Consensus community valuation
Source: MoM's daily newsletter, Friday's edition, "Director's Special" by Money of Mine
MinRes' AGM will be held on Thursday 21st November - this coming week - have the popcorn ready! It starts at 9:30am (AWST) and will be a HYBRID AGM. This one will be held at Mineral Resources Park - Function Room, 42 Bishopsgate St, Lathlain Western Australia - and online via their AGM portal (see below).
If you are attending the AGM in person, registration will commence at 9:00am (AWST). Please bring your Voting Form with you; using the barcode at the top of the Voting Form will help speed up the registration process.
Shareholders also have the option to attend the AGM virtually via the online portal.
To participate live online, please visit https://meetnow.global/M2WLDZQ on the day of the meeting.
Further details on attending the AGM virtually – including how to vote, comment and ask questions – are set out in the Notice of Meeting available at mineralresources.com.au/agm.
Any shareholder wishing to lodge a proxy vote or lodge questions ahead of the meeting can do so by visiting investorvote.com.au and entering the Control Number and Holder Number (SRN/HIN), as sent to shareholders with their notice of AGM.
Disclosure: Not holding, but would still like to be a fly on the wall.
Additional: That website address to "Investorvote" - powered by Computershare - is wrong, despite that web address being included in the MinRes notice of meeting. There is no ".au" in it, so that one doesn't work - the correct one is: https://investorvote.com/Login
Also, since that notice of meeting they've released the following announcements:
Pre-AGM Chair Presentation – October 2024 [29-Oct-2024]
Annual General Meeting - withdrawal of Resolution 4 [04-Nov-2024; Resolution 4 was for: Approval for Grant of Securities to Managing Director. Wouldn't have gotten up, one would have thought.]
Latest updates are at the bottom.
This starts two years ago:
16-Jan-2022: (yes, 2022) MinRes (Mineral Resources, ASX:MIN) are a very good company. They regard themselves as a mining services company however the majority of their revenue is now derived from iron ore mining - from their own mines, so they are really now a miner with a mining services division who provide digging, loading, hauling and crushing services for iron ore miners large and small.
I'll go into some more depth on their business and their high ROE and profitability in a minute but first, why $77, apart from it being one of my favourite numbers? Looking at their share price chart, I don't think they should have too much trouble punching through $70/share, however I think $80 may be a bridge too far in the shorter to mid-term. I'm sure that they will eventually punch through $80/share as well, but I wouldn't be surprised to seem them trading in that $70 to $80 range for a little while first. That said, they are not usually a range-trading or sidewise-moving stock. They tend to trend very well both up and down, as their chart clearly shows. Since early November (10-Nov-2021) the trend has been very definitely UP.
OK, MinRes' main exposure currently is undoubtedly to iron ore, both through their own iron ore mines, their vast iron ore infrastructure, and the amount of mining services they do from clients like BHP and RIO right down to some of the smaller players in the industry.
However they also have a significant presence in Lithium, despite most of their lithium assets currently being either on C&M (care and maintenance, i.e. temporally mothballed) or still under construction. They regard their Wodgina lithium mine as the world's largest hard rock lithium deposit, and they've been busy partnering with battery metals company Albemarle to create a vertically integrated lithium business from the lithium-rich spodumene concentrate that Wodgina produces to the lithium hydroxide that Kemerton will produce.
It's important to understand that MinRes is run by its founder Chris Ellison, and he tends to polarise views towards him; people tend to either love him or hate him. He can be a fairly ruthless businessman when it comes to takeovers and acquisitions and most of his detractors tend to have come from the other side of many of the deals that he has made over the years, which have tended to benefit MinRes a lot more than they benefitted other parties. I'll copy in a little history below from an investment thesis I prepared for MIN a couple of years ago. I refer to MRL which is often how MinRes refer to themselves, it's short for Mineral Resources Limited.
Chris Ellison, pictured above, has HEAPS of skin in the game - some 22,261,431 MIN shares worth $1.46 Billion at Friday's $65.62/share closing price, so Chris owns close to 12% of the company.
He was the MD of MND (Monadelphous Group Ltd) back in 1988 after they went into receivership, and he got them back to where they were able to re-list in late 1989. He was the founding shareholder of all three of the private companies (PIHA, CSI & PMI) which were merged to form MRL originally, and he has been in charge of them and then MRL (Mineral Resources Ltd) since inception.
At their November 2019 AGM, MinRes (MIN) avoided a fourth consecutive strike on their remuneration report with a vote of 84 per cent in favour. The breakthrough came after changes to the remuneration policy and talks with proxy advisers blamed for the report being voted down for the past three years. Some of those changes included Mr Ellison having his base annual salary as managing director cut from $1.5 million to $1.2 million and his capacity to earn bonuses increased from 50 per cent of base salary to 100 per cent.
While Ellison and his associates can sometimes be viewed as somewhat ruthless and uncaring when it comes to corporate maneuvering (acquisitions, takeovers, etc.), he has always been opportunistic and has built the company up partly via a series of opportunistic takeovers and the purchase of distressed assets at fire sale prices. When it comes to his own employees however, he is apparently a great boss, very loyal, looks after his own, and the word is that MinRes as a company have a very strong emphasis on positive company culture within the business.
It is this "MRL first, MRL’s clients second, everyone else third” approach that does rile some of his business rivals, particularly the little guys with the assets he often ends up acquiring at less than what the previous owners may have thought was a “fair” price. In one respect, that is one of MRL’s “edges” or competitive advantages – that they have the balance sheet and experience to identify opportunities in distressed assets and forced sellers and take advantage of those situations.
Another side of that is their ability and track record of selling assets at or near the top of the market, as they did with the 60% sale of Wodgina to the global battery metals giant Albemarle during the lithium bubble. By the time that deal was settled, the bubble had burst, but the contracts had been signed and were enforceable, and MRL got their money, as agreed. As they have done historically, when they sell a mine, or part of a mine, they always retain a life-of-mine or multi-decade mining agreement with the new owners, so MRL always continue to provide the mining services for that mine. In the case of Wodgina, that agreement is for at least the next 30 years. While Wodgina is currently on “care and maintenance” due to a current low lithium price, it is arguably the largest hard rock lithium deposit on the planet and one of the top 5 lithium mines (from an infrastructure point of view) globally, so when the lithium price rises again, Wodgina will absolutely be fired up again, and it will be MRL doing the work there – and being paid by the tonne, regardless of the prevailing price of lithium. Also, in the case of Wodgina, they (MRL) have retained a 40% stake, so they also will receive 40% of all sales receipts in addition to the mining services income (as long as they pay 40% of the costs).
That is the sort of dealing that Ellison’s enviable reputation is based on. Because Albemarle is a massive corporation, nobody is crying poor about this particular deal, even though MRL clearly got the better of it. When the counterparty is a small struggling miner with cashflow issues and lenders breathing down their necks, the reporting tends to paint MRL – and Chris Ellison – in a much less favourable light. We always like to feel sorry for the little guys – the underdogs. I have come to the view that Ellison is primarily a very astute businessman.
