0:24:50 MinRes - Katana Asset Management's biggest holding - Romano Sala Tenna tells us why [19-Feb-2024]

Disc: I hold MIN (MinRes) both here and in my larger real money portfolios.

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.

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.

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.

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.

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.

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.

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.

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.

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

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.

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 Fund, Equity 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]

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

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.

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.

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

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:

lit

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.

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

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]

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.

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

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..

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.

Crazy Next level on-market buying by a insider after FID on a MIN Iron ore project in which XXX is JV partner with a royalty.

Will let other strawpeople do the guessing game.... :)

Clue is the share price is now above $4 and bucked the selloff today. And still around $200m market cap mark.

And no straws or followers on stock XXX (actually there is one now after I saw this).

Thinking of taking a position in XXX (not MIN)

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

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]

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

Image: One of MinRes' iron ore mines.

Disc: I hold MIN shares.

Mineral Resources has announced that it has signed a non-binding letter agreement with Albemarle Corporation to explore a potential expansion of the MARBL Lithium Joint Venture.

The non-binding agreement envisions the following key principles and transactions:

• Ownership of the Wodgina mine would change from 60/40 (ALB/MRL) to 50/50.
• MRL would resume management of the Wodgina mine.
• Ownership of Kemerton I/II would remain 60/40 (ALB/MRL).
• Kemerton would be fed by the Greenbushes mine.
• In addition, a new 50/50 Joint Venture to own additional lithium conversion assets outside of Australia to be jointly funded by MRL and Albemarle. Albemarle would be the operator of these assets.
• Albemarle would remain the exclusive marketer of lithium products produced by both Joint Ventures. 

Commenting on the Agreement, Mineral Resources Managing Director Chris Ellison said:

“We are delighted to have reached this non-binding agreement, which represents a practical solution to support the growth of our partnership with Albemarle. “MRL’s core competency is to design, build and operate the Wodgina site. Albemarle has a strong track record in the development and operation of downstream lithium conversion, and has an industry-leading sales and marketing capability. “Once finalised, this arrangement will build on our strong partnership with Albemarle to generate sustainable, long-term value from our world-class assets and capitalise on growing global lithium demand. “Through this agreement, we have a clear pathway to become one of the world’s largest downstream lithium producers by supplying significant volumes of lithium hydroxide using high-quality spodumene from our portfolio of Tier 1 hard rock mines in Western Australia. “We look forward to finalising a binding agreement as soon as possible and stepping up our efforts to build a great, global lithium business.” 

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.

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?

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:

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 19^th, 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.

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.

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

Dividends:

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

For more, see my Valuation for MIN.

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.

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.

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."

22-Sep-2020:  Presentation to Bond Investors

[I do NOT currently hold MIN shares, but I wish I did.  They're too hot for me at these levels, so I would NOT be buying up here.  However, they are one of Australia's best listed mining services companies, and I've certainly held them at various times, and probably will do again.  They have a lot of exposure to iron ore via BHP and RIO - they do a lot of crushing and screening - and ore transportation - for them, plus they also own their own iron ore mines.]

24-7-2020:  MinRes (MIN) Quarterly Activities Report

This is a mining services company that also own a few iron ore mines themselves and have other mining interests, and I made some money on them this year, and sold out WAY too early!!  I took profits (sold out) at $16.29 in mid-April, thinking that the iron ore price was being artificially propped up by Vale's issues in Brazil, and that I could swap that money into something with better upside.  MIN just kept on rising from there, and are now over $24.  Should have trimmed some and kept the rest!

ASX Chart of MIN

18-June-2020:  Bull Case from Anthony KAVANAGH from Chester Asset Management:  https://www.livewiremarkets.com/wires/can-mineral-resources-be-a-40-stock

Can Mineral Resources be a $40 stock?

No, we aren’t projecting a USD150/t iron ore price. Last year we wrote, A Different Kind of Portfolio Manager, wherein we argued Mineral Resources (MIN) was heavily discounted, trading at ~AUD15/share vs our AUD26/share valuation. Given the wide discount there wasn’t much need for over-enthusiasm on the upside but this note serves as an update and provides us the opportunity to revise one of the issues we had with our first note, the Mining Services' valuation. Yes, we’re allowed to have issue with our own work. Rarely is the sequel better than the original but just as Adam Sandler made Grownups 2 sometimes the original was that bad/no-one saw it that it doesn’t hurt to have another go. For time poor readers we have worked backwards from our original note, providing an update on our valuation, followed by the detail on Lithium, Iron Ore and Mining Services, before rounding out with earnings implications.

Valuation Update

Combining our work below into a valuation is easy enough but within our analysis we are left with some key questions which materially influences the fair value outcome, hence the multiple valuation scenarios below. These include:

a) Whether to accept the iron price implied by Fortescue Metals (FMG)?;

b) What is a reasonable multiple and hence valuation of MIN’s Mining Services segment as more contracts become sticky Life of Mine (LOM) type infrastructure deals?; and

c) How much of the theoretical value of future projects: Marillana, West Pilbara and lithium downstream, including the associated Mining Services upside is reasonable?

