Mineral Resources short sellers hit as shares soar on lithium sale to Korea’s Posco

The Chris Ellison-backed Mineral Resources will continue with further asset sale plans after Korean steel giant Posco offered it a much needed $1.2bn cash injection by agreeing to buy 30 per cent of its lithium business.

The deal was good news for investors, surprising on the upside with a price that valued its assets at much more than analysts had expected.

But some of those less enthused by the transaction were the short sellers that had piled onto the Mineral Resources register in the anticipation that the stock would fall because of an equity raising.

Shares were up over 9 per cent on the news, leaving short sellers that held about 18 million MinRes shares or about 9 per cent of the stock, in a position where they needed to cover their positions.

Some question whether the high price on the sale was supported by a favourable offtake agreement with Posco.

Announced Wednesday, it values MinRes’ existing 50 per cent interest in Wodgina and Mt Marion at about $3.9bn.

The Korean powerhouse will own a 15 per cent of the Wodgina and Mt Marian lithium mines that are currently 50 per cent owned by MinRes through a joint venture structure owned by the pair.

MinRes will receive $US765m (about $1.2bn) in payment.

The Morgan Stanley-advised Posco will receive spodumene concentrate in proportion to its 30 per cent interest, underpinning its future investment in new downstream processing facilities.

The terms of the offtake agreement with Posco were not disclosed.

RBC analysts said in a research note that analyst consensus was $2.7bn, $2.1bn of which is ascribed to the 50 per cent stake in Wodgina.

They estimate that the after tax consideration would be about $1bn.

MinRes will retain a 70 per cent interest in the new joint venture and 35 per cent in the assets at an underlying level once the agreement is finalised.

The $8.8bn Australian listed company will continue as operator of both the mines under existing agreements with joint venture partners Albemarle Corporation at Wodgina and Jiangxi Gangfeng Lithium at Mt Marion.

Working on the sale for MinRes is investment bank JPMorgan.

It comes as a sale process remains on foot for its Bald Hill lithium mine where advisers Standard Chartered and Argonaut Securities takes bids for part or all of the asset.

The investment banks have started reaching out to buyers.

The Bald Hill mine was placed into care and maintenance late last year after a strategic review which followed a prolonged period of low lithium prices.

MinRes had been under pressure after posting a $904m annual loss with $5.4bn of net debt.

Prices for lithium have fallen by as much as 90 per cent since notching a record high in 2022 in a rally which sparked a wave of new lithium investments and led to the current oversupply.

Spodumene prices have increased by about 70 per cent to around $US1000 a tonne in September from $US600 in June, while lithium hydroxide prices are up about 20 per cent over the same period to about $US9000 a tonne in late August.

In November, Gina Rinehart bought the Mineral Resources’ energy business for $1.1bn and 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.