially, MRL would have been painted as the uncaring, insensitive and ruthless Goliath prepared to crush the little guys underfoot to get the very best deal for themselves. All allegations need to be considered seriously, and management behaviour also watched closely, however, we also need to understand the inherent bias in the reporting of much of this stuff, and to clearly separate the legal/illegal from the fair/unfair-to-all-parties. Being able to quickly capitalise on opportunities, including in distressed assets and with forced sellers, is one of MRL’s “edges” or competitive advantages. It’s what has got them to where they are today. Previous owners of assets that eventually become part of MRL are often unhappy with the outcome that they received, but MRL didn’t put them in that position, they found themselves in it through bad luck, bad management, or bad timing, and MRL just seized on the opportunity, as they do. That’s business. Clearly not everybody is unhappy with their own outcome, but it’s the minority who are unhappy that get the most press coverage. Again – we have to be fairly astute in trying to ascertain what is unethical or illegal versus what is simply opportunistic behaviour.
  • Shorting risk – The long lists of risks above may attract short sellers, and if MRL come under a sustained short-selling attack (for weeks or months), that will likely negatively affect the SP of MIN for the duration of the attack, and possibly well beyond it.


OK, so hopefully that's a reasonably balanced view on MIN. I wouldn't say they are a definite "BUY" up here, but they looked like a great opportunity 5 weeks ago, one which I pounced on in RL (real life). Because they tend to trend so well, I would always consider MIN as an investment opportunity when they have recently been in a downtrend and they break that downtrend and start to trend up once more. That was the situation I discovered in early December, and that's why I bought back in. Could be a good one for the watchlist for those who are interested in this area (mining and mining services, specifically iron ore and lithium).

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Further Reading:

MinRes going Silicon Valley-style for new HQ - MiningNews.net

Mineral Resources founder Chris Ellison is Australia's newest billionaire (afr.com)

Wodgina Lithium - Mineral Resources (carbonart.com.au)

Mineral Resources’ Wodgina mine brought back to life by lithium rally (afr.com)

An Insider’s View: The Kemerton Lithium Hydroxide Processing Plant | Albemarle

MinRes' debut debt deal boosts sagging lithium sector (afr.com) [Apr 2019]

Chris Ellison buys two Mosman Park properties for $12 million next to his $57m Saunders St home | PerthNow [Nov 2014]

Chris Ellison's House in Perth, Australia - Virtual Globetrotting

It's a decent view...

19a6ac811aa3519dae642b0bffc4cc3ec31828.png


Related News:

Liontown CEO Tony Ottaviano weighs in on lithium supply outlook (afr.com)

Iron ore prices defy expectations (afr.com)


20-Feb-2022: Update: I have sold my MIN shares IRL (on 10-Feb-22 on the morning after they reported) and have a sell in for MIN here on SM - but clearly should have sold them a couple of weeks ago here as well when I was still in the green on them, as I was IRL when I sold. I have mentioned before how they tend to trend really well. They do, and they're back in a strong DOWNtrend again, which was sparked by their recent half year report, which was a shocker - based on the big decline in the iron ore price in the half year ended 31-Dec-2021, higher discounting due to MinRes's (MRL's/MIN's) lower grades of iron ore compared to the larger producers (BHP, RIO, FMG), and the fact that they have announced that they are not paying any interim dividend this year (and they WERE a reliable dividend payer).

The prevailing spot iron ore price was actually around 50% higher on the day they reported than it was on December 31st, the last day of the period they reported on, and they gave reasonably positive guidance, and their mining services division had a great year, but that didn't stop their share price from being smashed.

They closed at $57.88/share on the 8th Feb, the day before they reported, and dropped -8.91% on the 9th, on the back of that H1 FY22 report and their accompanying presentation. They closed on Friday (18th Feb 2022, two days ago) at $47.76, having now dropped -17.48% in 10 days from that $57.88 level on the 8th (the day before they reported, and they've turned strongly down, as shown below:

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Normally, with a company of this quality or of higher quality, I would be happy to hold through the cycle, but not when they've just refused to pay a dividend AND they've clearly entered a strong downtrend due to a poor result AND the cancellation (or suspension) of the dividend, AND they trend so well for months at a time. There's not much to be gained by holding MIN right now IMHO, when I can simply buy back in when the re-enter a clear uptrend again, and they DO trend particularly well, as that graph shows.

FMG, a larger iron ore miner who I also held (and still hold) shares in have also reported, but their report wasn't nearly so bad, and while they've REDUCED their interim dividend based on the lower realised iron ore price during that 6 month period, they are still on a massive dividend yield so the income they are paying their shareholders via dividends compensates them (i.e. me) for the share price volatility.

FMG's interim dividend (ex-div 28-Feb, pay-date 30-Mar-22) is 86 cps FF, and their final dividend paid back in September was $2.11/share. The iron ore price is now a lot higher than it was at the end of that H1 FY22 reporting period (i.e. on 31-Dec-2021), so their current half (H2 of FY22) is likely to be a lot better than H1, but even if they more than halve their final dividend this year and only pay $1/share in September 2022 (compared to the $2.11/share they paid last September), that would still put them on a dividend yield of 9.37% PLUS franking, so that 9.37% does NOT include the franking credits, and the dividends are fully franked at the 30% corporate tax rate. That's plenty of compensation for a volatile SP IMHO. And FMG also have their FFI division with their development of electric trains, green hydrogen, and the rest of it. Fortescue Future Industries (FFI) is what has really attracted me back to FMG actually. It's a decent kicker.

However, MIN doesn't have that. They have a brilliantly performing mining services division, but with them refusing to pay any interim dividend, that mining services division is not enough for me to hold them through the cycle. Not when they trend both up and down as well as they do, and they are clearly back in a strong downtrend.

05-June-2022: Update: OK, I bought back into MIN at $48.65 on March 22nd after selling out at $54.50 on 10th Feb. So I did save a few dollars and it worked out OK, however I may not bother doing that again, as the downtrend turned around quite quickly, quicker than I had expected and I reckon in future I probably WILL just hold them through the cycle.

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Chart Source: Commsec (edited by me).

I bought back in when it became clear to me that they were back in an uptrend and that the market had forgiven them for their 1st half report AND for not paying an interim dividend. Of course those trades were in real life, and I did NOT buy MIN back here on Strawman.com - unfortunately, because they have done really well, even better than FMG have lately, because MIN were bouncing back from that sell-down (downtrend) that stopped just below $45/share. They're now back up over $60/share, so have put on over 30% in 11 weeks (2.5 months). My closed MIN position is showing here as a -9.15% loss because I sold out here at $47.36 and never bought back in here. Just another example of where I can't mirror my real life trades here because I can only use end-of-day prices here, and I don't always bother because the buys and sells often take too long to go through. And I need to sell something to buy something (coz I don't have any cash available here) and I never know whether the sells or buys have gone through because I'm usually at my real world job every weekday afternoon and evening so I'm not monitoring price movements and making adjustments to my limit prices. My real life trading is generally done in the mornings before I go to work (at around mid-day).

Anyway, I did understand why MIN went into that strong downtrend, and I wanted to avoid the downside if it went on for longer, which I did, but they turned around pretty quickly and here on SM I would have clearly been much better off just holding them through. Trying to be too cute, and it backfired.

In real life the strategy actually worked, but only because I was able to buy them back at a lower price than where I sold them before they had risen too much, which was as a result of knowing in advance that they are a quality company that I'm happy to hold and therefore being willing to pull the trigger as soon as they had clearly re-established another uptrend.

So the work I had previously done understanding MinRes stood me in good stead there. Obviously the Iron Ore price has stayed a lot higher than where it ended up on December 31, 2021 (which was the end of MIN's 1st half reporting period) so their 2nd half result is going to be a lot better than their first half result.

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Source: Iron Ore | Today's Spot Price & Charts - Market Index

(https://www.marketindex.com.au/iron-ore) Click here for those Iron Ore FAQs that they mention there.

Those prices are in US$/tonne and as previously mentioned, MIN's grades aren't as good as the larger players (BHP, RIO, FMG, Vale) so they receive less per tonne as a result, however the trend is clearly up in the second half and was clearly down in the first.

While MIN (a.k.a. MinRes) get lumped in with lithium plays now, because they have substantial lithium interests, they are currently an iron ore producer and a mining services company. That mining services division is substantial and is mostly involved in drill & blast, loading, crushing and hauling for BHP, RIO and some other smaller iron ore miners; previously also FMG but not any more coz that was one of the very few contracts that MinRes has ever lost, when FMG decided to pay MIN out and do that work themselves a couple of years ago after a fatality at an FMG site where MIN was operating the crushing plant.

