Mineral Resources could be forced to raise up to $2bn of equity should its share price continue to fall and banks retreat from the miner following revelations about its billionaire founder and managing director Chris Ellison, say market experts.
Shares in the $9bn company on Monday fell 11 per cent to just over $40 after The Australian reported that Mr Ellison has admitted he was a tax cheat who failed to make proper disclosures around a series of companies registered in the British Virgin Islands, and has apologised for what he calls “a serious lapse in judgment”.
While the Mineral Resources board, led by James McClements, was investigating the matter through a law firm and that Mr Ellison regretted his “errors of judgement”, further scrutiny will likely be applied to the company’s management in future, including any conflicts of interest surrounding contracts.
He previously attracted the attention of governance advisory group Ownership Matters over related party business dealings and investment in two lithium exploration companies.
This involved work offered to Ship Agency Services, which was founded by Kristy-Lee Craker, Mr Ellison’s daughter, shipping Mineral Resources’ commodities.
Sources say that much of whether MinRes needs to pull the trigger on a raise will come down to the legal agreements with its bank loans.
When the stock was at $30, it was suggested that the group was under growing pressure for a placement, and should it fall to those levels, a raise of $1.5bn to $2bn could be on the cards, is the view of some.
At June, its net debt was $4.4bn.
If the iron ore price falls at the time global banks step back from providing funds while they carry out due diligence, then and liquidity could get tight.
Mineral Resources has been looking at ways to strengthen its balance sheet to fund projects including its Onslow iron ore project and is weighing a sale of Perth Basin assets, which sources say may reap $500m to $700m for the group.
Gina Rinehart’s company Hancock or Beach Energy with Mitsui are considered the most likely buyers.
Mrs Rinehart has made no secret of her interest in consolidating the Perth Basin, while Beach may acquire the assets with its Japanese partner if it is short of gas.
An outsider is Strike Energy, which saw its share price soar as much as 7 per cent in Monday trade on news of a strong well result in the Erregulla Basin.
MinRes said it would assess joint-venture partnerships as well as full or partial-sale options.
The company generates much of its income from its three iron ore hubs – Onslow Iron in the west Pilbara, Utah Point in Port Hedland and Yilgarn in Esperance.
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