Here are some of the Pros (positives) of MIN (MRL/MinRes) as an investment that I jotted down in early December (last month):
- Exposure to iron ore.
- Exposure to lithium.
- They own some serious infrastructure, including rail wagons, port assets, hundreds of trucks, and a huge amount of mining equipment (both fixed and mobile plant).
- Consistently profitable, with very healthy ROE.
- Diversification of revenue via multiple commodities and various mining services divisions.
- Opportunity to trade in and out due to very volatile share price, with an underlying business that is very solid with no net debt and over $200m of net cash.
- Good, innovative management who have a focus on positive company culture.
- Balance sheet strength: MRL have no net debt, a rock-solid balance sheet, a large cash buffer (currently over $200m), and an excellent dividend payment and total shareholder return history.
- Good potential upside from exploration and development, as well as from multiple diversified business units, including new divisions that are yet to make a positive financial impact.
- Innovation focus; meaning they don’t stand still; they are always working on something new while leveraging their strengths within their existing business units.
- While MIN failed to acquire AWE a couple of years ago, they have assembled a collection of energy assets anyway and are actively drilling for gas on their own tenements with a view to hopefully becoming energy-self-sufficient at a number of their own mine-sites and reducing their annual diesel bill – which is currently in the hundreds of millions of dollars in total – across their entire operations. The market may be forgetting that the first 10 years of Chris Ellison’s (MRL’s founding shareholder and managing director’s) career in the mining and resources industry was spent on constructing, developing and operating in the gas industry. For more on their Energy division – see here: https://www.mineralresources.com.au/our-business/energy/
- MRL has the proven ability to safely deliver high quality production facilities in the mining and resources industry on time and on budget. The Company has a stellar reputation as the industry leader for delivering and operating world class projects at a low cost. They tend to be faster and cheaper than their competitors.
- MRL have a large collection of used crushing, screening and other mine-site-related equipment which are “off-balance-sheet” assets. They either buy the equipment at “fire sale” prices when companies fold, or else they get the stuff for free by agreeing to rehabilitate or clean-up old/disused mine-sites in exchange for salvage rights. Sometimes they get paid to clean up other people’s sites, AND they also get the salvage rights. The equipment often has little value (other than as scrap metal), but some of it is refurbished and/or re-purposed and used in/at either MRL’s own mine-sites or their clients’ mine-sites. The large bank of used equipment that MRL own gives them a cost advantage over their competition - who generally have to source everything from scratch when taking on additional contracting work.
- Recurring revenue from multi-year crushing contracts (CSI division) and other multi-year contracts for provision of services by MRL’s other mining services divisions. MRL’s CSI division have multi-year iron ore crushing contracts for Australia’s two largest iron ore producers, Rio Tinto (RIO) and BHP Billiton (BHP), as well as for a number of smaller companies.
- The recent pullback from over $60 to below $40 presented a good opportunity to get back into a company that looks even better now than when I last invested in them. They have begun rising again, however, they are still below $50 with plenty more room to run in my opinion based on their fundamentals as well as current investor sentiment having turned positive on them once more. They tend to trend well.
And that's where I bought back in, at $47.10 on 10-Dec-2021. They are now $65.62/share, so there's less upside from current levels than there was 5 weeks ago, but I think there's still upside. I haven't yet added them back in to my SM portfolio, but I do hold them in real life. As I have said, I need to sell stuff to buy stuff here, as I don't have any cash left here.
OK, here are the Cons (negatives) of investing in MIN (MRL/MinRes):
- Commodity price/outlook risk – mostly Iron ore & Lithium.
- Mine life risk - Mines have finite lives and more ore will need to be discovered or acquired at some point in the future.
- Grade/Costs risk – If MRL’s costs blow out, and/or grades fall, profitability may fall.
- Exploration downside risks – Amounts spent on exploration may not yield positive results. (i.e. bang for bucks might not be as positive)
- Key man risk – Chris Ellison might leave or retire. However, as Chris has the vast majority of his personal wealth tied up in the company (his MIN shares are currently worth over $1.5 billion dollars), it is unlikely he would do anything that was not in the best interests of MRL and its share price.
- Acquisition risk –future M&A activity may not result in the expected synergies and other benefits that are expected by the company’s management, or the benefits may not turn out to be a great as expected, resulting in possible goodwill write-downs, or unexpected costs (which may impact on profitability). This risk also extends to JVs, which might not all provide the expected benefits and returns on invested capital as previous ones have.
- Execution risk – MRL’s management need to execute well on their plans and be reasonably accurate in their forecasts. Chris Ellison tends to be fairly optimistic and bullish with his forecasts and while he does meet them, he doesn’t always hit them within the original timeframes that he first sets for them. It sometimes takes longer. It might be helpful if he tried to underpromise more, so that he can consistently overdeliver. Managing market expectations is another way of framing this particular risk.
- Client/contract risk – MRL have a number of mining services businesses and each carries risk associated with clients and contracts. For instance, in MRL’s crushing business (CSI, Crushing Services International, MRL’s largest mining services division), Fortescue Metals Group (ASX: FMG) decided to take their iron ore crushing & screening back in-house back in 2013, after an electrician died while working at one of the crushing plants being run by MRL at an FMG site. There was a large one-off payment made by FMG to MRL as part of the contract termination (break fee, transfer of equipment, etc), but MRL lost the annual recurring revenue that the FMG crushing contract had previously provided to them. These sorts of events can occur within these mining services divisions and are something to be mindful of. Losing contracts to competitors also falls into this category, although – to their credit – MRL have never lost a client to a competitor in their history so far. [that statement was true in 2019 – I have not verified it since then, so not sure if it still stands in 2022.]
- Director Selling - The Chairman (Wade) and MD (Ellison) were both selling shares on the 28th to 30th November 2017, when MIN were trading at between $19.33 and $20.01. In Chris Ellison's case, it was ~$37m worth, around 8% of his shares. The fact that Peter Wade sold 39% of his shares for $4m at exactly the same time, as well as their preference for using shares to pay for as much of AWE as possible (rather than cash) – as part of their bid for AWE that was ultimately unsuccessful – does seem to suggest that they believed that the MIN share price had got ahead of itself at that point in time. In hindsight, they were correct. After peaking at just over $22 on 1-Jan-2018, the MIN SP retraced over the next 11 months right back to $13.39 on 12-Nov-2018, then traded broadly sideways before bottoming at $12.70 on 14-Nov-19, being a 42.3% drop from top to bottom. The SP then went into a very strong uptrend from 14-Nov-19. I bought back into MIN at $14.94 on 25-Nov-19 and they were trading at over $17 within 3 weeks. There has been little evidence of this director selling since 2017, however it is certainly something to monitor – if they start selling shares in significant quantities once again.
