Mineral Resources: Unearthing Value

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Materials

Background

Fraser Christie is an investor at TDM Growth Partners. We cover how a strong infrastructure business helps Mineral Resources avoid cyclical downturns, the company's commitment to the employee experience, and the smart ways it has reinvested capital.

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Date

July 3, 2024

Episode Number

172

Background / Overview

History and Founding: MinRes was founded by Chris Ellison, a high school dropout from New Zealand who began his career as a crane operator in Australia’s mining industry. Starting with $10,000 and a $50,000 credit card in 1992, Ellison built MinRes into a $12 billion enterprise by capitalizing on opportunities in the mining value chain. Initially focused on crushing and processing waste iron ore for small tonnages, MinRes has scaled to handle hundreds of millions of tons for major miners like BHP and Rio Tinto, while also owning and operating its own mining assets.

Category and Operations: MinRes operates in two economically separable segments:

1. InfraCo: The infrastructure services division, which builds, owns, and operates mining infrastructure (e.g., ports, roads, airports, crushing facilities) for both MinRes’s mining assets and third-party clients. InfraCo generates fixed-fee revenue based on volumes processed, insulating it from commodity price volatility.
2. Mining Co: The mining division, which owns stakes (50%-100%) in lithium, iron ore, and natural gas assets. These assets are operated by InfraCo, creating a symbiotic relationship that enhances capital efficiency and profitability.

Founder Influence: Chris Ellison, who owns 12% of MinRes, is a hands-on CEO whose entrepreneurial DNA permeates the company’s culture. His operational expertise, capital allocation discipline, and focus on employee welfare drive MinRes’s competitive edge. Ellison’s ability to innovate across infrastructure, operations, and employee experience (e.g., building resorts at mine sites, starting MinRes Air) sets MinRes apart in a capital-intensive industry.

Scale and Workforce: MinRes employs approximately 7,500 people, with over one-third dedicated to its internal construction capability, a key differentiator that allows the company to deliver projects at half the time and one-third the cost of competitors. The company is headquartered in Western Australia, with all operations based in the region.

Ownership / Fundraising / Valuation

Ownership: Chris Ellison owns approximately 12% of MinRes, aligning his interests with shareholders. The company is publicly listed on the Australian Stock Exchange (ASX) with a $12 billion market cap.

Valuation Context: MinRes’s valuation reflects a blend of its two segments, but the market often undervalues InfraCo, which could be worth $12 billion standalone (based on 10x-15x EBITDA multiples for infrastructure businesses). Mining Co, valued at 4x-6x EBITDA, is effectively a “free option” at certain points in time, as the market applies a mining-centric lens to the entire business. This mispricing creates opportunities for investors who recognize InfraCo’s stability and growth potential.

Fundraising: MinRes has utilized high-yield bonds from the U.S. to finance growth, maintaining a conservative balance sheet with approximately $4 billion in debt. The leverage is manageable, as InfraCo’s $1 billion EBITDA alone could support this debt level. The company is currently at peak leverage due to heavy CapEx on projects like Onslow Iron, but rapid deleveraging is expected as earnings ramp up.

Key Products / Services / Value Proposition

MinRes’s business model is unique in its vertical integration and internal capabilities, which create a flywheel of efficiency, cost leadership, and high returns on invested capital (ROIC). The two segments offer distinct value propositions:

1. InfraCo:
• Description: Builds, owns, and operates mining infrastructure, including ports, roads, airports, and crushing/handling facilities. Services are provided to MinRes’s Mining Co and third-party miners (e.g., BHP, Rio Tinto).
• Value Proposition: Fixed-fee contracts based on volumes processed, delivering stable, high-margin earnings with no exposure to commodity prices. InfraCo’s internal construction capability reduces project timelines and costs (half the time, one-third the capital intensity of peers), enabling MinRes to secure long-term contracts (75% over five years, 95%+ retention rates).
• Revenue/EBITDA: Expected to generate $1 billion in annual EBITDA within a few years, with one-third from third-party clients. EBITDA per ton is consistent, making it a predictable, high-quality earnings stream.
2. Mining Co:
• Description: Owns and operates lithium, iron ore, and natural gas assets, with stakes ranging from 50% to 100%. Lithium is sent to China’s battery supply chain, iron ore supports steelmaking, and natural gas is a fledgling business awaiting government approvals.
• Value Proposition: Operates low-cost assets on the lower end of the cost curve, ensuring profitability even in commodity downturns. Mining Co feeds InfraCo with projects, enhancing the flywheel of capital efficiency and long-term contracts.
• Revenue/EBITDA: Expected to generate $2 billion in annual EBITDA within a few years, driven by projects like Onslow Iron ($1 billion EBITDA from $800 million CapEx).

