Acquisitive MinRes Buries Earnings Downgrade

By Glenn Dyer | More Articles by Glenn Dyer

And still on Mineral Resources, it is intriguing that the company buried what amounts to a small earnings downgrade in an update last Friday about its lithium mining at Wodgina in the Pilbara area of WA.

In the statement to the ASX Mineral Resources (MinRes) said:

“The Company re-confirms its previous full year EBITDA guidance of A$500 million."

But in its 2017-18 interim result in early February MinRES said it was “on target to achieve full year guidance of a minimum of $500 million Underlying EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation).

Investors took note of that, and also the likely success of the higher Atlas Iron offer from the Rinehart companies and sold down the company by more than 5% on Monday and Tuesday – they ended at $16.55 (down 4.4%), taking the loss this year so far to around 24%.

Much of that weakness can be traced to investor worries about a spate of deals promoted by MinRes chair, Chris Ellison – there was the abortive bd for oil and gas group, AWE that Mitsui of Japan eventually won with a cash offer. Then the current paper offer for Atlas that seemed to be poised to win until Fortescue and then Gina Rinehart’s Hancock prospecting popped up with blocking stakes, and now a counter bid from the latter.

And there is some investor unease with the development plans for the company’s Wodgina hard rock lithium deposit in WA where the monthly production of what is called DSO product (or Direct Shipping Ore, that is lithium bearing ore not treated before shipping but exported like iron ore is).

MinRes is seeking to sell a 49% stake in Wodgina and claims (witout names) to have received a lot of interest.

"The Company’s appointed advisor, Macquarie Capital, has received considerable expressions of interest from a large number of globally significant companies across the lithium, energy storage, electric vehicle and commodity trading industries. The first stage of this process, which involves a five week period of due diligence by prospective bidders prior to lodging non-binding indicative bids, is expected to commence later this month,” the company said in Friday’s statement.

In Friday’s update MinRes failed to mention that the company would not make its forecast monthly shipment targets, and revealed that the company would be winding down DSO shipments until the end of this year because it is depleting its reserves.

"The Company will continue to wind down production and export of DSO until the end of calendar 2018.

The decision of whether DSO production and exports will continue beyond calendar 2018 will be deferred pending the outcome of the divestment process of up to 49% of the Company’s interest in Wodgina and be a decision of the Wodgina joint venture participants.

"It is therefore evident that continuing to sell large volumes of DSO effectively reduces the value that will be realised from the Wodgina ore body. This sentiment has been strongly echoed by the experienced and reputable companies that MRL has engaged with during the early stages of the Wodgina divestment process. Given this information and the views of prospective bidders, the Company has determined to slow DSO production and exports.

"Between 1 July 2017 and 31 May 2018, the Company exported a total of 3.257 million dry metric tonnes of DSO and expects to export approximately 300,000 tonnes in the month of June 2018.”

That will be around 3.5 million tonnes of DSO and is short of guidance issued last July for shipments of 4.25 million tonnes.

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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