- Village accommodation risk – the experience with both Fleetwood (FWD) and Decmil (DCG) suggest that there is a reasonable amount of risk in owning remote manufactured accommodation villages, particularly asset write-down risk when the mining and energy sectors experience a downturn. MIN’s exposure to this sector is a reasonably small part of their overall business mix, with the main village accommodation asset being their Poondano Village in Port Hedland, but they also build and operate accommodation and provide site services for their own mining operations, as well as for a number of their clients (on a smaller scale than Poondano), including the Onslow Highway Camp as well as a number of remote site services operations and exploration camps. December 2021 Update: According to their website – see here: https://www.mineralresources.com.au/about-us/our-companies/ And here: https://www.mineralresources.com.au/our-business/ ...MRL (MIN) have streamlined their business units now, and they do not appear to still be involved in Accommodation Villages, on-site catering, and those types of ancillary services. At least, if they are still doing that, it’s such a small part of their total business as to not even rate a mention on their website now, or in their annual reports and company presentations, so if there is any risk remaining there – it is negligible.
- Wide range of estimates amongst brokers and analysts. There is a risk in relying on other people’s forecasts, however I'm not relying on them and I'm largely ignoring them.
- There have been various allegations made occasionally over the years of unfair and/or unethical behaviour by Chris Ellison and his previous CFO, Bruce Goulds (now retired). This is not uncommon in business and is quite similar to allegations that have been made against Kerry Stokes, such as during the Nexus Energy takeover, when Stokes began building SGH Energy (part of SGH, ASX code: SVW). These rumours and unsubstantiated allegations are something to be aware of, as we want to be confident that management can be trusted to act in the best interests of ordinary shareholders, as well as to act well within the law, and in an ethically sound way as well. What I have found is that these matters get reported completely differently depending on whether MRL is considered to be the David or the Goliath in the story. As the David, the “brilliant” deal MRL managed to pull off with Albemarle buying 60% of Wodgina which settled on the day they shut down production and placed the mine on “care and maintenance” was hailed as a triumph for Chris Ellison. However, if they had enforced that same deal (which was inked back when we were in the middle of a lithium bubble with massively higher lithium prices) on a small junior miner who was struggling financially, MRL would have been painted as the uncaring, insensitive and ruthless Goliath prepared to crush the little guys underfoot to get the very best deal for themselves. All allegations need to be considered seriously, and management behaviour also watched closely, however, we also need to understand the inherent bias in the reporting of much of this stuff, and to clearly separate the legal/illegal from the fair/unfair-to-all-parties. Being able to quickly capitalise on opportunities, including in distressed assets and with forced sellers, is one of MRL’s “edges” or competitive advantages. It’s what has got them to where they are today. Previous owners of assets that eventually become part of MRL are often unhappy with the outcome that they received, but MRL didn’t put them in that position, they found themselves in it through bad luck, bad management, or bad timing, and MRL just seized on the opportunity, as they do. That’s business. Clearly not everybody is unhappy with their own outcome, but it’s the minority who are unhappy that get the most press coverage. Again – we have to be fairly astute in trying to ascertain what is unethical or illegal versus what is simply opportunistic behaviour.
- Shorting risk – The long lists of risks above may attract short sellers, and if MRL come under a sustained short-selling attack (for weeks or months), that will likely negatively affect the SP of MIN for the duration of the attack, and possibly well beyond it.
OK, so hopefully that's a reasonably balanced view on MIN. I wouldn't say they are a definite "BUY" up here, but they looked like a great opportunity 5 weeks ago, one which I pounced on in RL (real life). Because they tend to trend so well, I would always consider MIN as an investment opportunity when they have recently been in a downtrend and they break that downtrend and start to trend up once more. That was the situation I discovered in early December, and that's why I bought back in. Could be a good one for the watchlist for those who are interested in this area (mining and mining services, specifically iron ore and lithium).
Further Reading:
MinRes going Silicon Valley-style for new HQ - MiningNews.net
Mineral Resources founder Chris Ellison is Australia's newest billionaire (afr.com)
Wodgina Lithium - Mineral Resources (carbonart.com.au)
Mineral Resources’ Wodgina mine brought back to life by lithium rally (afr.com)
An Insider’s View: The Kemerton Lithium Hydroxide Processing Plant | Albemarle
MinRes' debut debt deal boosts sagging lithium sector (afr.com) [Apr 2019]
Chris Ellison's House in Perth, Australia - Virtual Globetrotting
It's a decent view...
Related News:
Liontown CEO Tony Ottaviano weighs in on lithium supply outlook (afr.com)
Iron ore prices defy expectations (afr.com)
20-Feb-2022: Update: I have sold my MIN shares IRL (on 10-Feb-22 on the morning after they reported) and have a sell in for MIN here on SM - but clearly should have sold them a couple of weeks ago here as well when I was still in the green on them, as I was IRL when I sold. I have mentioned before how they tend to trend really well. They do, and they're back in a strong DOWNtrend again, which was sparked by their recent half year report, which was a shocker - based on the big decline in the iron ore price in the half year ended 31-Dec-2021, higher discounting due to MinRes's (MRL's/MIN's) lower grades of iron ore compared to the larger producers (BHP, RIO, FMG), and the fact that they have announced that they are not paying any interim dividend this year (and they WERE a reliable dividend payer).
The prevailing spot iron ore price was actually around 50% higher on the day they reported than it was on December 31st, the last day of the period they reported on, and they gave reasonably positive guidance, and their mining services division had a great year, but that didn't stop their share price from being smashed.
They closed at $57.88/share on the 8th Feb, the day before they reported, and dropped -8.91% on the 9th, on the back of that H1 FY22 report and their accompanying presentation. They closed on Friday (18th Feb 2022, two days ago) at $47.76, having now dropped -17.48% in 10 days from that $57.88 level on the 8th (the day before they reported, and they've turned strongly down, as shown below:
Normally, with a company of this quality or of higher quality, I would be happy to hold through the cycle, but not when they've just refused to pay a dividend AND they've clearly entered a strong downtrend due to a poor result AND the cancellation (or suspension) of the dividend, AND they trend so well for months at a time. There's not much to be gained by holding MIN right now IMHO, when I can simply buy back in when the re-enter a clear uptrend again, and they DO trend particularly well, as that graph shows.
FMG, a larger iron ore miner who I also held (and still hold) shares in have also reported, but their report wasn't nearly so bad, and while they've REDUCED their interim dividend based on the lower realised iron ore price during that 6 month period, they are still on a massive dividend yield so the income they are paying their shareholders via dividends compensates them (i.e. me) for the share price volatility.