Unique Dynamics:

• Internal Construction Capability: Unlike competitors who outsource design and construction, MinRes’s in-house team delivers projects faster and cheaper, reducing CapEx intensity and boosting ROIC. This capability is not revenue-generating but supports InfraCo’s long-term contracts.
• Symbiotic Segments: Mining Co’s assets provide a pipeline of projects for InfraCo, while InfraCo’s efficiency enhances Mining Co’s profitability. This integration creates a competitive moat.
• Employee-Centric Innovation: MinRes’s investments in employee welfare (e.g., resort-style accommodations, MinRes Air, subsidized childcare) attract top talent, reducing turnover and enhancing operational efficiency in a labor-scarce region.

Segments and Revenue Model

Segments:

1. InfraCo: Infrastructure services, generating fixed-fee revenue based on volumes processed. Clients include MinRes’s Mining Co (two-thirds of EBITDA) and third parties (one-third of EBITDA).
2. Mining Co: Mining operations across lithium, iron ore, and natural gas, generating revenue from commodity sales at spot prices. Assets are low-cost and operated by InfraCo.

Revenue Model:

• InfraCo: Charges fixed dollars per ton processed, insulated from commodity price volatility. Contracts are long-term (5+ years) with 95%+ retention rates, ensuring high visibility and stability. Third-party clients (e.g., BHP, Rio Tinto) contribute one-third of EBITDA, with potential for growth as MinRes’s reputation for efficiency strengthens.
• Mining Co: Sells commodities (lithium, iron ore, natural gas) at spot prices, exposing it to price volatility. However, its low-cost position on the cost curve mitigates downside risk. Revenue is driven by volume growth and commodity prices, with MinRes prioritizing high-ROIC projects.

Splits and Mix:

• Revenue Mix:
• InfraCo: ~33% of total EBITDA ($1 billion of $3 billion total).
• Mining Co: ~67% of total EBITDA ($2 billion of $3 billion total).
• Third-party clients contribute one-third of InfraCo’s EBITDA (~$333 million).
• Geo Mix: All operations are in Western Australia, with lithium exported to China and iron ore to global seaborne markets.
• Customer Mix: Mining Co serves global commodity markets (e.g., Chinese battery makers, steelmakers). InfraCo serves MinRes’s Mining Co and major miners like BHP and Rio Tinto.
• Product Mix: Lithium (battery supply chain), iron ore (steelmaking), and natural gas (emerging). Iron ore is the largest contributor, with Onslow Iron driving significant growth.
• Mix Shifts: MinRes is transitioning from high-cost, marginal iron ore assets to low-cost, long-life assets (e.g., Onslow Iron). Lithium is growing due to EV demand, while natural gas is a future growth driver pending approvals.

KPIs

• Volume Growth: Mining Co is expanding volumes in lithium and iron ore, with Onslow Iron expected to reach nameplate capacity within two years of construction start. InfraCo’s volumes are tied to Mining Co and third-party contracts.
• ROIC: MinRes targets 25%+ ROIC, consistently achieving higher returns (e.g., Onslow Iron: 100%+ ROIC for Mining Co, 80%+ ROIC for InfraCo after stake sale).
• Contract Retention: InfraCo’s 95%+ retention rate ensures stable earnings.
• Project Timelines: MinRes delivers projects in half the time of peers (e.g., Onslow Iron: two years from shovel to nameplate capacity vs. 4-7 years for competitors).
• Cost Efficiency: 30% more efficient on a 12-hour shift than peers, driven by internal capabilities and operational expertise.

Acceleration/Deceleration: MinRes is in a high-growth phase, with Onslow Iron and lithium expansion driving EBITDA from ~$1.5 billion today to $3 billion within a few years. The business is accelerating due to its ability to secure high-ROIC projects and expand third-party InfraCo contracts.

