Fifting all boatsMinRes investors, traders shoot first...

Fifting all boats

MinRes investors, traders shoot first onpotential spin-off

Mineral Resources hasn’t had todecide anything about a potential lithium spin-off, but already itsshareholders are nearly $2 billion richer.

That’sthe power of the electric vehicle movement, and exactly why MinRes has hadJPMorgan’s bankers beavering away on potential spin-off structures and plansfor months

Since Street Talk broke the story on Thursday night, MinRes shares have jumped 16 per cent to close at a record $73.08 on Monday and take its market capitalisation to $13.8 billion. Fund managers and stockbrokers have been quick to try to value the business, saying it could be worth as much as MinRes group value.

Consensusamong the desks is that MinRes’ lithium business is probably trading at 3-timesforward EBITDA, while US-listed Albemarle (the closest comparable given sharedassets) is at 10-times and SQM Lithium is at 7-times. If it re-rated tosomething between the two, and you get a potential $10 billion-plus asset.

Thetraders’ colleagues in equity research take a bit more time to stew on news,sometimes even waiting for company approval before publishing on the matter.

They’realso seeking clarification on comments MinRes made in April, when managementcommentary suggested a spin-off would not occur in a five-year time frame, andwonder whether MinRes would struggle to fund planned expansion in its iron oredivision (worth $3 billion plus) if it were giving away or sharing lithium cashflows.

Fundmanagers, like the trading desks, can see the forest through the trees and havebeen buying with their ears pinned back. Institutional desks UBS, Barrenjoeyand Credit Suisse have handled the lion’s share of the trade.

Investorshave been thinking whether other Australian lithium plays - Allkem, PilbaraMinerals, IGO - would also be mulling a US listing, in a bid to get a valuationsimilar to Albemarle or SQM. The Aussies are trading at 3 to 4-times forecastFY23 EBITDA.

Thebuying comes as brokers also re-run numbers on the outlook for lithium supplyand demand globally. Barrenjoey’s Glyn Lawcock published his new lithium priceforecasts over the weekend, which saw upgrades of 36 per cent to 86 per centfor 2023 and 2024.

“Thismeans higher earnings and cashflow which we do not think the market has fullypriced into equities,” he told clients.