FMG's interim dividend (ex-div 28-Feb, pay-date 30-Mar-22) is 86 cps FF, and their final dividend paid back in September was $2.11/share. The iron ore price is now a lot higher than it was at the end of that H1 FY22 reporting period (i.e. on 31-Dec-2021), so their current half (H2 of FY22) is likely to be a lot better than H1, but even if they more than halve their final dividend this year and only pay $1/share in September 2022 (compared to the $2.11/share they paid last September), that would still put them on a dividend yield of 9.37% PLUS franking, so that 9.37% does NOT include the franking credits, and the dividends are fully franked at the 30% corporate tax rate. That's plenty of compensation for a volatile SP IMHO. And FMG also have their FFI division with their development of electric trains, green hydrogen, and the rest of it. Fortescue Future Industries (FFI) is what has really attracted me back to FMG actually. It's a decent kicker.
However, MIN doesn't have that. They have a brilliantly performing mining services division, but with them refusing to pay any interim dividend, that mining services division is not enough for me to hold them through the cycle. Not when they trend both up and down as well as they do, and they are clearly back in a strong downtrend.
05-June-2022: Update: OK, I bought back into MIN at $48.65 on March 22nd after selling out at $54.50 on 10th Feb. So I did save a few dollars and it worked out OK, however I may not bother doing that again, as the downtrend turned around quite quickly, quicker than I had expected and I reckon in future I probably WILL just hold them through the cycle.
Chart Source: Commsec (edited by me).
I bought back in when it became clear to me that they were back in an uptrend and that the market had forgiven them for their 1st half report AND for not paying an interim dividend. Of course those trades were in real life, and I did NOT buy MIN back here on Strawman.com - unfortunately, because they have done really well, even better than FMG have lately, because MIN were bouncing back from that sell-down (downtrend) that stopped just below $45/share. They're now back up over $60/share, so have put on over 30% in 11 weeks (2.5 months). My closed MIN position is showing here as a -9.15% loss because I sold out here at $47.36 and never bought back in here. Just another example of where I can't mirror my real life trades here because I can only use end-of-day prices here, and I don't always bother because the buys and sells often take too long to go through. And I need to sell something to buy something (coz I don't have any cash available here) and I never know whether the sells or buys have gone through because I'm usually at my real world job every weekday afternoon and evening so I'm not monitoring price movements and making adjustments to my limit prices. My real life trading is generally done in the mornings before I go to work (at around mid-day).
Anyway, I did understand why MIN went into that strong downtrend, and I wanted to avoid the downside if it went on for longer, which I did, but they turned around pretty quickly and here on SM I would have clearly been much better off just holding them through. Trying to be too cute, and it backfired.
In real life the strategy actually worked, but only because I was able to buy them back at a lower price than where I sold them before they had risen too much, which was as a result of knowing in advance that they are a quality company that I'm happy to hold and therefore being willing to pull the trigger as soon as they had clearly re-established another uptrend.
So the work I had previously done understanding MinRes stood me in good stead there. Obviously the Iron Ore price has stayed a lot higher than where it ended up on December 31, 2021 (which was the end of MIN's 1st half reporting period) so their 2nd half result is going to be a lot better than their first half result.
Source: Iron Ore | Today's Spot Price & Charts - Market Index
(https://www.marketindex.com.au/iron-ore) Click here for those Iron Ore FAQs that they mention there.
Those prices are in US$/tonne and as previously mentioned, MIN's grades aren't as good as the larger players (BHP, RIO, FMG, Vale) so they receive less per tonne as a result, however the trend is clearly up in the second half and was clearly down in the first.
While MIN (a.k.a. MinRes) get lumped in with lithium plays now, because they have substantial lithium interests, they are currently an iron ore producer and a mining services company. That mining services division is substantial and is mostly involved in drill & blast, loading, crushing and hauling for BHP, RIO and some other smaller iron ore miners; previously also FMG but not any more coz that was one of the very few contracts that MinRes has ever lost, when FMG decided to pay MIN out and do that work themselves a couple of years ago after a fatality at an FMG site where MIN was operating the crushing plant.
They also do work outside of iron ore - their mining services division, CSI (Crushing Services International) recently won a lithium crushing contract as well - see here: https://www.mineralresources.com.au/news-media/csi-mining-services-wins-new-lithium-crushing-contract/
So lithium will be a factor in the future, and it's something to keep in mind for future exposure, however it's still all about iron ore at this point for MinRes. And Iron Ore is going OK. And when they release their full year report in August I think we'll find that MIN is doing OK too.
Best to keep in mind that MinRes own a LOT of transport and logistics assets - both mobile and fixed plant and infrastructure (including trains, trucks and port assets), plus a substantial graveyard of disused and surplus plant and equipment that they can use to quickly assemble crushing plants for new clients as and when needed - or sell off as parts for others in the industry - see here: Aftermarket Crusher Parts Specialists - Mining Wear Parts [Mining Wear Parts is a new division of MinRes]
They have always been an agile company that has been able to take advantage of opportunities as they have identified them, and Chris Ellison always has his fingers in a few different pies, so there's always something cooking in the background that may not have necessarily become material yet, but well might in the future.
Never underestimate the man or his company to find new ways to make money, including in new commodities that they may not previously have been involved in. Or in a revolutionary new iron ore transport system, the BOTS (Bulk Ore Transport System) idea, which has been in development for almost a decade now, and could still happen. Or their Energy division.
So, yeah, I'm back onboard as a MIN shareholder IRL - since March (just not here on SM unfortunately).
11-Jan-2023: Update: The MIN SP has well and truly overtaken my previous $70 price target. I'm now raising it to $95. They'll be over $100 at some point but $100 is one of those big round numbers that might take a few attempts to break through, so $95 for the next year will do.
I've unfortunately sold out of MIN, and in my usual fashion, I managed to do that at a profit but just before the share price surged. This time it surged because of rumours that Chris was contemplating spinning out MIN's lithium assets into a separate company which would result in all MIN shareholders then owning shares in both companies, i.e. Mineral Resources, now the world's largest (or biggest) mining services company and an iron ore producer with a considerable collection of iron ore infrastructure assets (trains, trucks, port assets, etc.) as well as interests in other minerals and in energy (oil and gas, but mostly Perth Basin onshore gas) PLUS the NewLithiumCo. MinRes (MIN) said this back in September: Response-to-media-speculation.PDF
So, nothing to see here. Move on. However the share price was trading at around $60 prior to that announcement, and was trading at around $70/share immediately after it, and is now trading at almost $90/share.
Meanwhile, Chris has had MIN build a 10.10% stake in Global Lithium Resources (GL1), which, incidentally, is a blocking stake, meaning no other company can takeover GL1 now without MIN agreeing to it, because you need 90% or more to move to (apply for) compulsory acquisition of the remainder of the company that you do not already own. Someone else could gain control of GL1, but they could not force MIN to sell their stake as long as they retain that 10.1%. Any less than 10% and a forced sale is a possibility. Chris Ellison is a lot of things, but stupid is not one of them. He's a crafty bugger, and a bloody good manager. Very strategic and very forward thinking.