They also do work outside of iron ore - their mining services division, CSI (Crushing Services International) recently won a lithium crushing contract as well - see here: https://www.mineralresources.com.au/news-media/csi-mining-services-wins-new-lithium-crushing-contract/

So lithium will be a factor in the future, and it's something to keep in mind for future exposure, however it's still all about iron ore at this point for MinRes. And Iron Ore is going OK. And when they release their full year report in August I think we'll find that MIN is doing OK too.

Best to keep in mind that MinRes own a LOT of transport and logistics assets - both mobile and fixed plant and infrastructure (including trains, trucks and port assets), plus a substantial graveyard of disused and surplus plant and equipment that they can use to quickly assemble crushing plants for new clients as and when needed - or sell off as parts for others in the industry - see here: Aftermarket Crusher Parts Specialists - Mining Wear Parts [Mining Wear Parts is a new division of MinRes]

They have always been an agile company that has been able to take advantage of opportunities as they have identified them, and Chris Ellison always has his fingers in a few different pies, so there's always something cooking in the background that may not have necessarily become material yet, but well might in the future.

Never underestimate the man or his company to find new ways to make money, including in new commodities that they may not previously have been involved in. Or in a revolutionary new iron ore transport system, the BOTS (Bulk Ore Transport System) idea, which has been in development for almost a decade now, and could still happen. Or their Energy division.

So, yeah, I'm back onboard as a MIN shareholder IRL - since March (just not here on SM unfortunately).

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11-Jan-2023: Update: The MIN SP has well and truly overtaken my previous $70 price target. I'm now raising it to $95. They'll be over $100 at some point but $100 is one of those big round numbers that might take a few attempts to break through, so $95 for the next year will do.

I've unfortunately sold out of MIN, and in my usual fashion, I managed to do that at a profit but just before the share price surged. This time it surged because of rumours that Chris was contemplating spinning out MIN's lithium assets into a separate company which would result in all MIN shareholders then owning shares in both companies, i.e. Mineral Resources, now the world's largest (or biggest) mining services company and an iron ore producer with a considerable collection of iron ore infrastructure assets (trains, trucks, port assets, etc.) as well as interests in other minerals and in energy (oil and gas, but mostly Perth Basin onshore gas) PLUS the NewLithiumCo. MinRes (MIN) said this back in September: Response-to-media-speculation.PDF

So, nothing to see here. Move on. However the share price was trading at around $60 prior to that announcement, and was trading at around $70/share immediately after it, and is now trading at almost $90/share.

Meanwhile, Chris has had MIN build a 10.10% stake in Global Lithium Resources (GL1), which, incidentally, is a blocking stake, meaning no other company can takeover GL1 now without MIN agreeing to it, because you need 90% or more to move to (apply for) compulsory acquisition of the remainder of the company that you do not already own. Someone else could gain control of GL1, but they could not force MIN to sell their stake as long as they retain that 10.1%. Any less than 10% and a forced sale is a possibility. Chris Ellison is a lot of things, but stupid is not one of them. He's a crafty bugger, and a bloody good manager. Very strategic and very forward thinking.

MIN also made a bid for Norwest Energy (NWE) which is still playing out. The NWE Board has rejected the offer and recommended that their shareholders do nothing (i.e. do not accept the offer), however, once again, Chris has ensured that MIN are in the box seat here as well, as MIN already own just under 20% (19.9%) of NWE so they will have a say in whoever ends up controlling or acquiring the company. Sure, the bid was opportunistic and well timed, as suggested by the NWE Board, and will be a bargain if NWE's Lockyer discovery is as good as they think it might be, but that's what Chris Ellison does. He buys assets cheaply and sells them at the top of the market, or at the very least at a very good premium to what he paid to acquire them. In this case however, I think Chris is damn serious about developing a strong energy (gas) arm within Mineral Resources (MIN) and NWE would fit into that quite nicely. Chris sees a future in which MIN not only provides the gas to run their own mines and processing plants, but sells a good portion to other miners and indeed anyone else who wants to buy it.

As I have said previously, it pays to remember that Chris started out (many, many moons ago) in the energy industry before moving into mining and mining services. So he knows what he's doing, as is usually the case.

Meanwhile, he keeps MIN in the news, or in prospective investors' field of view, with the odd announcement like this one in October - Response-to-media-speculation-October-2022.PDF

That sort of thing keeps fuelling speculation and reminding people of the strong position within the Australian lithium industry that MIN has, however they do not need to build a lithium hydroxide facility at Wodgina. They've built a world-class lithium hydroxide plant at Kemerton (just north of Bunbury, and a couple of hours South of Perth, in WA) and that has been designed and built by global battery metals player Albemarle, who are MIN's Lithium partners, and Albermarle and MIN jointly own both the Kemerton Lithium Hydroxide Plant AND the Wodgina Lithium mine.

I am not as bullish on Lithium as many here on SM, but if I was, I would play lithium via MIN and IGO, because of their respective positions within the industry now, with upstream processing already in place in both cases, and both aligned with global experts in the field who own multiple lithium processing facilities across the globe.

But MIN is SO much more than just Lithium. I'll be back in (like Flynn) if their SP has a decent pullback, but in the meantime, a further rise to around $95/share wouldn't surprise me at all.

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Image Source: Thursday 17th November: The West Australian Newspaper: https://thewest.com.au/business/lithium/mineral-resources-chief-chris-ellison-tempers-lithium-spin-off-speculation-c-8885861


19-July-2023: Update: MinRes hit my $95 price target two weeks after I raised it back in early January this year, but has fallen back down to just over $70 since then. I held MIN as a low-maintenance (almost set and forget, but not quite) position in my SMSF, and two days ago (on Monday 17th July 2023) I added MIN back into my main RL portfolio (the largest one). Chris Ellison is still doing deals and buying shares in other listed companies through MinRes, and MIN now owns 13.9% of Develop Global (DVP), making them the second largest substantial holder of DVP shares behind Bill Beament himself (who I believe now holds around 18.74%, down slightly from the 19.62% of DVP he held in May, because of extra shares that have been issued since; Bill owns 36,325,776 shares of the 193,806,896 DVP shares on issue according to the ASX).

DVP don't mind taking stakes in other companies either - they own 19.55% of Essential Metals (ESS) who own the Pioneer Dome Lithium Project in WA as well as a number of gold and nickel projects.

MinRes has also now acquired Norwest Energy.

There's always something happening with MIN. I only just realised a couple of hours ago that Justin Langer has joined their Board (in December), something I missed. I just posted a straw on that.

Anyway, that $95 price target is still good. They tagged it in January, and they'll be back up there again soon enough, and they'll be above $100/share in time. Good company to hold this one. I've just got to stop selling out all the time because I think I can buy back in cheaper later. That often works, but so does "buy and hold" with these guys. And Buy-and-Hold is a lot less work, and stress.

I have to remember that some of my best profits have been made when I've been on holidays and have NOT been following the market. I've got to stop trimming my winners so much and also selling out with a view to getting back in at lower levels. Too much trading. Not enough of doing nothing.

This is a good company to buy and then do nothing, for years.

That's the real trick.

Just hold them and do nothing.

Except for sensibly allocating the capital received from the dividends.


18-January-2024: Update: This one was marked as stale, so I've reviewed it. All good. Happy to maintain a $95/share PT (price target) at this point.

MinRes is the largest Mining Services company to the iron ore sector (crushing, screening and loading of iron ore, plus transport to port as well if required) in the world, with billions worth of ships, trains, trucks, earthmoving equipment, crushing and screening plants, etc, and they're also one of the largest Mining Services companies in the world - across all sectors.

They are also a significant Iron Ore miner themselves - from their own mines, and they're currently building out a significant Lithium business.

Their 50%-owned Wodgina hard-rock lithium mine contains one of the largest lithium deposits globally, and they also own 50% of Mt Marion, and have recently also acquired 100% of Bald Hill.

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Those projects are favourably positioned on the cost curve, although only Wodgina would be profitable on an All-In-Cost basis at the current low spod price (below US$1,000/tonne). Even the low cost Greenbushes lithium mine owned by Albemarle, IGO and Tianqi have announced late last year that they are intending to stockpile a fair bit of their lithium ore until prices rise significantly.

Wodgina was put into care and maintenance a couple of years ago due to lower lithium prices, and was brought back into production late last year.

Mt Marion and Bald Hill are not currently in production.

Chris Ellison, the founder of MinRes (MIN), has been buying into other lithium companies using his own money (through private investment companies) as well as using MinRes to take significant stakes in a range of other ASX-listed lithium companies.

