“We are not surprised by the blowout in MinRes spreads, which are now finally starting to reflect … deteriorating credit quality and an increasing probability of default,” said Ben Lyons, an analyst at Jarden.
“We had been surprised at how resilient trading in the US unsecured notes had been, prior to the recent precipitous declines. Clearly the equity market has had a better handle on the rapid deterioration in MinRes’ operating and financial performance, and the poor fiscal stewardship ... which has enabled the current dire balance sheet settings.”
MinRes has been bleeding cash from its lithium division after low prices forced the loss-making miner to mothball operations at Bald Hill, a project close to Kalgoorlie in the Goldfields region.
Over six months, MinRes has also cut its iron ore production, axed dividends, and flagged it will have to spend significantly more money than expected repairing a crucial iron ore haul road.
“MinRes has substantial liquidity, no imminent maturity pressure and no financial maintenance covenants on its US bonds. The change in bond pricing has no impact on interest expense, serviceability or capacity to refinance,” the miner said.
“The first US bond does not mature for two years and from May 2025 there is the opportunity to refinance or extend. We have full confidence in our access to capital markets and ability to refinance the notes in coming years,” it added.
The miner’s debt includes $US3.1 billion ($5.2 billion) of unsecured, greenback-denominated bonds. A $US700 million bond that matures in May 2030 has recorded hefty falls over the past few days and is trading at roughly 91¢ in the dollar. It was trading at par late last month.
Other bonds are also trading at discounts. Some $US625 million in unsecured notes due in November 2027 are trading at 95¢, while another $US1.8 billion is trading at between 91¢ and 96¢ in the dollar.
Jarden’s Lyons, who has been negative on MinRes stock for some time, estimates the company owes more than $7 billion in total if the pre-sale of $600 million of iron ore and other liabilities are included.
Others are less bearish on MinRes. Eric Liu, a Singapore-based credit analyst for Nomura, attributed the bond discounts to the company’s heavy capital expenditure and weaker commodity prices.
“The global macroeconomic theme is still the price driver in moving MinRes’ US bonds,” he said. “I don’t think the market is pricing meaningful distress risk at the moment, and we are not there yet to label it ‘distressed’ given it is only a few days since the US’ ‘liberation day’.”
“For the bonds to recover? First, we need to see a clarity on global macro picture and stabilisation of bond fund flows … as well as any stimulus measures from China to boost the steel demand.”
MinRes chief financial officer Mark Wilson told investors in February – after the miner posted an $807 million interim loss – that the company had “reached peak leverage”, adding that there was a separate $800 million credit facility “secured by over $10 billion of assets”.
“We had other banks who wanted to join that facility, but we didn’t make room for them. The relationship with each of those banks is incredibly strong and supportive,” he said at the time.
