Unleashed?
LITHIUM SELL DOWN SPECULATION
Need To Know:
- A partial sell-down and US listing of MIN’s lithium assets could realise ~A$4-5bn of value
- US-listing would re-rate the lithium business against US peers
- Sell-down cash could accelerate new projects
Investment implications
Market speculation, presently denied by MIN, says that the company is considering spinning off a portion of its lithium business into a US-listed float. The company has issued a statement saying it ‘regularly evaluates various strategic options’ but adds that any previously undisclosed potential strategic initiatives are not sufficiently advanced or certain to warrant disclosure.
LithCo sell-down: What could it look like? We estimate FY23f EBITDA of A$2.4bn for MIN’s lithium business (FY22 A$585m) assuming the MARBL JV is restructured. At MIN’s current trading multiple of 4.1x, this implies a valuation of A$9.9bn.
US Peers: MIN’s listed US competitors are trading on multiples of 7.5-10x, resulting in a valuation of A$18-24bn.
30% sell-down: Assuming a 30% sell-down, based on a US peer multiple range, would release ~A$3.9-5.2bn of net cash proceeds to MIN. Importantly, this would create a read-through valuation which could infer a pro forma MIN valuation between A$98-126/share.
A catalyst to accelerate other projects in MIN: MIN does not need to sell down its lithium business in order to fund its existing projects, but it could accelerate the more valuable ones. This could include the Perth Basin energy business, or the Onslow Iron project.
Risks: Selling down a portion of the lithium business reduces MIN’s exposure to the earnings leverage from its high quality Wodgina spodumene mine. It also increases exposure to the unproven early stage iron ore and infrastructure projects (Onslow Iron). There are tax efficiency and franking credit issues to be considered. Perhaps the key risk is the market valuation applied to the US-listed lithium business.
Our positive investment view is unchanged as this remains speculation, but the logic of such a strategic move is very attractive.
This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.
Stock overview
Share Price
Company overview
Mineral Resources is a mining services company with iron ore, lithium and energy assets in Western Australia.
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