One example of that was the recent IPO of the ASX's newest lithium company, Kali Metals (KM1), in early January (a couple of weeks ago) where they had prevented large corporate bodies (companies) such as MinRes from participation in the IPO, so Chris Ellison participated in it personally through his company Wabelo, which emerged with 4.86% of KM1. Chris, along with friends and acquaintances, had piled into KM1 back in November, when the extraordinary IPO opened and closed in less than 20 minutes. When it hit the ASX boards on Monday 8th January, it shot up from the 25 cps IPO price to as high as 47.5 cps as MinRes snapped up a heap of shares on-market. By Wednesday (10th Jan), after KM1 had released some positive rock chip assay results (Spodumene-identified-at-Higginsville-Lithium-District.PDF), KM1 had hit 89 cps, and ended up with a "Please Explain" (or "speeding ticket") from the ASX. 89c was 256% above that 25c IPO price. In two days!

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KM1 provided their response to that "Please Explain" on Monday of this week (15th Jan): Response-to-ASX-Aware-Query (KM1).PDF

Long story short, MinRes (MIN) now hold 9.97% of KM1 (14,366,786 KM1 shares) all bought after the IPO either on-market or through cross-trades done by Bell Potter (7.5m of those 14.37m shares were bought through two Bell Potter cross-trades - meaning where the broker is both the buyer and the seller on behalf of two different clients, and one if not both of those sellers are likely/probably associated with Chris Ellison). Chris Ellison and MinRes usually use Bell Potter for most of their trading.

See here: KM1 ASX: MinRes grabs big stake in lithium play Kali Metals just days after IPO (afr.com)

And here: https://www.youtube.com/watch?v=xhlHaBF9NhA&t=300s [Money of Mine Podcast on Jan 16th discussing those KM1 cross trades]

MinRes told the AFR: “The MinRes investment in Kali Metals, which has assets in proximity to our Mt Marion and Bald Hill operations, is consistent with previous strategic acquisitions in numerous junior lithium companies with assets in the Goldfields and Pilbara regions. MinRes is confident these investments will deliver shareholder value over time.”

Apart from their 9.97% stake in Kali Metals (KM1), MinRes are also substantial shareholders of the following companies: They own...

  • 23.1% of Delta Lithium (DL1) - held by MinRes subsidiary Lithium Resources Operations Pty Ltd;
  • 19.9% of Wildcat Resources (WC8);
  • 10.1% of Global Lithium Resources (GL1);
  • 13.6% of Azure Minerals (AZS); and
  • 14% of Bill Beament's Develop Global (DVP) who are a mini-me (much smaller) version of MinRes, meaning a mining services company that also owns mines and has stakes in other companies.

DVP acquired Essential Metals last year whose flagship project is their 100%-owned Pioneer Dome Lithium project covering 450 square kilometers in Western Australia, where most of this lithium is. DVP also have the A$46 million underground development contract to establish and develop an exploration decline at the Mt Marion lithium mine that is operated by and 50%-owned by MinRes. DVP also have a number of JVs including one with Anax Metals Limited (ASX: ANX) who are developing the Whim Creek Copper-Zinc Project, located 115 km south west of Port Hedland (WA), where they are also finding Lithium and Gold - see here: ANX-Whim-Creek-Lithium-and-Gold.PDF. DVP's main interests appear to be battery metals and precious metals, so lithium, base metals (copper, nickel, zinc, lead, etc) and gold. Their mining services expertise lies in underground mining, whereas MinRes are surface miners that specialise in iron ore, so there are synergies between the two companies - they don't compete with each other for work.

Another mining services company that MinRes owns a good chunk of is Resource Development Group (RDG) where Chris' brother Andrew Ellison is the MD and executive Chairman. MinRes own 64.3% of RDG and have given them some work, all arms-length transactions of course...

See here: Chris Ellison’s Mineral Resources awards $140 million to Andrew Ellison’s Resource Development Group | The West Australian [12-Oct-2023]

And here: Rich lister's company in manganese deal with his brother (afr.com) [19-Mar-2020]

I have posted here about that connection (between MIN & RDG) a few months ago.

MinRes have also partnered with Lithium Australia (LIT) including loaning them up to A$4.5m via a convertible note - see here: Second-drawdown-from-MinRes-and-appointment-of-lead-engineer.PDF [15-Jan-2024] and here: MinRes invests in game-changing lithium extraction technology - Mineral Resources [07-Aug-2023]

LIT is a tiny company, at their current 2.9 cps SP, their entire market cap is only around $35 million.

Andrew Ellison's RDG (mentioned above) is another small one, currently trading at around 4.1 cps, so m/cap of around $121 million, and MinRes own around $77 million of that (64.3%).

MinRes has a market cap of around $11.6 Billion. Usually higher, but their share price has come down recently.

MinRes also have other interests - either through JVs or direct investments - in other companies, but those ones listed above are most of their main interests in other companies.

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MinRes also previously held shares in another one of Australia's largest lithium producers, Pilbara Minerals (PLS), but MinRes sold out of PLS in 2021; that was a $50m investment that netted around $330m in profit (see here).

That's what I mean about Chris Ellison creating value for MinRes shareholders.

There has been a LOT of activity in WA lithium in the past year, and if the Kali Metals IPO earlier this month is anything to go by, it's not over yet.

Not everybody is bullish, but there are enough billionaires like Gina Rinehart and Chris Ellison to keep the M&A ticking along.

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Further Reading: Arcadium Lithium willing to wait on WA assets - Australian Mining


Australia is a big player in lithium mining - currently the largest - and likely to remain the largest supplier of lithium for the foreseeable future:

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Source: The Top Lithium Producing Countries | BatteryJuniors.com

China processes more lithium than Australia, but most spodumene is mined here in Australia, and the vast majority of that in WA. In Chinese lithium refineries, the spodumene ore undergoes intensive processing to produce lithium sulfate, which must then be further refined into battery-grade lithium carbonate (Li2CO3) or lithium hydroxide (LiOH). There are lithium hydroxide refineries being built or expanded here in Australia (including one at Kemerton and one at Kwinana, both south of Perth in WA), but there have been some issues reported with the ramp-up of those - up to full capacity.

At this point Chris Ellison appears to be focused more on spodumene ore production from his various hard-rock lithium deposits (Wodgina, Mt Marion, Bald Hill, etc) and locking in future supply via M&A and strategic stakes in other lithium companies that own other lithium deposits in WA. And that strategy will play out over the next few years.

At this point, the income that MinRes generates is from iron ore and mining services. Lithium is a future revenue stream that they will have, so I personally don't mind lithium prices being down this low at this point in time, as it assists Chris with his M&A (land grab).

Chris thinks and acts like a company owner, rather than just a company manager, and he owns 11.5% of MinRes himself (22,471,416, or 22.47 million MIN shares) worth over $1.3 billion at today's closing share price of $58.50/share.

He can be quite prickly and he is usually quite impatient, but he is a very astute businessman and he knows how to make money.

Further Reading: https://www.mineralresources.com.au/about-us/our-board/chris-ellison/

So, in summary, I'm still happy with $95/share as a PT but I won't give a strict timeframe this time. That said, I'd be surprised if they were trading below $95/share this time in 2027 (in three years' time).

I hold Mineral Resources (MIN) in my two largest real money portfolios (including my SMSF) as well as here in my Strawman.com virtual portfolio.

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#Business Model/Strategy
Added 4 months ago

23-November-2023: OK, MinRes (MIN) is certainly one of Australia's best mining services companies, and Gaurav Sodhi went as far as to call them "the best mining business on the ASX" in his 14-Dec-2022 article titled "Lithium: The mania and the cure - part 2" for the Intelligent Investor paysite where Gaurav has been their resources analyst since 2009. As well as resources, Gaurav covers telecommunications and power infrastructure. As Gaurav points out, MinRes' unique business model, far-sighted management and exceptional growth prospects have resulted in fantastic long-term returns.

They are also either the largest or one of the largest mining services businesses in the world, specialising in moving and crushing iron ore, they have billions of dollars worth of earthmoving equipment, fixed plant, trains, trucks and port assets, mostly in Western Australia - where most of the iron ore is.

They are also mine owners and operators, with a number of producing iron ore mines and other mining assets that includes two of the best lithium deposits on the planet - Wodgina and Mt Marion - neither currently in production but they will be soon enough. MIN is a company where a PE ratio is a flawed metric because the Earnings do not include the value of assets that haven't produced any revenue and earnings at all in the past year or two - or during whatever historical period you are looking at. These assets, while not currently producing any earnings, have substantial value and should not be overlooked.

On top of that we have MIN buying into various other Australian lithium companies while the lithium price is down and that's obviously for strategic reasons but part of it seems to be to stop Chinese and other overseas companies getting control of too much Australian lithium and other "critical minerals".

On 22-May-2023 the AFR published an interesting article titled, "What are Australia’s ‘critical minerals’ (and why are they critical)?"https://www.afr.com/companies/mining/the-critical-minerals-boom-is-about-geopolitics-not-geology-20230519-p5d9t7

Excerpt:

The wave of new lithium hydroxide processing plants built in WA is slowly reducing China’s dominance of battery grade lithium, but will amount to only 10 per cent of world lithium hydroxide supply by the end of 2024.

