For what it's worth. In the AFR today: M&A pipeline watchers add...

For what it's worth. In the AFR today:

M&A pipeline watchers add Mineral Resources to hit lists

It’s crystal ball time of the year and most pundits would tell you this year’s M&A boom will spill into the new year.
In preparation for more bids, fund managers have started trawling through their portfolios to see what could attract an offer. They’d be happy to see the stragglers go (Link Group, Codan), but don’t want to see blossoming investments picked off now when they could be worth substantially more in three to five years.

Forging ahead: Mineral Resources executive chairman Chris Ellison.  Philip Gostelow
One name that’s coming up a bit is Chris Ellison’s Mineral Resources, which has transitioned from mining services play, to mining services/iron ore play, to a mining services/iron ore/lithium triple threat.
Recent announcements suggest the pieces of Ellison’s puzzle are coming together. While much depends on underlying commodity prices, it’s easy to see how its earnings could be fairly evenly split across all three divisions by 2025.
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The bulls naturally focus on the potential lithium earnings, which is the blossoming and sexy side of the business given red hot investor appetite for lithium and other battery metals plays. Analysts reckon the big lithium miners are trading at 15 to 20-times EBITDA, on average, globally.
Those lithium earnings are also in demand for strategic buyers, keen to future proof their mining portfolios. Bankers on both sides of the country reckon it would make sense for a few tyrekickers to at least think about making a move.
Australia’s Fortescue Metals Group could easily swallow Mineral Resources in a scrip-based deal. If it wanted to make a play, it could offer 20 per cent to 25 per cent of the combined group to Ellison and Co, and instantly get meaningful iron ore production growth and some near term “green” earnings from a sizeable lithium business.
The other big West Australian, Wesfarmers, is another that’s building out its WA lithium footprint, building a hydroxide plant at Kwinana, and with plenty of firepower to add on a meaningful acquisition.
Then there’s offshore lithium groups, such as US-based Albermarle, who have the benefit of trading at huge multiples. Albermarle could use its newfound strength to effectively buy back control of their lithium joint ventures from Mineral Resources.


Like we said, it’s crystal ball stuff. But it doesn’t mean smart types are not thinking about it.
Of course it must be noted that it’s hard to see anything happening without Ellison’s blessing. He has about a 12 per cent stake, is crucial to Mineral Resources’ growth plans, and has built up a loyal following among his investors.