Yet another Fundie view on MIN today - this time in an interview on Livewire with Katana Asset Management's Romano Sala Tenna

This stock has fallen 43% in 12 months. But is it really as bad as it seems?

Gaurav Sodhi (who I personally rate more highly than the various investment bank broker analysts - however he's an acknowledged MIN bull and also personally owns shares in MIN so ...) from Intelligent Investor has also just posted their updated report on MIN - if you're an II subscriber it's a worthwhile read

Key Points

• Lower commodity prices hit profits
• Debt levels continue to climb
• Lots of options remain

He say's "the risk is real", however ...

Managing risk is a key task for any business and any investor. It is not the same as avoiding risk altogether. We accept that higher debt has raised risk levels and the swift crash in MinRes's share price results from concern about the balance sheet

Yet MinRes retains the assets, the experience and the track record to navigate this period. The share price now counts little more than the services business. A significant iron ore business and one of the world's largest lithium miners is being ignored. Value is now on offer

The times of greatest opportunity aren't signalled with trumpets and flags but with trepidation and doubt. This is one such moment. BUY

DISC: Held in SM & RL (and added a little more in RL today)

Enjoying the MIN discussion - FWIW A few Analyst reports out overnight - broker views are "mixed"

CLSA: Hold 12m PT $41.50

MIN’s FY24 results showed strong revenue at A$5,278m, beating consensus by 9%, but debt and profits raised concerns. Ebitda dropped 40% YoY due to weaker lithium prices, and net debt increased to A$4.4bn due to heavy capital spending. With FY25 capex projected higher than consensus at A$1.95bn, financial strain is a concern. Amid lithium market challenges, CEO Chris Ellison noted that "no one is making money," leading MIN to cut production and delay non-essential capex. Though resilient in rising markets, MIN is struggling in the current environment, prompting a target price cut from A$60.00 to A$41.50 and a downgrade to HOLD

Macquarie: Neutral 12m PT $48

Long way to the top

Key Points

• MIN’s FY24 result was mixed, with an underlying earnings beat but guidance misses for production and capex
• A production pull back from Mt Marion was especially alarming considering the Ganfeng offtake and services margins at the mine
• We cut our TP by 20% to A$48ps with a lower production outlook and higher capex expected. Reiterate Netural on a volatile base 

RBC: Outperform 12m PT $73

While the FY24 financials beat, the focus of the result was the higher than expected capex at Onslow Stage-1, deferral of Onslow Stage-2, and the rationalisation of lithium volumes to better align with market conditions. Incorporating the lower guided volumes/higher capex and removing Onslow Stage-2 from our base-case has resulted in EBITDA being reduced over our forecast period and our price target lowered 8% to $73. Over the 12-24 months the strategy is clear; prioritise the balance- sheet, reduce capex, operate the asset for cash flow. We see peak gearing in 2HFY25 as Iron ore capex declines. Outperform retained

Morgan Stanley: Overweight 12m PT $70

Despite lower cash generation in FY25 slowing the rate of the deleveraging, we still see MIN's transformation journey as one that is achievable with a reasonable buffer to weakness in commodity prices, leaving an equity raise unlikely at this stage. We see enough upside for LT investors Stay OW

DISC: Held in RL & SM

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

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

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

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

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.

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

Interesting post to Livewire by Airlie Funds Management (covers the lithium industry in general, and supply/demand fundamentals leading into their thesis on minres): Lithium - Where to from here?