It’s a similar story in cobalt; 63 per cent of world supply is mined in the Democratic Republic of Congo, but it needs to be processed before it is turned into something useful, and China is responsible for 60 per cent of global cobalt refining.

To exacerbate the situation, China also makes about 75 per cent of all lithium-ion batteries and produces about 76 per cent of the world’s silicon metal, a crucial ingredient in solar panels.

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As things stand, the world can decarbonise only if China permits it to do so.

--- end of excerpt ---

Source: https://www.afr.com/companies/mining/the-critical-minerals-boom-is-about-geopolitics-not-geology-20230519-p5d9t7

I'm not sure how Australia have 53% of global lithium production while China have 56%, but I'm guessing it's to do with the Chinese investments into Australian lithium mines, but in any case I believe Chris Ellison at MinRes and Gina Rinehart (Australia's richest woman, on the back of iron ore mining mostly, plus some other investments) both would like to (a) keep control of the best of our remaining Australian lithium assets right here in Australia, and (b) make some money for themselves in the process.

In Chris's case, he'd be making money for himself and other MinRes shareholders. Gina Rinehart's companies are not listed, they're all private family controlled companies, but we CAN invest in MinRes (MIN) and have exposure to Chris Ellison's vision and shareholder value creation.

In the past year or so, there's been a flurry of buying by MIN of blocking stakes in lithium companies like Wildcat Resources (WC8: 19.9% of WC8 is owned by MIN), 13.56% of Azure Minerals (AZS) where Gina Rinehart also owns 18.3%, and 17.4% of Delta Lithium (DLI) where Gina owns another 7%. It is not clear if there are any plans for Chris and Gina to work together with respect to any of these companies towards a mutually beneficial outcome, but it's interesting to view those companies in the context of what Chris and Gina control together between them.

Additionally, Gina and daughter Bianca Rinehart own 19.99% of Liontown Resources (LTR), another lithium company, and MIN have issued Lithium Australia (LIT) a $4.5m convertible note which LTR have begun drawing down recently. According to LIT's 30-Oct-2023 First-drawdown-from-Mineral-Resource's-convertible-note.PDF announcement, "On successful completion of the pilot plant operations and engineering study, MinRes’ convertible note will convert into equity in a new 50:50 joint venture (“JV”) between MinRes and Lithium Australia, which will wholly own the LieNA® technology going forward. The JV plans to license the LieNA® technology to third-parties at a target headline gross product royalty rate of 8%"

Fingers in many pies, but many of them are clearly lithium-related.

This is all while there have been overseas takeover attempts of some of these companies (LTR, AZS) and the lithium price has fallen quite a bit, AND lithium companies represent 5 of the 20 most shorted stocks on the ASX, including the number one most shorted stock, Pilbara Minerals (PLS), currently 18.5% sold short and rising.

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Source: https://www.shortman.com.au/ [with some colourful highlighting on the left side added by me.]


MinRes also own 12.87% of Develop Global (DVP), the new miner/mining services hybrid company (just like MIN only a lot smaller) that is being built up currently by Bill Beament, the former driving force behind Northern Star Resources (NST) for all of those years. There are some analysts who believe that Bill B is the natural successor to Chris Ellison at MIN once Chris decides to step back or retire - both Chris and Bill admire each other's accomplishments with what they have done in business and their entrepreneurial mindsets. For that change at the top of MIN to occur however, it is likely that MIN would have to acquire the rest of DVP with Bill's blessing and for Bill to stay on to run the combined company. No guarantees but that's one possible future outcome, and makes sense in the context of MIN owning 12.87% of DVP, being a blocking stake that stops all other suitors from fully acquiring DVP, unless MIN agrees to sell. That blocking stake may hold DVP's SP back a little but doesn't do MIN's any harm. For clarity, Chris Ellison owns around 4.25% of MinRes shares on issue and Bill Beaument owns 18.5% of DVP shares on issue.

In 2006, Ellison and others established Mineral Resources as a merger of three mining services firms – pipeline contractor PIHA, ore-crushing firm Crushing Services International (CSI), and Process Minerals International (PMI). Ellison was a major shareholder in each of the three. Mineral Resources was floated on the Australian Stock Exchange (ASX) in 2006 at 90 cents per share. By 2022 the company's share price had risen to $71 per share, with Ellison holding around 12 percent of the company. He has since sold down that stake, but still holds 22,471,416 MIN shares, a stake with a current market value (based on MIN's closing SP of $64.72 yesterday) of $1.454 billion. He also owns one of Australia's most expensive homes and has other assets.

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The Mosman Park mansion bought for $57.5 million in December 2009, setting an Australian record at the time.


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The following is a small excerpt from: https://www.intelligentinvestor.com.au/recommendations/mineral-resources-takes-a-dive/152981 [Gaurav Sodhi, 10-Oct-2023]

The story of Mineral Resources is now legend. After leaving school at the age of 15, Chris Ellison made a fortune as he founded, then sold, a mining services business to Monadelphous in the 1980’s.

Then a troubled firm, Monadelphous went to the wall and Ellison lost everything. The firm was later revived under new management and is now a blue chip stalwart of WA, but Ellison missed all of that. He used his credit card, reportedly maxed to $10,000, to tie up three small services firms to create Mineral Resources.

The firm listed on the ASX in 2006 at 90c per share. It is now a $12bn colossus, the largest third-party crushing business in the world and, until recently, a stock market darling.

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Source: Pilbara Minerals

Lithium meets the cycle

Lithium is a notoriously difficult commodity to analyse. There is no spot market. Sales are made by opaque contracts and prices only disclosed after a lag.

Carbonate and hydroxide prices, which are processed lithium products used to make cathode materials for lithium batteries, require specific offtakes and prices are usually contracted and secretive.

Most miners, however, sell a spodumene concentrate, and prices for the concentrate have diverged from processed carbonate and hydroxide. While carbonate prices have fallen by 80% over the past 12 months, spodumene prices have merely halved.

These intricacies are lost when prices are driven by euphoria and fear. 

We have been cautious about lithium. Markets tend to accommodate new demand with new supply in unexpected ways. When the world expected peak oil, shale extraction technologies upended the narrative. When cobalt became hard to access outside Congo, car makers learned how to build without it. Indonesian nickel producers have disrupted nickel supply by learning to process complex laterite ores. We’ve always been skeptical of the higher for longer camp in any commodity because that hasn’t been the path of history.

Lithium, however, is in a unique spot.

Niche gets big

As we have noted in Lithium: the mania and the cure, lithium is moving from a niche commodity to a bulk commodity, a transition that will take time and require oodles of capital. To attract that capital, prices will need to stay above marginal costs for an extended time.

Lithium is out of favour now. Prices rose too far; subsidies in China have played havoc with inventories and new supply is coming. Yet we think there is a good chance that prices remain higher for a while. Only higher prices can incentivise new supply.

Albermarle, one of the world’s largest lithium producers, is valuing spodumene from Liontown, a takeover target, at US$1,600 a tonne. Industry insiders don’t always get it right, but their actions shouldn’t be ignored. Albermarle’s actions suggest new supply, especially low-cost supply, is hard to introduce.

MinRes is currently expanding output from its two hard rock mines (each 50% owned) and should produce about 900,000 tonnes of spodumene concentrate within 3 or 4 years, up from about 300,000 tonnes last year.

Costs are expected to fall to between $500-600 a tonne, which leaves plenty of margin even if prices decline further.

Services and iron ore

MinRes is, of course, more than just lithium. The mining services business at the heart of MinRes has raised volumes by 20% a year for the past decade. We’ve explained why our valuation of the services business, at about $30 a share, sits higher than most in previous reviews.

The iron ore business is undergoing a step-change in quality that will see output double and costs crumble from about $100 a tonne to $40 a tonne. That is being done by building an integrated logistics line to take ore from pit to port.

All the infrastructure to move ore will be owned by MinRes and it could be opened for third party access, or even partial sale, at some point. We don’t think improvement in the iron ore business, or the attached infrastructure, is being counted by the market. Iron ore adds another $10-15 per share to our valuation.

Following its expansion, the lithium business could be worth the entire market capitalisation of the business today. On a sum of parts basis, we think MinRes is worth over $90 a share.

Slow down

The balance sheet remains a risk. Over the next three years, MinRes will spend about $4bn in capital expenditure to grow lithium and iron ore volumes. Net debt has grown to $3.6bn and could climb further.

Yet the founder owns 12% of the business and management have built a track record of conservatism and success. We note that MinRes retains plenty of options of lowering risk such as selling project equity or infrastructure. The balance sheet is a risk, but not an insurmountable one.

Lithium prices also present a risk. Prices could remain weak. We also need to be aware that, like oil, cobalt or nickel, new technologies could change everything. Low costs, however, should protect margins as volume growth adds to cash flow.