--- click on link above (top of this straw) for the rest of this article, published on Livewire on June 18, 2020 ---

24-Apr-2020:  Quarterly Activities Report

Q3 Highlights

• The coronavirus (COVID-19) crisis did not materially impact MRL’s operations during Q3 FY20. At this time, it is unclear what impact it will have on the remainder of the calendar year, including on demand and consumption for either iron ore or lithium.
• Safety performance continued to improve, with a Total Reportable Injury Frequency Rate (TRIFR) for the last twelve months of 3.36. This represented an improvement of 16% compared to the performance in FY19.
• Our Mining Services business continues to perform strongly. We expect second half Mining Services EBITDA to be similar to the first half ($172m) on the basis that there is no disruption from COVID-19 over Q4 FY20.
• Total iron ore production of 3.4 million wet metric tonnes (wmt) was 3% higher than Q2 FY20 and up over 28% on the prior corresponding period (Q3 FY19). Iron ore shipments of 2.9 million wmt were 12% lower than Q2 FY20.
• Average revenue received of US$75 per dry metric tonne iron ore was achieved during the quarter, 5% lower than Q2 FY20. 
• While we began to benefit from lower energy prices during the quarter, we have also invested in measures to protect the health and safety of our workforce from the effects of COVID-19. Full year operating cost guidance for our commodities business remains unchanged.
• Mining operations at Koolyanobbing were impacted by heavy rainfall during the quarter while shipments were lower due to a slower than expected ramp up of rail capacity. Koolyanobbing is forecast to produce at an annualised run rate of 11 million tonnes per annum (Mtpa) during Q4 FY20 with additional dump trucks commissioned and additional rail capacity brought on line. Due to the lower shipments during the third quarter, export expectations from Koolyanobbing have been lowered 19% to between 7.1 to 7.6 million tonne (mt) for FY20.
• Iron Valley produced 1.7 million wmt of product for the quarter, up around 20% on each of the prior period and the prior corresponding period. The additional production will support higher shipping tonnages in Q4 FY20, with export expectations for FY20 increased 9% to between 6.6 to 7.0 mt. 
• Mt Marion Lithium Project produced 111,000 wmt and shipped 99,000 wmt of spodumene concentrate during the quarter. An updated production outlook for FY20 was completed, based on an optimised mine plan which includes lower processing throughput to achieve a higher yield from ore processed and continues to include 4% spodumene concentrate production.
• MRL agreed a series of arrangements with BCI Minerals Limited (ASX: BCI) that will enhance MRL’s iron ore footprint in the Pilbara region, including the purchase of the Buckland Project from BCI for cash consideration of up to $20 million and the optimisation of the existing Iron Valley Agreement whereby BCI will participate in the capital investment required to extend the mine life at Iron Valley.
• MRL entered into an Asset Sale Agreement with Resources Development Group Limited (ASX: RDG) to transfer a 100% interest in its non-core Ant Hill and Sunday Hill manganese assets to RDG  in return for MRL receiving scrip equivalent to a 75% shareholding in RDG. The transaction is anticipated to complete by the end of FY20.

COVID-19 Update on Operations

The coronavirus (COVID-19) crisis is causing significant damage to communities across Australia and the world. Since the outbreak in January 2020, MRL has continuously monitored developments around the world along with guidelines introduced by the Federal and State Governments and the health authorities to minimise the risks that COVID-19 present to us.

In April 2020, we purchased gold-standard testing equipment and commenced swab screening for all of our fly-in fly-out (FIFO) workforce for COVID-19 as part of our total approach to minimising the spread of the virus. Our aim is to ensure that anyone travelling to our sites is free of the virus.

• Screening is being conducted at drive-through locations in the Perth metropolitan area, so that workers do not have to leave their vehicle during the process. Qualified nursing staff with full medical PPE clothing and equipment undertake all collection. The samples collected are being processed in a National Association of Testing Authorities (NATA) accredited laboratory for analysis.
• The COVID-19 screening process is part of Mineral Resources’ standard ‘fit for work’ regime, and will remain in place until the Commonwealth and State Governments declare that the coronavirus is no longer a risk to our community
• The MRL machines are capable of performing a high volume of tests and we have offered the screening process to other resource companies to ensure this pandemic does not force the closure of Western Australia’s mining industry

This initiative complements other actions taken on our sites, further details of which are available at www.mineralresources.com.au/home-page/covid19-response/.

