Mineral Resources considered raising, Wodgina sale, say sources

Mineral Resources managing director Chris Ellison.

The Chris Ellison-run Mineral Resources is back in the spotlight over suggestions in the market that it has quietly launched a sale process for its Wodgina lithium operation and has tested the market for an equity raising.

It comes as the bonds for MinRes have started trading at a discount of about 10c to 15c in the dollar in the past week, although volatile market conditions have weakened bond prices generally as investors search for liquidity.

Still, it shines the spotlight back on Mineral Resources’ balance sheet.

As of December it had $5bn of net debt, but equally concerning to analysts is the prospect of a liquidity squeeze, with $2.5bn of current assets versus $2.1bn of current liabilities.

DataRoom reported in October that MinRes was on watch for a potential equity raising, and this column has learned that there was moves afoot by the company to raise funds about two weeks ago.

The talk is that those plans were paused, but MinRes said in a statement last week that a raise has not been under consideration and says it has “no plans” to sell its interest in Wodgina.

Mineral Resources was quietly testing the market for buyers of its Wodgina asset late last year when Mr Ellison admitted he was a tax cheat, and the board and ASIC launched an investigation into his dealings, sending its share price lower, say sources.

However, the understanding is that offers came in below the valuation of broker consensus estimates for the 50 per cent interest, which is currently $2.2bn.

Among the suitors of a 50 per cent stake in the Wodgina operation in Western Australia’s Pilbara region, were understood to be Japanese trading houses and car manufacturers.

Much of the MinRes debt is bonds, and sources believe that a raise of about $3bn would be necessary to improve the balance sheet if asset sales do not occur.

However, a raising is now harder as shares on Wednesday closed down 12 per cent to $14.40 ($3.2bn market value) compared with $71 a year ago.

Exchange traded funds have placed the company on a watch list, meaning they would not participate for environmental, social and governance (ESG) reasons.

Also, investors would want to ensure the private road for the MinRes Onslow iron ore project in Western Australia does not need more capital spending in the next six to 12 months and there are no more risks of a shut down.

In November, Gina Rinehart bought the Mineral Resources energy business from who she said was her “friend” Chris Ellison for $1.1bn.

MinRes had earlier sold the other half of its Onslow iron ore haul road (49 per cent) to Morgan Stanley Infrastructure Partners for $1.3bn last year.

Peabody Energy

Peabody Energy has confirmed what many in the market had been hearing, that the group is trying to extract itself from the $5.8bn Anglo American Queensland coal mine purchase in November.

DataRoom first reported last month that the deal was under a cloud on the back of the collapse in the coal price and on Monday reported that the US-based miner could use the second fire at the Queensland Moranbah North coal mine it purchased as an excuse to dump the deal, based on a “material adverse change” clause.

The official statement out from Peabody is that it is “reviewing its options” relating to the acquisition.