Mineral Resources banks on customer relations to dodge yax scandal fallout
The mining and contracting company says its relationships with key customers are strong enough to withstand any reputational damage from a tax scandal involving founder Chris Ellison.
Mineral Resources says its relationships with key customers in mining services are strong enough to withstand any reputational damage from revelations about a tax scandal involving managing director Chris Ellison.
Mr Ellison shored up his position at the helm of MinRes on Thursday with the $1.1bn sale of gas assets in the Perth Basin to Gina Rinehart’s Hancock Prospecting.
Analysts at Morgan Stanley said the gas sale ended balance sheet concerns around MinRes, assuming its $3bn Onslow Iron project lived up to expectations.
The sale represented a big premium on Morgan Stanley’s base $575m valuation on the gas assets and dispelled suggestions MinRes might be forced into an equity raising amid investigations into the tax scandal and whether any wrongdoing extended into the early years of the company’s life on the ASX.
The MinRes board has said it will update the market on what conclusions it has reached and what actions it intends to take on Monday after hiring an external law firm to investigate.
Asked if there was a risk of blue-chip clients such as Rio Tinto and BHP distancing themselves, MinRes mining services boss Mike Grey backed those relationships to hold up.
Mr Grey said MinRes, which started out in mining services before branching out into iron ore and lithium production in its own right, had built up relationships over many years.
“It’s a 20-year history with Rio, we’ve got an amazing relationship and that continues to be strong, with strong interest in respect to future growth,” he said.
MinRes did lose a Rio ore crushing contract to Destec, a company set up by MinRes co-founder Steve Wyatt, about two years ago. MinRes and Destec have been locked in a legal dispute over crushing technology.
The MinRes share price jumped 9 per cent to $39.40 on Thursday, as chairman James McClements led meetings with investors rattled by the tax scandal.
MinRes chief financial officer Mark Wilson told analysts the company continued to look at ways to cut costs across its lithium business.
Mr Wilson reiterated that at current lithium prices no one was making money.
MinRes cut 190 jobs at its Mt Marion lithium mine, owned in partnership with China’s Gangfeng, as production fell 24 per cent quarter on quarter in response to the low prices.
There were another 130 job cuts at the Wodgina mine, 50 per cent owned by New York-listed Albemarle, as production fell 19 per cent.
Mr Wilson maintained MinRes would hit production cost guidance across its three lithium mines.
Western Australia’s lithium producers are sweating on pricing rebounding soon with Pilbara Minerals moving to put a processing plant into care and maintenance on Wednesday and Rinehart-backed Liontown Resources pushing for royalty relief from the state government.
Mr Wilson said MinRes still had many levers it could pull to strengthen the balance sheet if the lithium rout continued and Onslow Iron faltered after performing well in the September quarter, including selling the rest of the haul road that connects its iron ore deposits to port facilities.
MinRes sold a 49 per cent stake in the haul road to Morgan Stanley Infrastructure Partners for $1.3bn in a deal completed in September.
Another option was to put the Bald Hill mine into care and maintenance.
Mr Wilson said those steps would not be necessary.
“In terms of liquidity, we’re comfortable with where we sit today. This gas announcement, this deal we’ve done, that’s been on the cards for a number of months,” he said.
“We didn’t need to do that for liquidity reasons. It’s additional, it gives us flexibility into the second half of the year.”
MinRes reported that including its mining services contracts, Onslow Iron was cashflow positive in October.
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