Problems for MIN???
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Extraordinary year for Mineral Resources, Chris Ellison
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by Joe AstonDecember 13 2017
What an enormous year it's been for Mineral Resources under the boundlessly confident leadership of Perth digging identity Chris Ellison. The mining services contractor and ore and lithium producer was trading at $10 in April, fell below $9 in May, popped past $20 three weeks ago, before closing on Tuesday at $16.64.
In briefings with institutional investors throughout the month of May, Ellison's CFO Bruce Goulds suggested the company wanted to offload its lithium production over the subsequent three months to disentangle itself from exposure to the commodity's cyclical pricing and to focus on its core services arm. Min Res passed on its first right of refusal to another 13.8 per cent stake in the Mt Marion project, which Neometals was exiting, in April.
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Mineral Resources has a 43.1 per cent stake the Mount Marion lithium mine in Western Australia. Photo: Supplied
On June 1, Deutsche Bank's sales desk hosted a site trip to the company's two lithium mines in the Pilbara (Mt Marion and Wodgina) and boy did the German investment house like what they saw. Min Res, it told clients in a June 9 note, was "to become the world's largest lithium producer in FY18", "ramping up sales of [Wodgina's] direct shipping ore to [between] 300,000 [and] 500,000 tonnes per month in June".
On August 16 (by which time investors had been led to believe its lithium interests would likely be divested), the company provided FY18 EBITDA guidance of "a minimum of $500 million, with the result skewed to the second half", north of any analyst estimates and specifically contingent on it selling 4.25 million tonnes (or, on average, 354,000 tonnes in each month of FY18) of Wodgina's low grade DSO. Min Res shares busted through the $15 mark a fortnight later.
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Rich lister Chris Ellison, MD of Mineral Resources. Photo: supplied
The WA Government publishes the monthly volumes of ore shipped from Port Hedland. While Wodgina just met Deutsche's assumed output parameters in June with 315,000 tonnes, it steeply fell away from its own run rate in July and August, shipping just 284,000 tonnes and 227,000 tonnes respectively. The company has confirmed the veracity of the port's figures. As they originally said, it's all about upside in the second half!
Then came the company's September DSO volumes (from the state government, not the company) for Wodgina: 217,000 tonnes, barely half the monthly volume required at this point in the fiscal year to meet its guidance.
On October 20, Min Res lodged a bizarre statement with the ASX condemning "factually incorrect information that is circulating in the investment community". Its numbers had to be corrected an hour later. The desks at Macquarie and Morgan Stanley upgraded their forecasts. The company reiterated its guidance on October 31.
But Wodgina shipped just 223,000 tonnes in October. Four months now of data, extrapolated, get Min Res to 2.85 million tonnes, not 4.25 million tonnes, even while somewhat wishfully excluding the potential downside of cyclone season on Q3 production.
But it gets even better. At the November 22 annual meeting, inexplicably, Ellison upgraded Wodgina's DSO for FY18 from 4.25 million tonnes to between 4.5 million and 4.75 million tonnes. What a six months to June 30 he's about to have!
On November 24, the stock hit $20.24.
Entirely unrelatedly, Ellison dumped $36.9 million of his own Min Res stock between November 28 and November 30, while chairman Peter Wade sold $4 million worth (or more than 40 per cent of his entire holding), both at $19.80 a pop, 20 per cent north of yesterday's closing price.
Not a week since that disclosure, and helpfully keeping those catatonic sell-side analysts as befuddled as ever, Min Res is now lurching into oil and gas, bidding $507 million for AWE – with MIN scrip, of course.
And last week, Wodgina's November numbers were published: 300,000 tonnes, by now less than half the number required to hit the original shipment guidance, let alone the newly upgraded one. Ellison will want to have a better back half (of FY18) than the Maroons had in game one of the 1994 State of Origin. He'll really, really want to.
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