Headline Financials

Group-Level Financials (projected within a few years):

• Revenue: Not explicitly stated, but implied to be significant given $3 billion total EBITDA. Assuming a blended EBITDA margin of 30%, revenue could be ~$10 billion.
• EBITDA: $3 billion ($1 billion from InfraCo, $2 billion from Mining Co).
• EBITDA Margin: ~30% blended, with InfraCo likely higher (50%+) due to fixed-fee structure and Mining Co lower (20-25%) due to commodity exposure.
• FCF: At maturity, ~85% of EBITDA converts to pre-tax FCF, implying ~$2.55 billion. Currently, FCF is lower due to heavy reinvestment (CapEx > EBITDA).
• CapEx: $2.5 billion for Onslow Iron ($800 million Mining Co, $1.7 billion InfraCo, net $500 million after $1.2 billion stake sale). Total project pipeline exceeds $10 billion.
• Debt: $4 billion, manageable given InfraCo’s $1 billion EBITDA.

Segment-Level Financials:

• InfraCo:
• EBITDA: $1 billion.
• CapEx: $1.7 billion for Onslow, net $500 million after stake sale.
• ROIC: 80%+ post-sale (30%+ pre-sale).
• Mining Co:
• EBITDA: $2 billion.
• CapEx: $800 million for Onslow.
• ROIC: 100%+.

Table: Headline Financials (Projected)

• Estimated based on EBITDA and assumed margins.

Long-Term Trends:

• Revenue: Growing rapidly due to Onslow Iron and lithium expansion. Historical CAGR of 28% (aligned with TSR) suggests strong top-line growth.
• EBITDA: Expected to double from ~$1.5 billion to $3 billion within a few years, driven by volume growth and cost efficiency.
• Margin: Stable for InfraCo (high fixed-fee margins); variable for Mining Co (commodity-dependent but mitigated by low-cost position).

Value Chain Position

Primary Activities:

• InfraCo: Designs, builds, and operates infrastructure (ports, roads, crushing facilities). Construction is in-house, reducing costs and timelines.
• Mining Co: Mines and processes lithium, iron ore, and natural gas, leveraging InfraCo’s infrastructure for efficiency.

Value Chain Position: MinRes operates midstream (infrastructure services) and upstream (mining) in the mining value chain. InfraCo’s midstream role is highly profitable due to fixed-fee contracts and long-term visibility. Mining Co’s upstream role is capital-intensive but benefits from low-cost assets and InfraCo’s operational support.

GTM Strategy:

• InfraCo: Secures long-term contracts with MinRes’s Mining Co and third parties, leveraging its reputation for speed, cost efficiency, and reliability. Third-party growth is driven by partnerships with major miners seeking to lower costs.
• Mining Co: Sells commodities at spot prices to maximize flexibility and value. Targets high-ROIC projects through a “beauty parade” process, prioritizing capital efficiency.

Competitive Advantage:

• Internal Construction: Reduces CapEx intensity and project timelines, enabling MinRes to undertake projects competitors deem unprofitable.
• Vertical Integration: Mining Co feeds InfraCo with projects, while InfraCo’s efficiency enhances Mining Co’s profitability.
• Employee Welfare: Attracts and retains top talent, critical in a labor-scarce region.

Customers and Suppliers

Customers:

• InfraCo: MinRes’s Mining Co (two-thirds of EBITDA), BHP, Rio Tinto, and other major miners (one-third of EBITDA). Third-party demand is growing as MinRes’s efficiency becomes recognized.
• Mining Co: Global commodity buyers, primarily Chinese battery makers (lithium) and steelmakers (iron ore). Natural gas customers are TBD pending approvals.

Suppliers: MinRes’s internal construction capability reduces reliance on external suppliers for infrastructure projects. Mining Co relies on standard mining inputs (e.g., equipment, labor), but its scale and efficiency provide negotiating power.

Pricing

InfraCo:

• Structure: Fixed dollars per ton processed, independent of commodity prices. Contracts are long-term (5+ years) with 95%+ retention.
• Drivers: Volume growth, contract renewals, and third-party expansion. Pricing is stable due to mission-critical nature of services.

