Pressure builds on Mineral Resources breakup, eyes on Wesfarmers

Wesfarmers chief executive Rob Scott.

As the fallout surrounding billionaire Chris Ellison plays out over his dealings at the helm of Mineral Resources, there’s increasing chatter of a company breakup.

Could one of Perth’s oldest and most influential companies, Wesfarmers, be part of the solution?

While a buyout by Wesfarmers of Perth-based Mineral Resources is being called a long shot at best, what’s not out of the realms of possibility is that it picks off some of its best assets when the miner’s balance sheet – as well as its reputation – remains under substantial pressure.

The New Zealand-born Mr Ellison built Mineral Resources into a multibillion-dollar empire and has fierce backing from his top shareholders, including L1 Capital that increased its holding this week.

He is understood to have ferociously resisted an equity raising, which would dilute his 11.5 per cent position and his power and influence in the $7.3bn business up unto this point.

That is, if he doesn’t tip in more funds should $1.5bn to $2bn be sought.

His dilemma is if he refrains and the company finds itself in a position where a raise is inevitable – perhaps with a falling iron ore price or less support from lenders – a severely discounted deal at a lower share price would create a strong investor backlash.

Net debt is $4.4bn as it ramps up its Onslow iron ore project in the Western Australia Pilbara region.

But Mr Ellison is considered a survivor.

Despite talk of his departure being inevitable following allegations over his conduct surrounding his business dealings, many believe he will being doing his best to tough it out, as members of the James McClements-led board will be under pressure to resign as questions continue over how long it knew about Mr Ellison’s tax dealings before disclosing to shareholders.

Selling assets swiftly could avert an equity raising.

DataRoom revealed JPMorgan is already working on a sale of its energy business, which could yield between $200m to $500m in proceeds.

Mitsui with Beach Energy’s offer was believed to be too conditional, while Gina Rinehart’s Hancock Energy has been in talks but sources believe it is unlikely they agree on price.

DataRoom understands that Wesfarmers has been running the ruler over the energy business, which would be useful for its existing operations, including its lithium and the high energy-intensive business of fertiliser manufacturing.

But perhaps its interest extends to the Mineral Resources lithium assets as well.

It was Wesfarmers boss Rob Scott who first introduced the conglomerate to owning assets in the sector with its Mt Holland lithium project and so far, the view in the market is they are yet to impress at a time that the price for the commodity used in batteries has more than halved in the past year.

Interest in Mineral Resources’ Wodgina, Mt Marion and Bald Hill lithium operations could see the board run a sale process for the lithium division, likely attracting other suitors like Rio Tinto and IGO.

Wesfarmers could take the view that Rio Tinto has called the bottom of the lithium market, through its recent $10bn Arcadium Lithium acquisition.

Arguments against a deal is there are better quality lithium companies such as Pilbara Minerals or Liontown Resources to target.

Wesfarmers runs the ruler over a lot of assets and walks away, and rarely pays up, and it would not want to own the Mineral Resources mining services arm.

Wesfarmers’ conservative board would be unlikely to want to embark on a hostile transaction and the Mineral Resources mining services operations would be unappealing.

But Perth has a tight-knit business community, and there’s frequently plenty of talks between directors and executives at the top ASX-listed companies.

All this at a time that Tim Roberts of Multiplex fame distances himself from the fly-in fly-out airline business MinRes Air he owns with the colourful Mr Ellison.