MinRes to benefit from minority interest sale in Onslow Haul road project: Fitch

June 10, 2024 (MLN): The binding agreement between Australia-based Mineral Resources Limited (MinRes, BB/Stable) and a fund advised and managed by Morgan Stanley Infrastructure Inc (MSI) for the sale of a minority interest in the Onslow Haul Road project is expected to improve MinRes' leverage, says Fitch Ratings.

Fitch believes it also demonstrates the company's commitment to maintaining its balance-sheet strength during a period of high capex intensity and the sluggish recovery of the lithium market.

MinRes said it will sell the 49% stake in the Onslow Haul Road project to the infrastructure fund managed by MSI for AUD1.3 billion, made up of an upfront payment of AUD1.1bn and a deferred payment of AUD200m contingent upon the project achieving a transportation run rate of 35m wet metric tons per annum (mtpa) for any quarter before 30 June 2026.

MinRes expects to receive net cash proceeds of AUD1.2 billion after tax. The deal's finalisation is scheduled for 2H24, pending the completion of certain project conditions and approval from Australia’s Foreign Investment Review Board. When completed, MinRes will retain the remaining 51% stake.

The transaction vehicle will receive a life-of-mine CPI-adjusted tolling fee per tonne of iron ore transported through the Onslow Haul Road of AUD8.04 (100% basis), capped at 40mtpa.

The tolling fee will be reset at a reduced rate after 30 years. Any tolling payments for volumes above 40mtpa will be fully owned by MinRes.

Fitch believes the transaction continues to demonstrate MinRes’ ability to monetise its assets to return its EBITDA net leverage to a level that is commensurate with its rating and adopt a prudent approach to funding growth projects.

This underscores the Stable Outlook as the company’s EBITDA net leverage remains elevated with limited headroom, reflecting the delivery of its significant capex pipeline amid the current softer lithium market.

The Outlook also takes into account its pursuit of opportunities in the ongoing consolidation of Australian early-stage lithium projects, which risks adding pressure on its cash flow amid potential cost overruns and delays.

Following the transaction and the early commencement of commercial production at its Onslow project, Fitch now expects MinRes’ leverage to fall to 2.6x by the financial year ending June 2025 (FY25) - below the 3.0x level at which we may consider taking negative rating action.

The entity further believes the company’s expected ramp-up of production at Onslow to its nameplate capacity of 35mtpa by FY25 and the AUD200 million deferred cash payment for the haul road project could also help the company deleverage further or provide additional flexibility to manage its balance sheet over FY26-FY27.

Fitch previously expected MinRes’ EBITDA net leverage to increase above its 3.0x negative rating sensitivity over the next three years, incorporating its high capex intensity.

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