Monsters of Rock: MinRes has paid $840m for lithium in just five months. Is it a display of tactical genius?

Pic: Andrew Rich/E+ via Getty Images



  • Jarden analyst Ben Lyons says MinRes has spent an estimates $840 million in just five months hoovering up stakes in lithium projects
  • The strategy could put short term stress on the balance sheet, but could also become the turning point in Chris Ellison’s bid to turn MinRes into a major global mining player
  • Champion Iron price target lifted 14.8%: Jarden


Mineral Resources (ASX:MIN) has been extraordinarily active in the corporate scene in boss Chris Ellison’s bid to ‘control the rock’.

Now Jarden’s Ben Lyons has tallied up the cost of that splurge, putting an $840 million bill on MinRes’ five month shopping spree, which included $500m alone on minority interests in Azure Minerals (ASX:AZS), Wildcat Resources (ASX:WC8) and Delta Lithium (ASX:DLI).

It’s also re-upped its stake in Bill Beament’s Develop (ASX:DVP) — today revealed as the winner of a $46m contract to develop an underground exploration decline at MinRes’ 50% owned Mt Marion mine near Kalgoorlie — and spent $76m picking up tenements near Mt Marion and the lithium rights at the Norseman gold mine.

Lyons said a reported $260 million spend on the Bald Hill lithium mine, which could add $140-150 million in EBITDA over the next couple years, came at a valuation of $425m on Jarden’s numbers, suggesting Ellison and Co. got a pretty good deal.

That added 85c to Jarden’s valuation of MinRes, but lower lithium prices have seen the investment bank drop its valuation on the stock from $50.30 to $48.30, well below its current trading price of $60.42.

Jarden’s balance sheet concerns have led it to be 20%, 7% and 13% below consensus on MinRes EBITDA in FY24, 25 and 26, with Lyons forecasting net debt of $4.6b at the end of FY24.

But he said the purchases were on strategy, and could be long-term winners in the fullness of time.

“Despite the frantic pace of MIN corporate activity, we view the acquisitions as largely on strategy,” Lyons said.

“Despite our increased concerns over the mounting short-term balance sheet pressure, if we cast our minds forward ~10 years, it is conceivable that MIN will control an equity interest in five or six large lithium operations in a Tier-1 jurisdiction – a position unlikely to be rivalled by any global player.

“We may well look back on this period as a pivotal point in the growth of MIN to be a global mining player.

“However, MIN are playing in a highly competitive space, particularly with Hancock Prospecting Pty Ltd, with some increasingly complicated share registers to resolve to determine eventual control (AZS, DLI).”

Jarden predicts SC6 spodumene prices will hit a floor at US$1200/t in the March quarter, reducing its full year price forecast by 19% to US$1863/t.

It’s reduced the EBITDA forecast for MinRes for FY24 9% to $1.22b, but lifted FY25 and FY26 earnings 9% and 17% respectively to $1.88b and $2.23b.


Champion Iron in the good books

At the same time Jarden’s Jon Bishop has lifted its target price on Champion Iron (ASX:CIA), ramping up its 12 month TP 14.8% to $8.54 despite boasting a 62% Fe long term price of US$75/dmt.

Jarden sees prices falling from US$112/dmt in FY24 to US$83/dmt by FY26.

But Champion’s high grade product from its Bloom Lake mine in Canada, where it is in the process of increasing capacity from a previous 7.5Mtpa to 15Mtpa, garners a premium over that.

And Bishop says it will be able to fund a 7Mtpa direct reduction pellet feed project — costing around C$470m to develop — with operating free cash flow.

He thinks the company could conceivably ramp up to over 18Mtpa with debottlenecking, but thinks an additional expansion by developing the untouched Kami deposit would cost over US$1 billion.

“All mining companies face operational risks and labour and inflationary issues persist,” Bishop said.

“However, Phase II is complete and CIA managed COVID and natural disaster headwinds admirably and should benefit from a “cut ‘n’ paste” approach to further expansion, shoring up our base case.

“Commodity prices are a key risk ahead of FID and execution of key growth and value enhancement projects in the form of the DRPF project, possibly Kami expansion and pelletisation.”

The materials sector closed the day down 0.08%, with battery metals stocks beaten up and gold miners halting their strong run this week as gold prices stagnated around US$2045/oz.

Coal stocks Whitehaven and Yancoal ran higher with energy up 0.12% on a so-so day for the local market.


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Categories: Mining


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