The market seems to have got back to looking at the business, up 17% as I speak with the announcement of a sale/JV with Hancock for most of MIN’s gas assets. The deal provides $780m upfront and around $300m in purchase adjustments on verification of reserves plus some change for exploration and operations on JV items.

This now puts to bed the liquidity/debt issues for those who are short MIN, on top of the Onslow Iron haul road 49% sale that generated $1.1b. Which possibly explains the explosive price response today as shorter head for the exists.

Having bought MIN in early September, it has been more volatile than any small cap, going from under $30 up to $54 then down to $33 and now back to $42 in about 6 weeks… freaking hell!

Reflecting on my thesis when I bought (on SM), all my reasons remain in place and are playing out in one form or another. The wild card and thing not in the thesis was all the CE stuff.

I don’t like the CE revelations at all, his private business is his own concern but the transactions that were at the expense of shareholders is my major source of concern as a shareholder. I accept that you don’t get to where CE gets without crossing a few lines and pushing things to the limit, so it’s not what you would call a Black Swan revelation or event. Also, it’s now close to ancient history given where the company is now – but still there has to be consequences for him!

As such I am waiting to see what the board does in relation to the related party transactions and any transfer of value out of the company. The ATO matter is settled in my view, accepting of course that this is a stain on character but again, I am not naive to the entrepreneurial spirit at play with CE.

So, company good value, management is good at creating value, the question is will shareholders share appropriately going forward or will value be diverted?  I hope CE and the board/management have behaved appropriately in recent years and have moved on from past shenanigans… I am sure we will soon read about it if they haven’t.

Disc: I own RL

I have initiated a half position today in MIN today and want to thank all the Straw people who have provided a valuable discussion, which I hope to add the below. 

Having flagged $40 as an “Looks interesting” price for MIN but already having enough Iron Ore exposure, I felt any issues with Iron Ore prices were mitigated at the $32 price point. 

My Thesis and also a summary of Gaurav Sodhi’s discussion of MIN on Stock Take that dragged my across the line to a buy:

Thesis: MIN is reeling from a 4-punch combo, but each is a temporary pain that should convert to long term gain:

1.     Lithium business is at best currently break even at current prices, having previously generated over $1b in EBITDA this is being valued at nil. Current prices may persist for a while but supply will drop eventually and provide profitable opportunities, not anywhere near previous records, but more than enough to add value. [modest upside optionality with moderate probability]

2.     Iron Ore prices have pulled back, making MIN’s current high-cost mines that had been profitable now marginal and loss making at lower prices. The new Onslow project will change this equation with EBITDA of $800m possible at US$90/t prices and a break even point around US$50/t. However, this will not start operating until mid-2025 and has required $3b in capital up front, which is the cause of it’s debt issue. [high upside opportunity with high probability]

3.     Mining Services business is being discounted with commodities generally but alone justifies the current share price with EBITDA of $550m. This will increase to $1b EBITDA once Onslow is online. [underlying value of business providing margin of safety]

4.     Debt levels of $4.4b are considerable given current commodity prices mean that the Lithium and Iron Ore parts of the business offer no debt servicing. However, the Services business can cover this cost and payment doesn’t start until 2027 by which time Onslow will have been operating for over a year providing additional cash along with almost doubling the Services business cash flows.

Buying now on the view that equity markets have viewed current low profits as long term and as such see debt burden as an excessive risk and unserviceable. I don’t expect any upside in share price for over a year until Onslow is online and will complete the position at below $30, or just enjoy upside on half the position if it bounces from here.

Gaurav Sodhi (MIN discussion notes): 4/5/24 Stock Take (Intelligent Investor)

·        Service Business EBITDA around $1b justifies current price, it’s a crushing business that continues irrespective of price so provides steady and stable cash flow.

·        MIN has transferred form one of the highest cost producers (A$100/t) to a low-cost producer (not as low as FMG, BHP, RIO but low enough).

·        Oslow mine online Jun25, Iron Ore costs of A$65-75/t so profitable at US$50/t price (20% ROC expected at US$70/t price). They get 90% of cashflow in first year so accelerated cash flows.

·        Debit will peak at $5b so scary BUT is relatively cheap due to being mostly US bonds and bond markets have not discounted it indicating that share market concerns of insolvency are overstated (bond market is always right…). Service business is able to pay for the debt and there are no payments on that debt due until 2027.

·        Expect 70% of global Lithium capacity is loss making at current prices, so supply should fall and price recover.

·        Issue at the moment is they have just deployed $4b on projects that are yet to produce any revenue, so PE out of whack. Also low probability events (disasters) are being priced as a certainty that would require sale of assets at fire sale values.

Disc: I own RL