Mineral Resources USD Deal
IAM CM View
Mineral Resources are proposing to issue two USD lines, in total aggregating USD1bn. IPTs for both lines are below.
Mineral Resources is a solid credit with a lengthy track record of operational performance. It has a core, stable base of mining services cash flow which is accompanied by one of the world’s largest hard rock lithium portfolios.
Furthermore, it is a proven iron ore operator with a balance sheet which is run conservatively. In our view, both the 5.5NC2.5 and 8NC3 USD lines offer good relative value and we would advise clients to invest as we would expect outperformance on these bonds.
Table 1. JPM HY NEW ISSUE: Mineral Resources Limited
| Issuer: | Mineral Resources Limited | |
| Amount: | $1,000,000,000 | |
| Sec Type: | Senior Notes | Senior Notes |
| Tranche Size: | No less than $ 400,000,000 | No less than $ 400,000,000 |
| Maturity: | 5.5NC2.5 (50%, 25%, par) | 8NC3 (50%, 33%, 16.67%, par) |
| Ratings (existing): | Ba3/BB (M/F) | Ba3/BB (M/F) |
| Distribution: | 144A/RegS for life | 144A/RegS for life |
| IPT: | 8.00% – 8.25% | 8.50% – 8.75% |
Mineral Resources is rated Ba3/BB (Moody’s/Fitch) and the funds will be used to fund general corporate purposes (including capex). The notes will be senior unsecured obligations and will rank parri passu with other senior indebtedness. There is a change of control put at 101% upon a change of control combined with a ratings downgrade. An equity clawback exists for up to 40% of the notes at par plus coupon with equity proceeds. Covenants are similar to the existing 8.25% senior unsecured notes due 2027.
Proforma for USD1bn in new debt, the net debt to LTM EBITDA will sit at 0.5x, still very good for its Ba3/BB rating.
Mineral Resources was founded 30 years ago and was listed on the ASX in 2006. Today the market capitalisation sits at AUD11bn and equity holders have received a compounded annual growth rate of 32% TSR since listing. The business consists of four pillars: Mining Services, Lithium, Iron Ore, and Energy.
- Mining Services: A core business that provides stable, long-term earnings with a diversified customer base (see customer base below which consists of solid counterparties).
- Lithium: One of the world’s largest hard-rock lithium portfolios which is well positioned to benefit from the upcoming transition to low carbon energy. Having strategically preserved its resource base in recent years while securing downstream processing capacity allows Mineral Resources to benefit from higher value lithium products in the future.
- Iron Ore: Proven iron ore operator in a strong operating jurisdiction. Ramped up production 87% since FY19 in response to high prices.
- Energy: Transitioning to gas as part of the journey to net zero.
Chart 1. Core Business
Source: Mineral Resources IM
Chart 2. Mineral Resources Pillars
Source: Mineral Resources IM
Chart 3. Annual Revenue, Underlying EBITDA, and Margin (%)
Source: Mineral Resources IM
Revenue has been exceptional, with a CAGR of 41% over the past three financial years, and an underlying EBITDA margin of 36% (as of 1H22 LTM). FY21 EBITDA was particularly strong and hit the c.AUD2bn mark. Maintenance capex typically represents around AUD100m pa. Ashburton capex is expected to be AUD2.4-2.55bn capex over the next 18 months – this is being partly by the new USD deal.
What’s been pleasing for a debt investor is that Mineral Resources has been in a net cash position for six of the last seven fiscal years. The company is committed to a BB rated credit profile and has a fully discretionary dividend and capex policy – i.e. it preserved capital by not paying a FY22 interim dividend. Moody’s gross leverage Ba3 downgrade threshold is 3.5x – currently Mineral Resources sits at 1.0x.
Chart 4. Moody’s Gross Leverage Ba3 Downgrade Threshold
Source: Mineral Resources IM
The Mineral Resources 5.5NC2.5 and 8NC3 USD lines offer good relative value, especially when compared to the existing 8.25% senior unsecured notes due 2027. Furthermore, both lines offer good value relative to the FMG USD and Nufarm USD HY curve. The Perenti Finance 6.5% 2025s are now looking a little tight versus the new Mineral Resource lines.
Chart 5. Relative Value
Source: Bloomberg
Table 1. JPM HY NEW ISSUE: Mineral Resources Limited
| Revenue | FY 2011 | FY 2012 | FY 2013 | FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | FY 2019 | FY 2020 | FY 2021 |
|---|---|---|---|---|---|---|---|---|---|---|---|
| by Product | 30 06 2011 | 30 06 2012 | 30 06 2013 | 30 06 2014 | 30 06 2015 | 30 06 2016 | 30 06 2017 | 30 06 2018 | 30 06 2019 | 30 06 2020 | 30 06 2021 |
| Revenue | 609.5 | 925.9 | 1,097.0 | 1,899.0 | 1,299.1 | 1,177.6 | 1,458.0 | 1,624.4 | 1,512.0 | 2,124.7 | 3,733.6 |
| Commodities | – | 191.6 | 429.9 | 948.3 | 729.4 | 778.1 | 1,058.1 | 1,280.9 | 1,184.2 | 1,684.0 | 3,186.9 |
| Mining Services | 592.3 | 734.2 | 666.9 | 950.8 | 569.9 | 399.3 | 349.9 | 343.6 | 327.7 | 440.7 | 546.7 |
| Central | 17.2 | 0.1 | 0.2 | – | (0.2) | 0.3 | 50.0 | 0.0 | 0.1 | – | – |
- Ticker: MIN AU
- Accounting: IFRS
- Currency: AUD
- Period: Annuals
- Consolidated: Yes