--- click on link above for more ---

Disclosure:  I hold MIN shares.

http://www.australianmining.com.au/news/minres-set-sell-stake-worlds-largest-hard-rock-lithium-deposit/

http://www.hazergroup.com.au/about/#learn_about_hazer

Hazer update on JV with MinRes (MIN), pilot plant on track for commissioning this year

http://www.mineralresources.com.au/innovation-centre/innovation-centre-bots.html

Wodgina Project Update, 15th June 2018

Acquisition of Cliffs' Yilgarn iron ore assets, 13th June 2018

http://www.mineralresources.com.au/mrl/csi.html

A little light reading for anyone who is interested.  That last one is MRL's overview of CSI, their largest mining services division (Crushing Services International) who crush, screen & process ore (mostly iron ore) for the majors (BHP & RIO) as well as for some smaller players, and for MRL's own mines.  They also have a pipeline engineering and construction division called PIHA. 

http://www.mineralresources.com.au/mrl/piha.html

Their third mining services division is called PMI, Process Minerals International, and PMI is a specialist in the establishment of new mines and successfully implementing all stages necessary for initial production on behalf of tenement owners. PMI has wide ranging expertise in mine establishment and ongoing management and can manage the processing, production, logistics, ship loading, marketing and export of resource products.  PMI offers a unique “end to end” menu of services from inception to production, production to marketing and marketing to sale and export – and all steps in between.  They even do site services including accomodation, catering and cleaning.

http://www.mineralresources.com.au/mrl/pmi.html

There's plenty more info that can be found starting from their home page:

http://www.mineralresources.com.au/

Mid June 2018:  MinRes (MIN) is an interesting company run by their MD, Chris Ellison, who owns 21.3m shares, or about 8.8% of the company, and was the founder or co-founder of the main companies that were merged to create MinRes.  He considers MRL (Mineral Resources Ltd, MinRes, or just MIN) to be a mining services company primarily, even though he has increased their direct mining interests over the years, first in iron ore, and more lately in lithium mining.  Chris had previously stated that he felt the lithium cycle would only last about 5 years and he intended to have moved on by the time it peaks.  He has just announced that they are talking to potential partners to buy 49% of MRL's Wodgina lithium mining operation, with MRL to retain 51% initially and to lock in the mining contract for the life of the mine.  They have also announced today that they are going to start reducing production of DSO (direct shipping ore) at Wodgina because they can sell Spodumene concentrate for twice the price of the DSO, and they can sell Lithium Hydroxide for twice the price of Spodumene, so they can't see the sense of depleting the asset at such a rapid rate when they can realise far greater profits through further processing before exporting the end product (value adding).  Apparently, the people who are interested in buying the 49% of Wodgina from MRL (and forming a JV with them) are also of this opinion, unsurprisingly.  Along with these announcements, they have also announced a large infrastructure upgrade at Wodgina:

Wodgina Update announcement, June 18th 2018

The share price of MIN can be very volatile, often moving up or down more than $1 in a single day.  They have been involved in a number of takeovers, and a few of those have not gone to plan, like AWE, which was eventually taken over by the Japanese firm Mitsui, and Atlas Iron (AGO) which eventually went to Gina Rinehart's Hancock Prospecting (or a subsidiary of it).  

MRL (MIN) can be a good trading stock, due to their volatility.  They can also serve as a longer term investment, but sometimes you have to give them time.

They are a very innovative mining services company, and a major force in lithium here in Australia. They are also getting into graphene.

Disclosure:  17-Sep-18:  I don't currently hold any MIN, but I do trade them occasionally.

26-Feb-2020:  JP Morgan High Yield Global Finance Conference Presentation

26 July 2019:  MinRes (MIN) Quarterly Exploration and Mining Activities Report for June 2019 Quarter

Also:

26 July 2019:  Confirmation of Chinese anti-trust clearance

25 July 2019:  2019 Financial Year Results - Release Date (Thursday 22nd August)

MIN (MinRes or MRL) is up over 8% today so far on this quarterly report and the news that MRL has been notified by Albemarle Corporation that unconditional approval has been obtained from the China State Administration for Market Regulation (SAMR) for the transaction between MRL and Albemarle, as announced by MRL to ASX on 14 December 2018.  Completion of the transaction remains conditional on approval from the Australian Foreign Investment Review Board (FIRB) and from certain third parties with interests in the underlying tenements.

US$820 million cash receipt from the completion of its Wodgina sale to Albemarle has placed the company in a net cash position.

The cash proceeds also provide the company with financial flexibility to support deteriorating market conditions as well as funds to pursue new growth opportunities.

However, MRL's sizable cash balance, which is expected to remain in excess of A$1 billion as of June 30, 2020, ahead of its sizable tax liability due in fiscal 2021.

Sohn's Heart & Minds

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

25-Oct-2018:  Wodgina Site Visit Presentation - see here

23-Oct-2018:  Wodgina Mineral Resource and Ore Reserve Update - see here

22-Oct-2018:  Acquisition of Kumina Iron Ore Project (from BCI) announcement - see here

22-Oct-2018:  BCI:  Iron Ore Divestment Update - Sale of Kumina Iron Ore Project - see here

18-Oct-2018:  MIN 2018 Annual Report to Shareholders - see here

19-Oct-2018:  Correction to MIN Annual Report (Synthetic Graphite Project) - see here

I haven't posted any straws on MIN for about a year, but their more recent announcements can be viewed from here.

Morgan Stanley on MIN : 25 Jun 2019 11:18:15

DJ Lithium Miners Likable Despite Price Struggles

Thinks Australia's Mineral Resources is a good value after a flat year-to-date stock performance at a time some miners have surged. It's been bullish on that company "despite our commodity deck being fairly bearish on lithium carbonate." Shares trade 3 times the coming FY's projected Ebitda and 5.5 times the anticipated figure for FY21.