Lithium spin-off could equal Mineral Resources value: CS
Shares in MinRes soared by 13 per cent during intraday trade amid speculation the diversified miner was working on an IPO in New York for its lithium arm.
A mooted Mineral Resources’ lithium spin-off could equal the entire valuation of its existing mining operations should Perth billionaire Chris Ellison push for a separate sharemarket listing, Credit Suisse said.
Shares in MinRes soared by 13 per cent during intraday trade on Friday amid speculation the diversified miner was working on an IPO in New York for its lithium arm in a bid to unlock greater value for the in-demand commodity.
MinRes left the door ajar saying it regularly evaluates strategic options including for its lithium business but said none were so far advanced as to warrant disclosure to the market.
Credit Suisse said a deal could make sense.
“The MinRes share price does not appear to reflect the full value of the lithium division, if it were to trade on a stand-alone basis,” Credit Suisse analysts Saul Kavonic and Alex Ren said.
“We see MinRes as presenting four businesses for the price of one, with the lithium division potentially worth as much as the current entire MinRes valuation if it were to trade stand-alone in line with international peer multiples.”
MinRes was last up 12.8 per cent or $8.08 to $71.05, handing the company a $13.5bn market capitalisation. A separate lithium business could command a broad $60 to $90 per share valuation based on peer multiples of forecast estimates, Credit Suisse said.
The West Australian miner, led by Mr Ellison, restructured its business this year into mining services, iron ore, energy and lithium but may be able to cash in with prices of the raw material shooting up as demand grows for batteries, especially in electric vehicles.
“MinRes’ mining services, iron ore and gas divisions can weigh on the valuation ascribed to the lithium division, with the market preferring lithium pure-plays over multi commodity structures,” Credit Suisse said.
“Spinning off the lithium division as a stand-alone pure-play could see the latent value of that division unlocked.”
The MinRes chief, who owns just under 12 per cent of the company, has been open to the prospect of a lithium spin-off in the past to reflect the unit’s value.
“The answer is we’ve set it up in such a way that that’s possible,” Mr Ellison told the company’s annual general meeting in November. “At the moment, it’s way too soon if we’re going to do that. We want to get full value out of where we’re heading. So ideally, I mean, we want those mines in full production.”
Still, he was cautious on whether he would throw his support behind any spin-off.
“I have no doubt that history tells you that it probably will happen somewhere down the track. I’m just not sure that I’m the one that wants to break the family up.”
MinRes is working with JP Morgan on the proposed plan with the investment bank previously handling two major US bond deals for the miner earlier this year and back in 2020.
The resources producer runs two lithium mines in Western Australia: Wodgina in the Pilbara and the Mt Marion operation near Kalgoorlie, where it produces spodumene concentrate to feed demand for EVs and battery storage.
A Mt Marion second stage expansion is expected to lift capacity to 900,000 tonnes annually by the end of 2022.
The company announced in February that it would build its future business in downstream lithium hydroxide production, with a plan to sell up to 100,000 tonnes annually within a few years.