MIN also made a bid for Norwest Energy (NWE) which is still playing out. The NWE Board has rejected the offer and recommended that their shareholders do nothing (i.e. do not accept the offer), however, once again, Chris has ensured that MIN are in the box seat here as well, as MIN already own just under 20% (19.9%) of NWE so they will have a say in whoever ends up controlling or acquiring the company. Sure, the bid was opportunistic and well timed, as suggested by the NWE Board, and will be a bargain if NWE's Lockyer discovery is as good as they think it might be, but that's what Chris Ellison does. He buys assets cheaply and sells them at the top of the market, or at the very least at a very good premium to what he paid to acquire them. In this case however, I think Chris is damn serious about developing a strong energy (gas) arm within Mineral Resources (MIN) and NWE would fit into that quite nicely. Chris sees a future in which MIN not only provides the gas to run their own mines and processing plants, but sells a good portion to other miners and indeed anyone else who wants to buy it.
As I have said previously, it pays to remember that Chris started out (many, many moons ago) in the energy industry before moving into mining and mining services. So he knows what he's doing, as is usually the case.
Meanwhile, he keeps MIN in the news, or in prospective investors' field of view, with the odd announcement like this one in October - Response-to-media-speculation-October-2022.PDF
That sort of thing keeps fuelling speculation and reminding people of the strong position within the Australian lithium industry that MIN has, however they do not need to build a lithium hydroxide facility at Wodgina. They've built a world-class lithium hydroxide plant at Kemerton (just north of Bunbury, and a couple of hours South of Perth, in WA) and that has been designed and built by global battery metals player Albemarle, who are MIN's Lithium partners, and Albermarle and MIN jointly own both the Kemerton Lithium Hydroxide Plant AND the Wodgina Lithium mine.
I am not as bullish on Lithium as many here on SM, but if I was, I would play lithium via MIN and IGO, because of their respective positions within the industry now, with upstream processing already in place in both cases, and both aligned with global experts in the field who own multiple lithium processing facilities across the globe.
But MIN is SO much more than just Lithium. I'll be back in (like Flynn) if their SP has a decent pullback, but in the meantime, a further rise to around $95/share wouldn't surprise me at all.
Image Source: Thursday 17th November: The West Australian Newspaper: https://thewest.com.au/business/lithium/mineral-resources-chief-chris-ellison-tempers-lithium-spin-off-speculation-c-8885861
19-July-2023: Update: MinRes hit my $95 price target two weeks after I raised it back in early January this year, but has fallen back down to just over $70 since then. I held MIN as a low-maintenance (almost set and forget, but not quite) position in my SMSF, and two days ago (on Monday 17th July 2023) I added MIN back into my main RL portfolio (the largest one). Chris Ellison is still doing deals and buying shares in other listed companies through MinRes, and MIN now owns 13.9% of Develop Global (DVP), making them the second largest substantial holder of DVP shares behind Bill Beament himself (who I believe now holds around 18.74%, down slightly from the 19.62% of DVP he held in May, because of extra shares that have been issued since; Bill owns 36,325,776 shares of the 193,806,896 DVP shares on issue according to the ASX).
DVP don't mind taking stakes in other companies either - they own 19.55% of Essential Metals (ESS) who own the Pioneer Dome Lithium Project in WA as well as a number of gold and nickel projects.
MinRes has also now acquired Norwest Energy.
There's always something happening with MIN. I only just realised a couple of hours ago that Justin Langer has joined their Board (in December), something I missed. I just posted a straw on that.
Anyway, that $95 price target is still good. They tagged it in January, and they'll be back up there again soon enough, and they'll be above $100/share in time. Good company to hold this one. I've just got to stop selling out all the time because I think I can buy back in cheaper later. That often works, but so does "buy and hold" with these guys. And Buy-and-Hold is a lot less work, and stress.
I have to remember that some of my best profits have been made when I've been on holidays and have NOT been following the market. I've got to stop trimming my winners so much and also selling out with a view to getting back in at lower levels. Too much trading. Not enough of doing nothing.
18-January-2024: Update: This one was marked as stale, so I've reviewed it. All good. Happy to maintain a $95/share PT (price target) at this point.
MinRes is the largest Mining Services company to the iron ore sector (crushing, screening and loading of iron ore, plus transport to port as well if required) in the world, with billions worth of ships, trains, trucks, earthmoving equipment, crushing and screening plants, etc, and they're also one of the largest Mining Services companies in the world - across all sectors.
They are also a significant Iron Ore miner themselves - from their own mines, and they're currently building out a significant Lithium business.
Their 50%-owned Wodgina hard-rock lithium mine contains one of the largest lithium deposits globally, and they also own 50% of Mt Marion, and have recently also acquired 100% of Bald Hill.
Those projects are favourably positioned on the cost curve, although only Wodgina would be profitable on an All-In-Cost basis at the current low spod price (below US$1,000/tonne). Even the low cost Greenbushes lithium mine owned by Albemarle, IGO and Tianqi have announced late last year that they are intending to stockpile a fair bit of their lithium ore until prices rise significantly.
Wodgina was put into care and maintenance a couple of years ago due to lower lithium prices, and was brought back into production late last year.
Mt Marion and Bald Hill are not currently in production.
Chris Ellison, the founder of MinRes (MIN), has been buying into other lithium companies using his own money (through private investment companies) as well as using MinRes to take significant stakes in a range of other ASX-listed lithium companies.
One example of that was the recent IPO of the ASX's newest lithium company, Kali Metals (KM1), in early January (a couple of weeks ago) where they had prevented large corporate bodies (companies) such as MinRes from participation in the IPO, so Chris Ellison participated in it personally through his company Wabelo, which emerged with 4.86% of KM1. Chris, along with friends and acquaintances, had piled into KM1 back in November, when the extraordinary IPO opened and closed in less than 20 minutes. When it hit the ASX boards on Monday 8th January, it shot up from the 25 cps IPO price to as high as 47.5 cps as MinRes snapped up a heap of shares on-market. By Wednesday (10th Jan), after KM1 had released some positive rock chip assay results (Spodumene-identified-at-Higginsville-Lithium-District.PDF), KM1 had hit 89 cps, and ended up with a "Please Explain" (or "speeding ticket") from the ASX. 89c was 256% above that 25c IPO price. In two days!
KM1 provided their response to that "Please Explain" on Monday of this week (15th Jan): Response-to-ASX-Aware-Query (KM1).PDF
Long story short, MinRes (MIN) now hold 9.97% of KM1 (14,366,786 KM1 shares) all bought after the IPO either on-market or through cross-trades done by Bell Potter (7.5m of those 14.37m shares were bought through two Bell Potter cross-trades - meaning where the broker is both the buyer and the seller on behalf of two different clients, and one if not both of those sellers are likely/probably associated with Chris Ellison). Chris Ellison and MinRes usually use Bell Potter for most of their trading.