It’s uncomfortable to buy when commodity prices are falling but these are the opportunities we must seize. We recommend starting slowly, but it’s time to BUY.

Disclosure: The author owns shares in Mineral Resources, as does the Intelligent Investor Equity Income FundEquity Growth Fund, and Ethical Shares Fund.

IMPORTANT: Intelligent Investor is published by InvestSMART Financial Services Pty Limited AFSL 226435 (Licensee). Information is general financial product advice. You should consider your own personal objectives, financial situation and needs before making any investment decision and review the Product Disclosure Statement. InvestSMART Funds Management Limited (RE) is the responsible entity of various managed investment schemes and is a related party of the Licensee. The RE may own, buy or sell the shares suggested in this article simultaneous with, or following the release of this article. Any such transaction could affect the price of the share. All indications of performance returns are historical and cannot be relied upon as an indicator for future performance.

--- ends ---

Note: As I explained earlier, Chris Ellison no longer owns 12% of the business as Gaurav suggests there, but he does still own around $1.5 billion worth (4.25% of MIN).

And Gaurav hasn't mentioned the various stakes that MIN is buying in other lithium miners (that I discussed above) which I think points to a longer term plan to control or at least provide the mining services for a larger group of lithium mines than what MIN currently owns.

MIN are market leaders in Mining Services but not yet in lithium and they are still a higher cost iron ore producer from their own iron ore mines. However, they do have a number of competitive advantages, not least of which is Chris Ellison, and his very entrepreneurial management, but also their off-balance-sheet assets like their P&E (plant and Equipment) graveyards - they will happily clean up old mining and crushing/ore-processing sites from miners who have gone broke, where MIN remove all of the old mining, crushing and loading equipment and plant - and also often do some site rehab - sometimes they are paid to do this and other times they will do it for free for the salvage rights because they store all of the old conveyors and ore crushing hardware etc. and use it to build new crushing plants at either their own mine sites or their clients' mine sites. And all of that used plant and equipment has a book value of $Nil. It probably has little to no value until they use it again, and then it does.

MIN can be sold down on poor iron ore sentiment or on poor lithium sentiment - and also when people are concerned by Chris's M&A moves, but having watched Chris Ellison operate for a number of years, it's an easy decision for me to buy MinRes shares at below $60 or up to $65/share, particularly with that very significant future lithium upside. 

As usual, Chris has a longer term view and he's not content to JUST be a large player in spodumene - he wants that vertical integration and to refine the spodumene to produce battery-grade lithium hydroxide - and so far he's mostly used Albemarle for that, and he's outplayed them at every turn so far, but he's fairly agnostic about where his partners come from as long as he gets a good deal from them. And when he can't get a good deal, he just ploughs on and does it himself.  

Here's a quick case study - just of Wodgina: when Chris Ellison was first developing Wodgina he said he was getting into lithium for a good time, not a long time, and he would likely sell out at a good profit before the peak, and then he sold half of it to Albemarle in late 2018 pretty much at the previous lithium peak, with an agreement that gave MIN half of the Albemarle Lithium Hydroxide (LH) plant that was being constructed at Kemerton (near Bunbury in south west WA) as well, and when that sale (for half of Wodgina) settled - at $US1.15 billion (A$1.58 billion), it looked like Albemarle had overpaid by quite some margin because the lithium price had declined sharply - and then Chris recut that deal a few more times over the next few years (always in MIN's favour), which saw Albemarle further increase their stake in Wodgina - which remained on "care and maintenance" (i.e. not producing anything) since shortly after the first sale announcement at the lithium peak. 

This year Chris announced that MinRes had "simplified" their JV arrangements with Albemarle and that Albemarle would now control all of the Kemerton LH refinery but that MinRes would increase their own stake in Wodgina back up to 50% and would remain the mine operators. This came with a further payment to MinRes by Albemarle of US$380-400 million, including the net consideration for MinRes’ share of Kemerton and completion adjustments at Wodgina and Kemerton. See here:  https://www.mineralresources.com.au/news-media/simplified-marbl-jv-agreement-reached/ [20 July 2023]

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And here: https://www.afr.com/companies/mining/ellison-eyes-new-lithium-prize-near-albemarle-joint-venture-20231018-p5ed9f [22-Oct-2023]

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He's not silly, that one! Smart cookie, and great to have in your corner. Not so good when you're on the other side of a deal with him or his company, but apparently he's loyal to his friends, employees, clients and partners, and so far longer-term MinRes shareholders have done very well out of investing in his company as well.

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https://www.mineralresources.com.au/investor-centre/annual-reporting-suite/


Disclosure: I hold MinRes (MIN) shares in my major real life portfolios (including my SMSF) and have recently added them back into my virtual SM portfolio as well, taking advantage of the lower share price.

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#LIT-MIN JDA
Last edited 8 months ago

07-Aug-2023: LIT-Landmark-joint-development-agreement-with-Mineral-Res.PDF

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It's interesting. I hold MIN, but I do not hold LIT shares. Back on the 20th July, MinRes (MIN) announced that they'd made some big changes to their arrangements (via the MARBL JV) with Albemarle - Simplified-MARBL-JV-Agreement-Reached.PDF - and the market initially sent their share price up +5.16% (or +$3.72 to $75.78) before selling them down over the next fwo days by -9.86% to $68.31. Then, on July 26th, MinRes released their FY23-Q4-Quarterly-Activities-Report.PDF and their share price rose +4% (to close the day at $73.82).

Monday's announcement (reproduced above, with a link at the top of this straw) didn't result in much movement; just -0.77% or 54 cents down to $69.42, on a day when the overall market was slightly down anyway.

By contrast, on the same day - Monday 7th August 2023, the LIT share price finished the day up +66.67%. They'd been trading at 3.3 cents ($0.033) for a week, and they finished Monday at 5.5 cents ($0.055), which is also where they finished Tueday (yesterday evening) after trading as low as 4.9 cps and as high as 6.6 cps during the day (Tuesday).

While this is Big News for a $67 million microcap like LIT (possibly a nanocap coz they had a market capitalisation of only $40 million last Friday), it's not such big news for MinRes (MIN), whose market cap is now $13.5 Billion. MinRes are no longer small - they're an ASX50 company now.

There's always plenty going on at MinRes, but I reckon the market often struggles to know how to interpret it. Certainly, if the recent Money-of-Mine Podcast coverage of Chris Ellison on the latest quarterly earnings call is anything to go by, the analysts at Australia's major broking houses don't have much of a clue!

Here's what happened to the LIT share price on Monday:

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Good if you're a holder (I'm not), but the context is that they were trading at higher levels a year ago and people were just giving up on them and selling out for the past 11 months. That is a massive lift in volume for LIT though, ain't it?!

Those sort of movements no longer happen with companies as big as MinRes is these days, but they can and do still grind higher, and MinRes (MIN) do tend to trend well both up and down for weeks and months at a time, so you can also trade them if you've got the time. I've done that in the past, but I'm just planning to hold them now.

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#Broker Views
stale
Added 8 months ago

For what it's worth - a summary of some recent broker reports for MIN post the announcement to exit Kemerton and China downstream - run's the gamut of possibilities :)

20/07/23: Macquarie: Outperform with 12m Price Target of $100

20/07/23: RBC: Outperform with Price Target of $84

21/07/23: Morgan Stanley: Equal Weight with a PT of $70

21/07/23: Goldman Sachs: Sell with a 12m PT of $57

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#JL on the MinRes Board
Last edited 8 months ago

19-July-2023: I hold MIN shares in my SMSF, however I haven't been following them very closely for the past 18 months or so, and I recently (on Monday) added MIN shares back into my largest RL portfolio as well, which is more actively managed than my SMSF is - meaning I often leave my SMSF alone for months, and that happens less with my other larger portfolio. Anyway, I was going through their announcement list this evening and I came across this: Change-of-Director's-Interest-Notice---Justin-Langer.PDF [13-April-2023]

Not THE Justin Langer, surely?! Not J.L. ?! But, a quick google search revealed that yes, Justin Langer AM, former Australian Mens Cricket Team Coach, and legendary Test Match opening Batsman for Australia for many years - alongside Matthew Hayden AM - was indeed now on the MinRes Board - see here: https://www.mineralresources.com.au/news-media/justin-langer-joins-minres-board-as-non-executive-director/ [15-December-2022]

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MinRes’ Chairman James McClements said Justin’s appointment demonstrated the high premium the Board places on diversity of experience.

“As MinRes continues to grow, we believe bringing in a breadth of expertise and knowledge is key to our success,” McClements said.

“Justin’s outstanding leadership experience will further enhance our focus on people and culture, which is critical as we continue to expand our workforce to execute on our significant growth strategy.

Together with the recent announcement of Colleen Hayward as Non-Executive Director, the Board is now well-equipped to address the opportunities that lay ahead for our business.”

