It seems it’s sell, sell, sell for Mineral Resources (ASX:MIN) and its high-profile boss, Chris Ellison, as the company looks for ways to slash an embarrassingly high level of debt.
The company shocked investors in late August when it revealed a surge in debt to more than $5.3 billion and a slump in cash on hand to $900 million, making net debt around $4.4 billion. It also announced the dropping of the final dividend for 2023-24.
The company made it clear that it was hunkering down with asset sales in progress, teams formed, and a crackdown on staff and associated costs.
The June accounts revealed a $600 million pre-payment from unnamed customers for iron ore not yet delivered—a system similar to what Fortescue used in its early days.
MinRes had already indicated a debt concern in early June when it revealed the proposed sale of 49% of its WA iron ore haul road for $1.3 billion. Of this, $1.1 billion was to come to the company upon all approvals being granted, with the remaining $200 million expected to arrive in around three to four years when the iron ore project reached its anticipated capacity of 35 million tonnes per year.
Significant cost cuts have been made in its lithium business, and MinRes says it has abandoned plans to turn its spodumene into lithium hydroxide metal due to the weak outlook.
Since June, the haul road sale has been finalised and will close later this month. Around $300 million in cost cuts and restructuring changes have been identified, according to a statement earlier this month.
On Monday, the company revealed upgraded reserves for its WA gas prospects. MinRes released a bullish estimate of possible gas resources for its Lockyer gas project in WA just as it negotiates with potential partners for a joint venture or sale that analysts say could be worth more than half a billion dollars.
MinRes estimated “2C” contingent gas resources—which is a low-level category of resource size—at 435 petajoules of saleable gas at the project, which could also hold 3.3 million barrels of condensate.
MinRes said that planning for the development of Lockyer is "well progressed". More importantly, it said it is also reviewing development and partnering opportunities related to its two exploration permits in response to inbound queries "from a number of domestic and global parties".
The mining company said it will assess joint venture partnerships as well as full or partial sale options. Meanwhile, it is considering developing financing options through infrastructure funding partners, as noted in April.
"Our Perth Basin conventional oil and gas discoveries are among the largest onshore finds in Western Australia, with significant upside on these two exploration permits alone," MinRes Managing Director Chris Ellison said.
"Developing these resources provides MinRes with yet another option to grow shareholder value through our portfolio of commodities located in the world's best resources jurisdiction," he added.
Companies mentioned as possible partners include Kerry Stokes’ 30% owned Beach (which controls the nearby Waitsia project), Mitsui E&P (a partner with Beach), and perhaps Gina Rinehart’s Hancock Prospecting. Ms Rinehart is close to Ellison.
But the bottom line for MinRes is to cut debt. The $600 million pre-payment cannot be considered a clear and free asset due to the contingent liability on the other side of the accounts.
Brokers have estimated up to $500 million for a full sale of the gas interests.
The cash from the haul road deal and any sale of the gas interests or a stake will help reduce debt from the June 30 net figure of $4.4 billion.
After rising early on the news of the reserves and talk of a possible sale, MinRes shares ended Monday in the red, down 0.16% after rising by as much as 2.6% before the late slump.