See here: KM1 ASX: MinRes grabs big stake in lithium play Kali Metals just days after IPO (afr.com)
And here: https://www.youtube.com/watch?v=xhlHaBF9NhA&t=300s [Money of Mine Podcast on Jan 16th discussing those KM1 cross trades]
MinRes told the AFR: “The MinRes investment in Kali Metals, which has assets in proximity to our Mt Marion and Bald Hill operations, is consistent with previous strategic acquisitions in numerous junior lithium companies with assets in the Goldfields and Pilbara regions. MinRes is confident these investments will deliver shareholder value over time.”
Apart from their 9.97% stake in Kali Metals (KM1), MinRes are also substantial shareholders of the following companies: They own...
- 23.1% of Delta Lithium (DL1) - held by MinRes subsidiary Lithium Resources Operations Pty Ltd;
- 19.9% of Wildcat Resources (WC8);
- 10.1% of Global Lithium Resources (GL1);
- 13.6% of Azure Minerals (AZS); and
- 14% of Bill Beament's Develop Global (DVP) who are a mini-me (much smaller) version of MinRes, meaning a mining services company that also owns mines and has stakes in other companies.
DVP acquired Essential Metals last year whose flagship project is their 100%-owned Pioneer Dome Lithium project covering 450 square kilometers in Western Australia, where most of this lithium is. DVP also have the A$46 million underground development contract to establish and develop an exploration decline at the Mt Marion lithium mine that is operated by and 50%-owned by MinRes. DVP also have a number of JVs including one with Anax Metals Limited (ASX: ANX) who are developing the Whim Creek Copper-Zinc Project, located 115 km south west of Port Hedland (WA), where they are also finding Lithium and Gold - see here: ANX-Whim-Creek-Lithium-and-Gold.PDF. DVP's main interests appear to be battery metals and precious metals, so lithium, base metals (copper, nickel, zinc, lead, etc) and gold. Their mining services expertise lies in underground mining, whereas MinRes are surface miners that specialise in iron ore, so there are synergies between the two companies - they don't compete with each other for work.
Another mining services company that MinRes owns a good chunk of is Resource Development Group (RDG) where Chris' brother Andrew Ellison is the MD and executive Chairman. MinRes own 64.3% of RDG and have given them some work, all arms-length transactions of course...
See here: Chris Ellison’s Mineral Resources awards $140 million to Andrew Ellison’s Resource Development Group | The West Australian [12-Oct-2023]
And here: Rich lister's company in manganese deal with his brother (afr.com) [19-Mar-2020]
I have posted here about that connection (between MIN & RDG) a few months ago.
MinRes have also partnered with Lithium Australia (LIT) including loaning them up to A$4.5m via a convertible note - see here: Second-drawdown-from-MinRes-and-appointment-of-lead-engineer.PDF [15-Jan-2024] and here: MinRes invests in game-changing lithium extraction technology - Mineral Resources [07-Aug-2023]
LIT is a tiny company, at their current 2.9 cps SP, their entire market cap is only around $35 million.
Andrew Ellison's RDG (mentioned above) is another small one, currently trading at around 4.1 cps, so m/cap of around $121 million, and MinRes own around $77 million of that (64.3%).
MinRes has a market cap of around $11.6 Billion. Usually higher, but their share price has come down recently.
MinRes also have other interests - either through JVs or direct investments - in other companies, but those ones listed above are most of their main interests in other companies.
MinRes also previously held shares in another one of Australia's largest lithium producers, Pilbara Minerals (PLS), but MinRes sold out of PLS in 2021; that was a $50m investment that netted around $330m in profit (see here).
That's what I mean about Chris Ellison creating value for MinRes shareholders.
There has been a LOT of activity in WA lithium in the past year, and if the Kali Metals IPO earlier this month is anything to go by, it's not over yet.
Not everybody is bullish, but there are enough billionaires like Gina Rinehart and Chris Ellison to keep the M&A ticking along.
Further Reading: Arcadium Lithium willing to wait on WA assets - Australian Mining
Australia is a big player in lithium mining - currently the largest - and likely to remain the largest supplier of lithium for the foreseeable future:
Source: The Top Lithium Producing Countries | BatteryJuniors.com
China processes more lithium than Australia, but most spodumene is mined here in Australia, and the vast majority of that in WA. In Chinese lithium refineries, the spodumene ore undergoes intensive processing to produce lithium sulfate, which must then be further refined into battery-grade lithium carbonate (Li2CO3) or lithium hydroxide (LiOH). There are lithium hydroxide refineries being built or expanded here in Australia (including one at Kemerton and one at Kwinana, both south of Perth in WA), but there have been some issues reported with the ramp-up of those - up to full capacity.
At this point Chris Ellison appears to be focused more on spodumene ore production from his various hard-rock lithium deposits (Wodgina, Mt Marion, Bald Hill, etc) and locking in future supply via M&A and strategic stakes in other lithium companies that own other lithium deposits in WA. And that strategy will play out over the next few years.
At this point, the income that MinRes generates is from iron ore and mining services. Lithium is a future revenue stream that they will have, so I personally don't mind lithium prices being down this low at this point in time, as it assists Chris with his M&A (land grab).
Chris thinks and acts like a company owner, rather than just a company manager, and he owns 11.5% of MinRes himself (22,471,416, or 22.47 million MIN shares) worth over $1.3 billion at today's closing share price of $58.50/share.
He can be quite prickly and he is usually quite impatient, but he is a very astute businessman and he knows how to make money.
Further Reading: https://www.mineralresources.com.au/about-us/our-board/chris-ellison/
So, in summary, I'm still happy with $95/share as a PT but I won't give a strict timeframe this time. That said, I'd be surprised if they were trading below $95/share this time in 2027 (in three years' time).
I hold Mineral Resources (MIN) in my two largest real money portfolios (including my SMSF) as well as here in my Strawman.com virtual portfolio.
28-Aug-2024: Update: Not currently in this one.
I'm avoiding iron ore and lithium exposure at this point - uncertain outlook near-term for both metals. Still a fan of what Chris Ellison has achieved at MinRes and what Twiggy Forrest has achieved at FMG - both building those companies up from nothing to be the large multi-billion-dollar companies that they are today, however also happy to stand on the sidelines with both MIN and FMG at this point.
I sold out of the last of my FMG in June and the last of my MIN in July 2024. I'll update this if I buy back in. I've made money on both companies in prior years, in fact plenty of money on both, but they're not among my very best ideas right now.
I think they go lower from here - perhaps to $40/$41, or even lower, but they'll be back up at some point. I don't know when. It could take some time if iron ore prices go lower and lithium prices stay low.