Justin said he was inspired by Chris Ellison and the Board’s vision for the future of MinRes and their commitment to the people who have helped make the business the success it is today.

“As a proud Western Australian, I understand the vital contribution of the resources industry and I’m excited to join such an outstanding WA success story.

“I look forward to making a meaningful contribution and bringing my leadership and people and culture experience to the Board from the new year.”

[mid-December-2022]

I remember when Australian wicket-keeper/batsman Adam Gilchrist (who is also from WA) was a director of TFS, a Perth-based sandalwood supplier. That story didn't end well. See here: Adam Gilchrist scores post as TFS director (smh.com.au)

and here: TFS Corp: the big short you can't short (afr.com)

TFS became Quintis and then collapsed: Quintis collapse: investors left with thousands of worthless shares after company calls in administrators | The West Australian

I don't think that's going to happen to MinRes however. MinRes is in an entirely different league than TFS was.

I don't know how I missed this bit of news over the past 7 months, but I did. Not bothered by it either way. Just thought it was interesting is all.


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#Exploration and Lithium Busine
stale
Added 10 months ago

Mineral Resources Limited (ASX: MIN) (MinRes or Company) has made a significant natural gas discovery, and also provides an update on the lithium business and Mt Marion exploration program.

MINERAL RESOURCES LIMITED (ASX:MIN) - Ann: Exploration and Lithium Business Update, page-1 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

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MIN Market Cap $14.17Bill

Noted share price taking a breather the moment.

Noted: the free flow has came off the boil.

Massive returns: Return (inc div)   1yr: 40.78%   3yr: 59.77% pa   5yr: 38.85% pa

maybe pick up some on price weakness

But IGO & PLS are good propects..

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#Lithium
stale
Last edited one year ago

An article in todays AFR: MinRes to pay $970m for China Lithium Assets


From the article...

Chris Ellison’s Mineral Resources will stump up close to $1 billion for a share in lithium hydroxide plants in China in a rebuff to Prime Minister Anthony Albanese’s push for onshore processing of battery minerals into finished products

And US-based battery minerals heavyweight Albemarle has cast doubt on whether it will ever invest in another lithium hydroxide plant in Australia as big car-making nations demand downstream assets close to their home factories.

Albemarle has flagged WA becoming a lithium workhorse to the world rather than a maker of batteries and is eyeing more acquisitions in the state on top of its stakes in the world-class Wodgina and Greenbushes mines and a lithium hydroxide plant it has built at Kemerton an estimated cost or more than $2 billion.

New York Stock Exchange-listed Albemarle regards WA lithium mining and Chinese processing as joined at the hip for now, but is looking to supply hydroxide from Kemerton to other Asian nations and to send spodumene concentrate, an intermediate lithium product, to Europe where governments and carmakers want downstream battery minerals processing.

Albemarle president of energy storage Eric Norris told The Australian Financial Review on Thursday that WA was essential to the electrification of transport.

“All of these regions that are large automobile production areas are going through a significant transition to not only build electric vehicles, but to help build the supply chains in their countries to reduce the supply time, lead times, the CO2 (emissions) that gets involved in moving material around,” he said.

“The interesting fact of the matter is that neither China, we believe, nor the US, nor Europe can meet their EV ambitions without WA,”

Mr Ellison has been trying to convince Albemarle about the merits of building a lithium hydroxide plant near the Wodgina mine they co-own in WA’s Pilbara, but for now has agreed to acquire a 50 per cent share of two Albemarle plants in China at a cost of about $US660 million ($970 million), including an initial payment of $US350 million.

The downstream deal was unveiled on Thursday, less than 24 hours after Mr Albanese was lukewarm about Chinese investment in lithium and said his government wanted to see lithium-ion batteries produced onshore.

Mr Ellison offered supported for Mr Albanese’s sentiments on value-adding and said MinRes had been talking to the government about the best way to achieve that goal.

However, the mining billionaire said the investment in China would ensure MinRes could convert the spodumene from Wodgina mine into battery-grade chemicals in the short-term.

“Doing more here in Australia is my preference over the long term. Any potential future hydroxide plant in Australia that could take our spodumene is some years off. We need capacity today,” he said.

“We’re encouraged by the federal government’s commitment to grow the battery supply chain here in Australia and have been consulting with them on the best way to support industry to do it.”

Albemarle remains unconvinced about building another lithium hydroxide plant in WA after enduring cost blow outs and labour shortages it expects to continue in WA in building the Kemerton plant, but hasn’t ruled it out.

In addition to their deal on the Chinese plants, Albemarle and MinRes are restructuring the existing joint ownership of the Wodgina mine and the Kemerton plant in WA’s South-West.

Albemarle’s share in Wodgina will be cut to 50 per cent from 60 per cent while its ownership of the first two, 25,000 tonne-a-year production trains at the Kemerton plant increases to 85 per cent from 60 per cent.

MinRes is set to pocket $US100 million to $US150 million from Albemarle in the form of an adjustment payment that reflects the restructure being back dated to April 1, 2022.

Albemarle and MinRes will form a new 50-50 joint venture to produce lithium battery chemicals in China from spodumene produced at Wodgina.

Under the new joint venture, MinRes will pay for a 50 per cent share of Albemarle’s Qinzhou and Meishan plants in China.

Mr Ellison still wants Albemarle to agree to invest in downstream processing in the Pilbara where MinRes estimated a 50,000 tonne a year lithium hydroxide plant would cost $US650 million to build, and believes that is still a possibility under plans to expand the Wodgina mining operations.

Albemarle built the Kemerton plant to process spodumene from the Greenbushes mine where it has a 49 per cent stake alongside Chinese Tianqi and ASX-listed IGO, which have their own lithium hydroxide plant at Kwinana south of Perth.

Under the terms of the new arrangements, Albemarle will supply MinRes’ 15 per cent share of spodumene concentrate for processing at Kemerton from the Greenbushes mine.

MinRes, which does not have an ownership stake in Greenbushes, will pay the benchmark price for its share of the spodumene concentrate.

Mr Norris said Albemarle was on track to start selling hydroxide from train 1 at Kemerton in the second half of calendar 2023 as it finishes work on train 2.

He confirmed Albemarle remained committed to building trains 3 and 4, taking total capacity to 100,000 tonnes a year, in its own right and outside its partnership with MinRes in another sign of faith in WA.

Albemarle’s Qinzhou plant is up and running and has capacity to produce 25,000 tonnes a year. The plant is expected to start converting Wodgina spodumene in early 2024.

The Meishan plant will have capacity to produce 50,000 tonnes a year and is scheduled to be commissioned by the end of calendar 2024.

Mr Ellison, who hopes to produce low-cost gas from the Perth Basin to support downstream minerals processing in WA, said the new deals with Albemarle would cement MinRes’ place as a world-leader in lithium mining and leverage off Albemarle’s strong track record in battery chemical production.

Mr Norris said Albemarle, which reported December quarter sales of $US2.6 billion driven by lithium, said there was “tremendous opportunity” in the rapid growth of lithium-ion batteries.

He said Albemarle would consider the Asia Pacific region, including Australia, for any additional lithium hydroxide plant linked to any expansion of Wodgina.

Mr Norris noted there were advantages in operating close to mines in WA and through the Biden administration’s Inflation Reduction Act which applies to investment in Australia.


DISC: Held in RL

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#Lithium
stale
Last edited one year ago

From an article in the AFR today: Is Chris Ellison’s MinRes buying Patriot Battery Metals?


Chris Ellison’s $16.9 billion iron ore and lithium producer Mineral Resources said via a spokesman it couldn’t comment on reports in The West Australian on Friday that it’s building a stake in Canadian lithium explorer Patriot Battery Metals.

Patriot Battery Metals didn’t respond to a request for comment on the report. The explorer has a primary listing in Toronto and issued chess depositary instruments (CDIs) on the ASX in December at 60¢ that have since raced to $1.67 on a market value about $1.8 billion.

After the report of Mr Ellison’s interest was published, shares in Patriot’s Toronto listing advanced another 8.4 per cent to a record closing high of $C16.20 on Friday. Patriot’s Australian chairman Ken Brinsden is the former chief executive of Pilbara Minerals and oversaw its 17-fold rise into a $5 billion lithium giant after taking the reins in 2016.

In January, broker Macquarie said drilling results showed Patriot Battery Metal’s Corvette lithium spodumene tenement in Quebec, Canada, was similar in high-grade quality to the world-leading Greenbushes Mine in Western Australia owned jointly by IGO, Albemarle and Chinese investors.

Confirmation of an investment by renowned battery metals deal maker Mr Ellison will fuel rumours of a planned sharemarket float of MinRes’ lithium assets to milk record-breaking prices and surging sector interest among US investors.

A September report in The Australian Financial Review revealed that MinRes and its JPMorgan bankers had looked at spin-off structures.

