Hedge funds smell blood, double down on MinRes shortsThe company is uniquely sandwiched between two of the big forces hitting Australia’s resources sector.Updated Sep 19, 2024 – 7.19pm,first published at 6.56pmSaveShareGift this article NewListen to this article4 minJust when we thought Chris Ellison’s earnings calls couldn’t get much more interesting, the hedge funds have turned up.Watch out, this could get spicy. Someone could get seriously burnt.Mineral Resources boss Chris Ellison has reined in spending, but will it be enough to ride out the tough times? David RoweThe battleground is Mineral Resources, Ellison’s mining and mining services play, which is wedged between a slowing customer (China) and its whopper borrowings, worth $5.4 billion at June 30.Hedge funds are shorting the pants off the stock. They reckon MinRes is in a world of balance sheet and earnings pain, and have doubled their bets against the company in the past three months.Short positions raced to 10.6 per cent of MinRes’ issued equity at September 13, the most recent available data from ASIC, making MinRes the most heavily shorted stock in the top 50.Related QuotesMINMineral Resources$37.230 -1.51%1 year1 daySep 23Dec 23Mar 24Sep 2430.00045.00060.00075.00090.000Updated: Sep 20, 2024 – 12.02pm. Data is 20 mins delayed.View MIN related articles From here, two things can happen: the hedge funds are right, MinRes’ world of pain (China, iron ore, lithium, debt) gets worse, Ellison is squeezed and the doubters make out like bandits.The alternative is that MinRes restocks its balance sheet with asset sales (Onslow Iron Ore Haul Road, gas), China stimulates its property market, cashflows pick up and everything is fine. That could cause a seriously costly short squeeze. Melbourne long-short fund L1 Capital owns 5.4 per cent.Either way, someone’s likely to get hurt.It is the biggest talking point on equities desks this week, aside from interest rates.It has turned into a blood sport between the Ellison/MinRes bulls – there are plenty of them out there among domestic funds, still backing Ellison’s frankness, outlook on life and ability to make money – and the hedge funds, who have doubled their bets.Brokers are stoking it along, happy to have something to talk about (and sell) in an otherwise quiet market. Jarden’s Ben Lyons can be the most smug – he has consistently told clients to sell MinRes since February last year when the stock was $85. It closed at $37.80 on Thursday.Hedge funds laying into MinRes has been building all year, but the short-selling really took off when MinRes’ full-year results revealed its white-knuckle ride late last month.The company is uniquely sandwiched between two of the big forces hitting Australia’s resources sector: the lithium price crunch and a slowing China. Its roots are in mining other people’s assets. However, it has expanded to own its own sites, which it also mines. It has debt which makes the whole thing potentially explosive.More breathing roomWe’ve previously argued MinRes could be called the beating heart of Australia’s mining sector, while its founder Ellison could be the face of Australia’s boom and bust commodities cycle, and its ability to create wealth for hard workers. Neither company nor founder are ever dull.This week’s twist was MinRes’ maiden gas and oil resource statements on its Lockyer Gas and Erregulla oil projects in WA. Why would MinRes do it?“MinRes has flagged that it’s reviewing development and partnering opportunities,” as E&P Capital’s Adam Martin reminded us all. This was to help investors value it.Martin said the assets could be worth $500 million or more if sold. Those proceeds could be used to buy a bit more breathing room, should it be required.MinRes wouldn’t have to look too far to find a buyer with the likes of Beach Energy, Mitsui and Hancock Energy fighting it hard for Perth Basin assets in the past five years. It knows all of the players well.Did that reserve statement scare the shorters? The official ASIC numbers will not be available until next week. However, brokers say it hasn’t. Add in the Federal Reserve’s rate cuts, iron ore popping on Thursday and the potential for more Chinese stimulus (with more leeway from the Fed’s 50 basis point cut), and the whole thing gets more fascinating.
MIN Price at posting:
$37.40 Sentiment: Buy Disclosure: Held
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