13-Nov-2024: Update: MinRes now on my "Avoid list"
As I have mentioned elsewhere, MinRes is now on my "Avoid" list because of (a) Chris Ellison's pattern of poor behaviour in relation to using MinRes funds and people for his own personal use, as well as a series of previously undisclosed related-party dealings in which he and/or his family members and friends benefitted at the expense of MinRes shareholders, and (b) the MinRes Board's failure to provide adequate Governance (the "G" of ESG) with respect to their founder and MD and his pattern of poor behaviour despite more than one official complaint being made about it, with at least one of those complaints being made to the Board over two years ago. Apparently they've been investigating that for two years.
The only reason why the MinRes Board are acting now is because of a series of AFR articles that have sparked "Please Explain" letters from the ASX and an ASIC investigation into Chris Ellison's tax avoidance scheme that also resulted in MinRes claiming excess depreciation expenses on overpriced plant and equipment bought from a company that Chris Ellison was the controlling shareholder of.
And when I say the MinRes Board are "acting" now, they are taking some action, but most people who aren't invested in the company believe that it's far too little and a lot too late.
I'm raising my price target / valuation back up to $58 because I think that they'll pull through their "highly leveraged" period, including the capex they've got to spend this financial year to continue to ramp up Phase 1 of Onslow Iron to capacity, and they'll do it despite lower iron ore and lithium prices for longer than they had expected, but they'll pull through because they've structured their repayments in such a way that they don't have any repayments due for a couple of years, which has been explained well here by a few different people.
So I don't think their debt will kill them, or cause them to sell assets that they really don't want to sell, or that shareholders care most about anyway, such as their mining services business, however there's a bit going on:
Fitch (Fitch Ratings) revised their Outlook on MinRes Issuer Default Rating (IDR) to Negative, from Stable, back in September.
Last week, Australian superannuation fund HESTA said it has placed MinRes on its watchlist, citing disappointment with the company's inadequate response to governance issues involving its billionaire founder.
Also last week, the deputy chair of Australia's Securities and Investment Commission (ASIC), Sarah Court, told pollies in Canberra that ASIC and the ATO had begun an investigation into Min Res' affairs, but that it was too early to talk about consequences, if any.
At the same time, Moody's Ratings followed Fitch's lead and revised MinRes' outlook to "negative" from "stable" to reflect the potential implications of the company's corporate governance issues. The global ratings agency affirmed the "Ba3" corporate and senior unsecured bond ratings for MinRes.
So there are headwinds, but assuming that MinRes have already lined up all the debt they're going to need to get them through the next couple of years, and that they do get through, they're worth at least $58/share, even with the headwinds of lower iron ore and lithium prices.
It's a positive that they're offloading their Energy division to Gina, and that they've completed the haul road to Onslow now, and they still have a thriving mining services (crushing, loading & hauling) business.
But I won't be buying back in, even if Chris Ellison leaves. They're rotten with him there, and they're arguably worth less with him gone, even more so if there's a clean sweep of the Board and anybody else who has been in a position of influence during the entire period that MinRes has been ASX-listed - because the tax rorts and other related-party stuff has been going on since before they IPO'd.
So, yeah... Nah, not for me any more.
Nice rebound - still iron ore and lithium in for tough few years from the latest resources quarterly - resource_and_energy_quarterly_september_2024.pdf (industry.gov.au)
- Release Date: 10/09/24 18:19
FIRB approval received for $1.3 billion minority stake sale in Onslow Iron haul road Mineral Resources Limited (ASX: MIN) (MinRes or Company) is pleased to announce that the Foreign Investment Review Board has provided unconditional approval for the sale of a 49% interest in the Onslow Iron haul road (Haul Road) to investment funds managed by Morgan Stanley Infrastructure Partners (MSIP) for total expected proceeds of $1,300 million.
At 28th Aug: FY24 net debt of ~$4b)
Kudos to BHP kept away from the lithium theme Read below:
Buying BHP shares? Here's why the ASX 200 miner won't be digging up lithium (fool.com.au)
Published July 28, 2023 12:11 pm AEST
But Slattery said BHP shares won't be getting an exposure to lithium. As The Australian Financial Review reports, that's because the big miner doesn't believe it can construct lithium mines at the same large scale and accompanying low costs that have made its iron ore and coal segments so profitable.
BSc, Physics
MSc, International Management
Experience:
Geraldine Slattery, President Australia, leads BHP’s Australia business comprising Iron Ore, Copper, Nickel, Metallurgical and Energy Coal operations in Western Australia, South Australia, Queensland and New South Wales.
Prior to her current role, Geraldine was President of the BHP Petroleum business headquartered in the US with Assets across the Americas, Caribbean, Australia and North Africa.
In her 30 years with BHP, Geraldine has progressively taken on more complex technical, commercial and business leadership roles in Australia, the UK and the Americas, establishing a reputation for creating value through empowered, safety, performance and growth-oriented teams. She also has extensive experience of working with partners, communities and governments in diverse jurisdictions.
Geraldine began her career in project engineering roles in Europe and Australia, within the refining and pharmaceutical sectors.
MIN handed in thier 'report Card' in Release Date: 28/08/24 19:22
Its a B - minus - the markets have played havoc here:
- Revenue of $5,278M, up 10% (FY23: $4,779M). -
- Underlying EBITDA of $1,057M, down 40% (FY23: $1,754M).
- - Underlying Net Profit After Tax (NPAT) of $158M, down 79% (FY23: $769M).
- Statutory NPAT of $114M, down 53% (FY23: $244M).
- - Operating cash flow before financing and tax of $1,909M, up 9% (FY23: $1,750M), including iron ore customer prepayments of $600M. Excluding the iron ore prepayments, cash conversion was 124%
- Strong liquidity position maintained during peak investment for Onslow Iron
- - Completed US$1,100M Senior Unsecured Notes Offering in October 2023.
- - Executed an iron ore customer prepayment of US$400M ($600M).
- - Available liquidity of $2,833M (FY23: $1,791M), including cash of $908M (FY23: $1,379M). -
- Net debt of $4,428M (FY23: $1,896M).
Presentation
Performance:
Return (inc div) 1yr: -30.44% 3yr: -4.00% pa 5yr: 31.93% pa
26-Aug-2024: MinRes' corporate governance has always been a little questionable, as it often is when it's one guy runnning the company as he sees fit - similar to Andrew ("Twiggy") Forrest at FMG, which is why the senior management at Fortescue don't seem to last long. Chis Ellison's MinRes (MIN) does not have those same issues with heaps of senior turnover, but this AFR article this morning is worth noting:
Chris Ellison’s daughter earns millions for MinRes shipping work
by Neil Chenoweth, Senior writer (AFR), Aug 26, 2024 – 5.00am
The daughter of Mineral Resources chief executive Chris Ellison has earned millions of dollars in undisclosed fees after her company was given preferential treatment to help ship the group’s iron ore exports, according to governance advisory group Ownership Matters.
An analysis of port records shows that Ship Agency Services, founded by Kristy-Lee Craker in 2011, has made as much as $10 million through hundreds of ships that have loaded Mineral Resources iron ore since SAS was set up in 2011.