Hot strategic assets

Last October, Canada’s government effectively moved to ban Chinese investment in the nation’s lithium assets, amid North America struggles to narrow China’s huge lead in the race to secure raw material supplies for the clean energy transition.

As a result of Ottawa’s ban, ASX-listed lithium junior Winsome Resources bought a $2 million stake in Vancouver-based Power Metals from China’s Sinomine Rare Metals, after it was among a number of Chinese miners forced to divest lithium holdings.

On December 2, Australia’s Resources Minister Madeline King released a discussion paper on the future of Australia’s critical minerals industry. The Australian lithium sector has historically taken heavy investment from Chinese interests.

However, on November 30, Ms King stopped short of confirming the government was looking at curbs on Chinese investment in critical minerals based on national security, and acknowledged Chinese companies were important partners in developing resources projects in Australia.

Also, on November 30, the Albanese government introduced legislation to establish a $15 billion National Reconstruction Fund (NRF) mandated to invest in areas including battery supply chain development.

In the US, President Joe Biden’s executive announced its Inflation Reduction Act and threw $590 million in potential grants at ASX-listed, US-based battery supply chain players Novonix and Syrah Resources last October.

In the fast-moving space, MinRes already has a partnership with US lithium investor Albemarle after it struck an October 2019 deal that resulted in it selling a 60 per cent interest in its Wodgina spodumene mine to Albemarle for $US1.3 billion. It also stipulated the transfer to MinRes of a 40 per cent interest in two lithium hydroxide conversion trains built by Albemarle in Western Australia.


DISC: Held in RL

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#Lithium
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Added one year ago

Some more interesting commentry around a potential spinoff of MinRes's Lithium assets in todays AFR (behind the paywall)

MinRes, lithium rally add weight to US spinoff case


Mineral Resources shares soaring to an all-time high on the back of huge demand for lithium stocks have re-ignited prospects of the $18.3 billion miner spinning out its lithium assets in the US.

The huge run, fuelled in part by heady buying in the cosy Perth broker set, has breathed new potential for the plans, which are gathering dust inside MinRes HQ.

The Perth grapevine was buzzing on Tuesday that MinRes was assembling a board keen to progress the spin-off.

Sources close to the company kiboshed the hype, saying any deal would still be a long way off. However, it’s all helpful at a time when MinRes is keen to capitalise on investor interest in the company and its lithium assets. It also spent considerable energy mulling its options last year, as revealed by Street Talk in September.

MinRes’ big run - to finish at a staggering $96.28 on Tuesday - came as broker UBS put out a bullish note on lithium and upgraded MinRes, Pilbara Minerals (also up 5.19 per cent on Tuesday) and IGO (up 4.49 per cent).

The bank’s note came just as NYSE-listed lithium giant Albemarle, a bellwether for the global lithium markets, beat consensus production guidance by about 130 per cent.

Those hoping for a lithium spin-off - or at least MinRes to use the assets to create even more value for shareholders - reckoned there was more behind MinRes’s spectacular share price performance during the day. Its quarterly numbers are due on Wednesday, and they were hoping for a nice set of results.

When Street Talk revealed the talks in September, MinRes boss Chris Ellison was out on front-foot, telling investors he didn’t have plans to “peel off” any business units “right now”. MinRes followed up with site visits to its Mt Marion and Wodgina lithium mines in early October, repeating the no-deal stance to analysts and investors who visited.

But investors know better than to take Ellison’s comments at their face value. As an example, he’s recently called Perth Basin gas “overvalued” while buying shares in M&A target Warrego Energy at a premium to either bid on the table.

More importantly, the big driver for MinRes’s mooted lithium IPO spin off is still very much hanging around the scene - the valuation gap between pure-play lithium businesses like Albemarle and roll-ups like MinRes.

While MinRes may not be able to serve up a lithium carveout to make the most of its all-time high, it did benefit at its M&A target Norwest Energy.

MinRes increased its offer marginally, from one-for-1367 shares to one-for-1300 shares. However, the share price pop (from $82 a share on December 15 to $96.28 on Tuesday) meant its bid for Norwest went from a 33 per cent premium to 65 per cent premium to its undisturbed price. It was enough for Norwest to recommend MinRes’ offer.


DISC: Held in RL


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#Industry/competitors
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Added one year ago

An interesting article in the AFR today (behind paywall)

MinRes turns kingmaker as it taps out of Warrego bid

Extract below:

Chris Ellison’s Wednesday night declaration that Mineral Resources does not intend to bid for Warrego Energy leaves it an envious spot, even if it has left investors with more questions than answers for now.

The most immediate one is MinRes’s claim that gas asset prices in Perth Basin are now over-inflated, just three days after it bought Warrego shares at as high as 39.2¢ a pop to round off its 19.17 per cent stake.

MinRes reckons its stake is a “strategic” one, making the whole statement even more of an oxymoron. It declined to clarify its comments.

The big question though is what’s the way forward for Warrego Energy, which has two takeover bids and three strategic investors squatting on its register.

There’s MinRes with 19.17 per cent and “no intention to make a takeover bid”, West Erregulla joint venture partner Strike Energy with 20.57 per cent and an unconditional one-for-one scrip bid, and Gina Rinehart’s Hancock Energy offering 36¢ a share if it can get to 40 per cent of the Warrego’s shareholders (acceptances were 26.1 per cent at January 12).

Two months ago, Seven Group-backed Beach Energy was also involved with a 25¢ a share cash offer.

While all that M&A attention has translated into exciting price action for Warrego’s shareholders (the stock has more than doubled from 17¢ prior to the bidding war to 39.25¢ now), its two current suitors are in a bit of a stalemate even if they are determined. (Both’s offers are open; Hancock’s closes on January 31 and Strike’s on February 13).

MinRes’s support key for rival bidders

For Hancock to come good on its 40 per cent minimum threshold, it will have to find acceptances worth another 13.9 per cent from Warrego’s constipated register, which has only about one-third of its shares still up for grabs.

However, Hancock has the target board’s support and the inherent allure of a cash offer. Also off its back, at least for now, is MinRes as a competing bid.

In the opposite camp, Strike needs to coax out close to 30 per cent in acceptances for its scrip bid if it wants control of Warrego (even though its bid has no minimum acceptance threshold), which is a tough ask too.

It’s hard to see how either wins Warrego without two of the three parties coming together. There are three combinations possible: Hancock-MinRes, Strike-MinRes and Hancock-Strike.

Hancock and Strike joining forces to win Warrego seems the least likely. At face value, the combination would do little for Hancock. If the two bought Warrego, Strike would have a controlling position on the underlying West Erregulla project, making it hard for Hancock to get much strategic gain from the investment.

Which means MinRes looks like it has the trump card, if you believe it can be trusted on its intention of not making a bid.

If MinRes threw its 19.17 per cent stake into Hancock’s offer, it would get Hancock over its minimum acceptance threshold and just shy of the 50 per cent controlling mark. Without MinRes, Hancock has an uphill battle of getting to either.

Were MinRes to go down the path of supporting Hancock’s bid, investors reckon, it would be pushing hard to strike a joint venture with Hancock for West Erregulla.

That would be a leaf out of Andrew Forrest’s playbook at Western Areas in 2022. Wyloo vouched its 9.8 per cent stake in favour of IGO’s bid for Western Areas (instead of bidding on its own and against shareholder calls for a higher offer given perky nickel prices) and concurrently announced a downstream WA nickel processing joint venture with IGO.

If MinRes was to vote in favour of the opposite camp, Strike, it would get a 7 per cent odd toe hold stake in Strike.

Like we said, MinRes’s wedged itself into a rather envious position where it can make or break either camp’s bid. It’s a very strategic stake, indeed.

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# Airlie Funds Management
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Added 2 years ago

A quick and interesting summary of some of Airlie Funds Management investment thesis on MIN in a youtube video:

Sector Spotlight: Mineral Resources

Vinay Ranjan discusses what makes Mineral Resources a unique business and how it’s positioned for future growth


DISC: Hold a small holding in RL


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#Q4 FY22 Report
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Added 2 years ago

28-July-2022: MinRes-FY22-Q4-Quarterly-Activities-Report.PDF

MIN is up by almost 5% so far today on the back of this report. They are a significant iron ore player and by this time next year will also be a significant lithium player here in Australia. They have two of the world's largest known hard rock lithium mines (Wodgina and Mt Marion), and they have partnered with Albemarle whose Lithium Hydroxide refinery at Kemerton (200km south of WA's capital, Perth) is ramping up now after years of construction and they're already talking about a major expansion.

Albemarle lithium processing plant just weeks from first production already looking to expand - ABC News [16-May-2022]

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Albemarle Bunbury lithium facility facing workplace safety investigation after complaints - ABC News [24-May-2022]

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Image: One of MinRes' iron ore mines.


Disc: I hold MIN shares.

