ANALYSIS: As MinRes prepares for a future without its founder, Gina Rinehart's Hancock Prospecting has moved on its gas business and countercyclically acted on an appetite for lithium.
ANALYSIS: As Mineral Resources prepares for a future without its founder, Gina Rinehart's Hancock Prospecting has moved on its gas business and countercyclically acted on an appetite for lithium.
Mineral Resources is a Western Australian success story, despite its well publicised recent headwinds.
Built from the ground by rich lister Chris Ellison, the diversified business owes much of its success to a brash and bold management ideology that has set it apart from the pack, but also contributed to its current struggles.
While a tax evasion scandal will result in his eventual departure from MinRes, Mr Ellison’s bullish approach has driven major growth over many years – from mining services into WA iron ore, then WA lithium, and onshore gas.
With that growth came a growing debt profile, from zero to $4.4 billion over the three years to June 30, 2024. That concerned some, but not publicly Mr Ellison, who was dismissive of analyst criticism around it.
Despite the stance, actions have been taken that will reduce debt.
Leading up to the end of the financial year, in a move which allayed some analyst concerns, MinRes sold off 49 per cent of its haul road between Onslow and Ashburton for $1.3 billion.
And its Perth Basin gas assets sold for $1.13 billion in October to Gina Rinehart’s Hancock Prospecting, in what was the latest link up between two of the state’s most wealthy people. That deal was completed today.
Through it, Hancock will take over the development assets at the Lockyer / North Erregulla project, and the pair will collaborate on gas exploration beyond that project.
“This transaction reflects the long-standing, value-enhancing relationship between MinRes and Hancock, two proudly Western Australian leaders in resource project development and operation who are spearheading investment in the state’s future energy needs,” MinRes told the ASX in October.
Hancock was similarly glowing.
“I welcome the opportunity to work alongside my friend Chris Ellison and his MinRes team,” Mrs Rinehart said, before the announcement of Mr Ellison’s planned departure a week later.
Mrs Rinehart, estimated in December to be worth $39.8 billion, and Mr Ellison ($1.3 billion) and the companies they represent have long existed in orbit of one another.
The willingness to collaborate, the shared commodity interests and deep pockets of Australia’s richest person; combined with MinRes’ debt profile and current corporate governance challenges, have prompted speculation over the potential for an even broader tie up between the pair.
When MinRes shares hit $80 after the start of iron ore shipments from Onslow in May, the company’s on-market value was more than $15 billion.
At today’s $34.40 per share, its market capitalisation is $6.8 billion. Analysts are split on a 12-month share price target for MinRes, ranging from UBS ($34/share) to Bell Potter ($61/share).
A $60 share price would value the company at just over $12 billion.
The cost to a company like Hancock to move on part, or even all, of MinRes would be as significant as it is unlikely.
But not entirely out of reach, should a major choose to move.
In light of recent events Business News takes a look at the potential market appeal of the MinRes business, to Hancock and others.
Synergy
The billionaire pair of Mrs Rinehart and Mr Ellison have tended to make business moves in the vicinity of one another.
Their activities in the Perth Basin since late 2022 are one example among many.
MinRes and Hancock have a JV on the development of shared port infrastructure at Port Hedland, and once mined manganese together at the long-forgotten Nicholas Downs project.
While MinRes grapples with the challenges on its plate, Hancock has ramped up its lithium interest.
Mrs Rinehart's company announced last week a plan to partner with South Korean steelmaker POSCO on the construction of a lithium refinery – in support of the latter’s Hombre Muerto project in Argentina.
POSCO is a close ally to Hancock and Mrs Rinehart. It owns a 10.3 per cent stake in Roy Hill, and half of east coast gas producer Senex Energy.
POSCO also happens to own 12.5 per cent of MinRes’ Onslow iron ore mine.
And while Hancock holds several strategic stakes in WA critical minerals developers and producers, it does not currently own a lithium mine.
MinRes has three, in an area of business that has struggled in recent times.
The realised price of MinRes’ lithium products fell 70 per cent last financial year, with the broader market for the critical battery metal.
The challenges prompted a pause of mining at Bald Hill and the deferral of underground expansion at Mt Marion.
The MinRes-operated Wodgina joint venture with Albemarle in the Pilbara is still producing, albeit under pressure from the New York-listed company to scale activity down.
MinRes believes the fundamentals for lithium are strong and that the material will play a key role in the world’s decarbonisation.
It has been shrewd in building its lithium portfolio in keeping with that belief, acting countercyclically in its own right to secure a piece of a battery future.
It's not alone in its view.
Hancock’s POSCO move and that of Rio Tinto, which last week announced a $2.5 billion investment to expand the Rincon lithium brines project in Argentina, are evidence of that.
So too is Pilbara Minerals, which has pushed on with its P1000 expansion project at the Pilgangoora mine despite current headwinds.
Fortescue chair Andrew Forrest is also understood to have taken a greater interest in lithium of late, as part of his broader decarbonisation agenda, while Wesfarmers is also active in the WA lithium arena.
In its latest annual report, Mr Ellison outlined his intention for MinRes to ride out the wave of depression which has flatlined the state’s lithium momentum.
“Our immediate priority is to reduce costs while prices remain challenging but stay agile and increase production when markets improve,” he said.
As other miners look to invest countercyclically and with debt still in the picture, questions could be asked of MinRes for those in search of a slice.
How it would respond is anyone's guess, but it would take a lot to move a lithium asset out of MinRes.
Crushing it
The hypothetical of a full MinRes acquisition would change the dynamics of the Pilbara entirely, but not for immediately obvious reasons.
MinRes’ Pilbara hub mines are relatively close – by Pilbara standards – to Roy Hill and the mines of Hancock subsidiary Atlas Iron, and the addition of its assets could add around 30 million tonnes per annum of iron ore to Hancock’s ~100Mt production profile almost overnight.
The haul road to Ashburton has been billed as an asset to unlock stranded West Pilbara assets, a region in which the Andover project – acquired by Hancock and SQM in their $1.7 billion takeover of Azure Minerals this year – is located.
But the MinRes influence across that sector runs deeper than ore.
Wholly owned subsidiary CSI badges itself as the world’s largest crushing business, and its contracts go beyond MinRes’ own operations.
Among the clients are BHP at Mining Area C, Rio Tinto and Hancock at the Hope Downs joint venture, and Hancock subsidiary Atlas Iron at McPhee Creek, where production will begin next year.
Mining services alone made MinRes $550 million worth of earnings before interest, tax, depreciation and amortisation last financial year.
That’s more than NRW Holdings and within $100 million of Perenti, among the largest ASX-listed mining services businesses which could be considered peers.
By taking on a mining contractor with established contracts, Hancock could cut its own costs by in-housing elements of its own operations while wielding greater influence over its larger Pilbara peers in Rio and BHP.
Such a purchase would shake up the Pilbara dynamic entirely.
Could a deal for more, or all, of MinRes actually happen?
Mrs Rinehart’s buy-up of a blocking stake to thwart Albemarle’s attempted takeover of Liontown Resources late last year demonstrated an appetite to use her wealth to influence.
Her purchase of Australian institutional brands Driza-Bone and Rossi Boots highlighted elements of protectionism.
The power of a hypothetical move on MinRes would go well beyond tonnage in the ground.
MinRes is not for sale, at least not publicly, and there is no indication of that changing any time soon.
But opportunity may knock for those with deep pockets and deeper ambitions.
MinRes and Hancock each declined to comment.