Ship owners have been required since at least 2016 to use Ms Craker’s company when carrying the group’s iron ore exports.
Kristy-Lee Craker, managing director at Ship Agency Services.
Ownership Matters said port records showed that Ship Agency Services “is listed as shipping agent for hundreds of ships loaded with MinRes product that have sailed from the ports of Esperance, Dampier and Port Hedland over multiple financial years as far back as 2016”.
A review of hundreds of cargoes showed that all but a dozen shipments or fewer were handled by Ms Craker’s company.
Shipping agents provide myriad services, from organising documentation to port authorities and shippers to monitoring vessel operations, transport and crew arrangements.
The Ownership Matters report says her firm has chartered more than 1000 ships since it was set up. Industry standard rates for bulk carriers in Australian ports range between $5500 and $10,000 per engagement. Estimates of the fees paid to Ship Agency Services run as high as $10 million.
MinRes confirmed to Ownership Matters that Ship Agency Services was the group’s preferred shipping agent. However, it said payments to the firm did not have to be disclosed as related party transactions, because Ship Agency Services is engaged under contract with, and is paid by, the ship owner.
Mineral Resources said it was common within the industry to nominate a shipping agent. Ownership Matters is not suggesting the arrangements are improper.
Mineral Resources CEO Chris Ellison.
MinRes also uses a marine surveyor company, Propel Marine, set up by Ms Craker in 2018, to perform vessel draft surveys, inspections and marine warranty surveys on ships carrying the group’s iron ore. This leads to the unusual position where safety checks on MinRes ships are the responsibility of the daughter of the CEO.
“These services were performed at arm’s length rates,” a spokesman told Ownership Matters.
“It is common in the commodity industry for industry participants to recommend the use of a preferred ship agency. This enhances efficiency, safety and productivity in the loading or cargoes.
“MinRes has a process in place to ensure its shipping arrangements are in line with the market, and at commercial rates.”
Ownership Matters noted that “unlike BHP, Rio and Fortescue, ship agency at MIN has never been subject to a competitive open tender process.”
SAS also acts as shipping agent for ships owned and operated by Mineral Resources. These direct payments to SAS from MinRes as the shipowner are caught by the related party rules and should be disclosed. A Mineral Resources spokesman said that “direct transactions” between MinRes and SAS over almost 10 years were only “approximately $0.5 million in aggregate”.
In 2023, MinRes reported $428,000 in related party transactions involving SAS for “import/export services”, following $247,000 paid in 2022, but said the figures would be higher in 2024.
“This is due to the critical role played by SAS in facilitating the importation of key items for the Onslow Iron Project,” a spokesman said, an apparent reference to the acquisition of trans-shippers.
Until last year both Propel Marine and Ship Agency Services operated out of offices leased by Mineral Resources from a trust in which Mr Ellison has a 51 per cent interest. A MinRes spokesman told Ownership Matters that SAS paid rent for the offices.
An earlier Ownership Matters report in June raised questions over related party issues when MinRes invested in Wildcat Resources and Kali Metals.
--- ends ---
Source: https://www.afr.com/companies/mining/chris-ellison-s-daughter-earns-millions-for-minres-shipping-work-20240824-p5k51h [Today, 26-Aug-2024]
Disclosure: I am not directly exposed to MIN, FMG, BHP, RIO or any other iron ore companies at this point. I have also stepped aside from direct investing in any lithium companies for the time being. I admire and appreciate what Chris has achieved with MinRes and what Twiggy has achieved with FMG, and I have certainly made money from both companies, however I don't want exposure to either of them at this point in time for a variety of reasons, but underlying commodity exposure is the main one.
Massive pullback of the share price this week from the unfortunate news of the Yilgarn Hub closure
I know a month ago I mentioned about hoping for a pullback, but not in this sort of situation. Hopefully those workers get redeployed on other work.
Tempted to dip my toe in here but instead I will do some research...
In the last JPM report (June 24), I found a few extracts about Yilgarn that looked interesting
Yilgarn last quarter produced 2.1mt.
I guess Onslow will produce 10mt in next quarter so that makes up for the shortfall.
And below is the JPM valuation of Yilgarn which is only a few cents compared to Onslow.
So the share price fall of (7%) appears to be a big overreaction. However the market is probably factoring in all the costs associated with site decommissioning and rehab at Yilgarn.
Of course former dog and possibly the Neuren equivalent of Iron Ore RHI has hardly reacted with the 200m milestone payment now a certainty
[holding RHI, thinking about MIN]
05-June-2024: 7:22pm: MinRes-sells-minority-stake-in-Onslow-Iron-Haul-Road.PDF
0:00:00 Introduction
0:01:36 MINs bring the cash
0:04:51 The Onslow iron ore hopefuls
0:17:48 What's going on in uranium
0:31:59 Sheffield start stumbling
0:39:39 Novelis ditch IPO plans
0:44:04 Leaky deals on the ASX
Disclosure: I hold MinRes (MIN) shares.
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.
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.
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.
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.
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..
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.
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.
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 19th, 2019, like this:
“One of the most unknown, underappreciated, Australian innovation and commercial success stories, that since IPO in 2006 has achieved (and get ready to wipe your eyes in disbelief…);
- EPS growth of 15%
- Total shareholder return including dividends of 20x (26% per annum)
- Return on funds employed (pre-tax) averaging approx. 30%
- EBITDA to cash flow conversion of approx. 100%
Currently, this business has:
- A bulletproof balance sheet with $200m+ of net cash
- Inside ownership of over 15%
DO YOU WANT MORE?
What if we said it has the potential for EBITDA to grow over 20% p.a over the next 5 years
STILL WANT MORE?
And the kicker…. This business is trading on FY20 PE (ex-cash) of 7x!!!”
On that day (19-Nov-19) MIN was trading at $14.67. They were $14.65 the day before and got down to $13.92 two days later. They are now over $65/share.
TDM finish their Nov 19 piece with this:
“And so, why such a mismatch between the market’s view and how we (and other long-term shareholders like Emma @ Airlie) view the business? Rather than thinking (and valuing) MRL like you would a typical mining services business, with earnings heavily dependent on the mining cycle, why would you not start to think of it like a Macquarie Group – yes there are market-facing businesses whose earnings will rise and fall with commodity prices, but underpinning this, after 13 years of track record, are very strong annuity earnings streams. To back this up, in the last 5 years, MRL have retained 96% of all of its mining services contracts (and the other 4% is accounted for through a mine closure that had run its expected life span), and 76% of these contracts are for longer than 5 years (and a third is longer than 10 years!). Just to spell this out more clearly – MRL’s mining infrastructure earnings (crushing/processing/contract mining/accommodation) are high-quality annuity-style earnings with a high return on funds employed and the commodities (market facing) business can then be viewed as cream on the cake. Tasty cream. Very tasty cream.
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.