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#Kemerton issues
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Added 2 years ago

28-Jan-2022: I just read this article - Kemerton Omicron outbreak rapidly grows - which details an outbreak of the Omicron variant of the Covid-19 virus at the construction site of the Lithium Hydroxide plant being built by Albemarle and Mineral Resources (ASX: MIN) at Kemerton in WA, just north of Bunbury (south of Perth). Wouldn't be a major issue almost anywhere else in Australia, certainly not in the eastern states or SA, but it is in WA, which has a lot less active infections than those other states and they would like it to stay that way.

Some interesting bits from the article:

The first case of COVID-19 related to the plant was detected on Monday.

Of the 24 total new cases of COVID-19 detected in WA yesterday, nine were related to Kemerton.

It took the total Kemerton cluster to 16.

"They are all related to Kemerton and Albemarle in one way or another," WA premier Mark McGowan said yesterday.

"[The plant] has been under construction now for a few years and is an important investment for the state in terms of downstream processing of lithium."

. . . . .

"There are 30 contractors on site but one contractor and one work area in particular have been affected."

The work area has been temporarily suspended, with all close contacts in isolation, some at a beachside resort north of Bunbury.

[could be worse...]

. . . . .

The Kemerton development, a 60:40 joint venture between Albemarle and MinRes, comprises two 25,000 tonne per annum lithium hydroxide modules.

The US$1 billion project has already been plagued by delays due to WA's tight labour market.

Kemerton I was due for construction completion by the end of 2021, but Kemerton II was twice-delayed last year until the June quarter.

First lithium hydroxide is expected by mid-year.

. . . . .

Remember that MIN (who I own shares in) are currently an iron ore play and a mining services play, but they have these lithium assets that they are developing in readiness for higher lithium prices, including the Kermerton lithium hydroxide plant and the Wodgina mine which they believe is the largest known hard rock lithium deposit in the world. That mine is on C&M (mothballed) ready to be fired back up when prices are more supportive.

I don't see this latest issue at Kermerton as a thesis breaker. These sort of delays are going to happen during a global pandemic. Still, I wouldn't mind being a close contact and having to "isolate" at a beachside resort - perhaps here.

The following images are of the Kemerton Lithium Hydroxide plant over the past couple of years.

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#Profitability/Investor Returns
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Last edited 2 years ago

16-Jan-2022: While MinRes (ASX:MIN, Mineral Resources Ltd, a.k.a. MRL) is a mining and a mining services company, they are highly profitable. This straw is just about that and their key metrics, which are good and getting better. With the exception of net profit margin (NPM), which dipped in FY21, their growth has been impressive and is all heading in the right direction:

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Source: FNArena.com

The main thing to note here is the quantum of growth in EPS and book value over the past two FYs and also the Divs, Revenue, and net operating Cashflow in FY21. Their growth has not only continued, it has markedly accelerated.

While it’s very hard to value their mining businesses because the value of the commodities (like iron ore and lithium) change daily, it’s relatively easy to value their mining services businesses – which mostly have recurring revenue at set rates. TDM Growth Partners described MIN, on November 19th, 2019, like this:

“One of the most unknown, underappreciated, Australian innovation and commercial success stories, that since IPO in 2006 has achieved (and get ready to wipe your eyes in disbelief…);

  • EPS growth of 15%
  • Total shareholder return including dividends of 20x (26% per annum)
  • Return on funds employed (pre-tax) averaging approx. 30%
  • EBITDA to cash flow conversion of approx. 100%


Currently, this business has:

  • A bulletproof balance sheet with $200m+ of net cash
  • Inside ownership of over 15%


DO YOU WANT MORE?

What if we said it has the potential for EBITDA to grow over 20% p.a over the next 5 years 


STILL WANT MORE?

And the kicker…. This business is trading on FY20 PE (ex-cash) of 7x!!!”


On that day (19-Nov-19) MIN was trading at $14.67. They were $14.65 the day before and got down to $13.92 two days later. They are now over $65/share.

TDM finish their Nov 19 piece with this:

“And so, why such a mismatch between the market’s view and how we (and other long-term shareholders like Emma @ Airlie) view the business? Rather than thinking (and valuing) MRL like you would a typical mining services business, with earnings heavily dependent on the mining cycle, why would you not start to think of it like a Macquarie Group – yes there are market-facing businesses whose earnings will rise and fall with commodity prices, but underpinning this, after 13 years of track record, are very strong annuity earnings streams. To back this up, in the last 5 years, MRL have retained 96% of all of its mining services contracts (and the other 4% is accounted for through a mine closure that had run its expected life span), and 76% of these contracts are for longer than 5 years (and a third is longer than 10 years!). Just to spell this out more clearly – MRL’s mining infrastructure earnings (crushing/processing/contract mining/accommodation) are high-quality annuity-style earnings with a high return on funds employed and the commodities (market facing) business can then be viewed as cream on the cake. Tasty cream. Very tasty cream.


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We didn’t have the opportunity at SOHN (but loved Emma’s pitch!) to give the insight into our own thinking and appreciation of both MIN’s track record and unique business model. After all, at the moment, the mining infrastructure business and cash/investments alone are worth more than the share price. We can only hope over time more people feel the same way as we do but don’t expect this to happen overnight. Thankfully we are very patient investors. If it takes another 13 years and 20x bags later, then so be it. Sometimes it is best just to let these compounding machines speak for themselves.”

Source/Further Reading:

https://www.tdmgrowthpartners.com/insight/sohn-bonus/

https://www.tdmgrowthpartners.com/insight/when-charlie-munger-meets-mineral-resources/

https://www.tdmgrowthpartners.com/insight/mineral-resources/


Remember - that was back in 2019, and MinRes has really accelerated their EPS (earnings), sales (revenue), cashflow, dividends, book value and net profit margin since then. All are significantly higher than when TDM wrote that piece.

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This business has been a wealth-winner for their investors:


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Dividends:

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All divs are 100% (fully) franked, and they've been growing strongly since 2019.

For more, see my Valuation for MIN.

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Disclosure: I hold MIN shares in RL, and plan to add them back in to my SM portfolio once I sell something to free up some cash.


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#Company Presentations
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Added 3 years ago

02-Mar-2021 (6:18pm):  MIN Presentation at JP Morgan Global High Yield Conference

Mineral Resources (MIN) is a company I have held at various times and done very well out of.  They look expensive to me currently, but many, including Guarav Sodhi from Intelligent Investor and Mark Moreland from TeamInvest believe MIN are the best run and highest quality mining services contractor listed on the ASX, and own them - even ast current prices.  I wish I did, but I can't bring myself to pay these prices.

 

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#Company Presentations
stale
Added 3 years ago

19-Nov-2020:  2020 AGM - Managing Director Presentation

Today, Friday 20-Nov-2020, Marcus Padley in his morning newsletter said:  

  • Mineral Resources (MIN) - CEO says MIN is set to double in size within three years. At the company’s AGM, CEO Chris Ellison noted plans to achieve iron ore export capacity of 92m tonnes a year, saying: "We believe without any doubt that over the next 2½ to three years we are going to double the entire Mineral Resources business," "That is doubling in revenue, probably in the number of people we employ, the tonnes we shift and, more importantly, doubling the bottom line."
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#ASX Announcements
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Added 4 years ago
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#Bear Case
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Last edited 4 years ago

Some time in the second half of CY 2018:

http://www.afr.com/brand/rear-window/chris-ellisons-lithium-fantasy-exposed-at-mineral-resources-20180618-h11j06

That AFR story from June 2018 paints a reasonable bear case for MinRes (MIN).  They've now reported and they're trading a couple of dollars lower than they were a couple of months ago.

Here's the thing - I don't trust Chris Ellison like I trust the management at MND or GNG, but I do trust Ellison to do what's in his own best interests.  He's got somewhere between $300m and $350m worth of MIN shares (over 21 million shares), so most of his personal wealth is tied up in MIN.  He can afford a volatile share price, but he will make sure the MIN SP is up when he next wants to sell some shares. 

He last sold shares in November (28th to 30th) and it was 1,862,766 MIN shares at $19.82 average price, for a cool $37 million.  And that was only 8% of what Chris held at that time, so it wasn't a massive sell-down - for him, but he certainly got a good price!   He also has another 365,462 performance rights under the MIN FY16 & FY17 LTI (long term incentive) Schemes that will vest at various times over the next couple of years.  Chris will make sure they vest. 

You have to expect plenty of volatility with MIN, but you can still make money from owning them.  They can be traded or a long term hold.

18-Sep-18:  I'm not currently holding MIN shares, but I often do.

19-Mar-20:  I'm holding them again - bought back in after they reported in September 2019.

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Valuation of $20.70
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Added 5 years ago
10 EV/EBITDA on EBITDA expected to be materially above FY19 guidance at the AGM ~A$380m
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