Mining Co:

• Structure: Spot pricing for lithium, iron ore, and (eventually) natural gas. No hedging or offtake agreements, maximizing flexibility.
• Drivers: Commodity prices (volatile but mitigated by low-cost position), volume growth, and end-market demand (e.g., EVs for lithium, steel for iron ore).
• Price Sensitivity: Low due to MinRes’s position on the lower end of the cost curve, ensuring profitability even at depressed prices.

Bottoms-Up Drivers

Revenue Model & Drivers

InfraCo:

• Revenue Model: Fixed-fee contracts based on volumes processed. EBITDA per ton is consistent, making earnings predictable.
• Drivers:
• Volume: Tied to Mining Co’s asset ramp-up (e.g., Onslow Iron) and third-party contracts. Third-party EBITDA expected to grow as MinRes partners with major miners.
• Pricing: Stable due to fixed-fee structure and long-term contracts.
• Mix: Two-thirds internal (Mining Co), one-third external (third parties). Shift toward third-party growth as MinRes’s reputation strengthens.
• Absolute Revenue: ~$2 billion (estimated), growing with volume expansion.
• Growth: High due to new projects and third-party partnerships.

Mining Co:

• Revenue Model: Commodity sales at spot prices, driven by volume and price.
• Drivers:
• Volume: Expanding through projects like Onslow Iron (billions of tons in reserves) and lithium mine expansions.
• Pricing: Volatile but mitigated by low-cost position. MinRes assumes prices below consensus forecasts, reducing risk.
• Mix: Iron ore (largest), lithium (growing), natural gas (emerging). Shift toward low-cost, long-life assets (e.g., Onslow Iron).
• Absolute Revenue: ~$8 billion (estimated), driven by Onslow Iron ($1 billion EBITDA) and lithium growth.
• Growth: High due to volume expansion and favorable end-market trends (e.g., EV demand for lithium).

Organic vs. Inorganic: Growth is primarily organic (e.g., Onslow Iron), with opportunistic inorganic moves (e.g., lithium mine bought out of receivership, generating purchase price in annual EBITDA).

Cost Structure & Drivers

Variable Costs:

• InfraCo: Minimal, as most costs are fixed (e.g., labor, maintenance). Variable costs tied to volume processing are low, contributing to high margins (~50% estimated).
• Mining Co: Include labor, equipment, and royalties. Costs are low due to MinRes’s position on the cost curve and operational efficiency (30% more efficient per shift). Recent lithium cost increases are temporary due to expansion activities.
• Drivers: Inflation (labor, materials), volume growth, and operational efficiency. MinRes’s internal capabilities mitigate cost inflation.

Fixed Costs:

• InfraCo: Include construction labor, facilities, and overhead. High fixed costs create operating leverage, driving profitability as volumes scale.
• Mining Co: Include mine development, infrastructure maintenance, and overhead. Fixed costs are significant but offset by high ROIC.
• Drivers: Economies of scale, internal capabilities, and employee investments (e.g., resorts, MinRes Air). Fixed costs are leveraged as volumes grow.

Contribution Margin:

• InfraCo: High due to low variable costs and fixed-fee revenue.
• Mining Co: Moderate due to commodity exposure, but strong due to low-cost position.

Gross Profit Margin: Blended 40% (estimated), with InfraCo higher (60%) and Mining Co lower (~30%).

EBITDA Margin: ~30% blended, with InfraCo at ~50% and Mining Co at ~25%. Margin expansion expected as Onslow Iron ramps up and fixed costs are leveraged.

Cost Analysis:

• % of Revenue: Variable costs ~20% (Mining Co higher, InfraCo lower); fixed costs ~50% (including construction, overhead).
• % of Total Costs: Fixed costs dominate (~70%), providing operating leverage.

FCF Drivers

• Net Income: Not explicitly stated, but EBITDA of $3 billion implies strong earnings potential. Interest expense (~$200 million estimated at 5% on $4 billion debt) and taxes reduce net income.
• CapEx:
• Maintenance CapEx: ~15% of EBITDA ($450 million at maturity), low for a mining business.
• Growth CapEx: Currently high ($2.5 billion for Onslow, $10 billion pipeline). Growth CapEx will decline as projects reach maturity.
• NWC: Not detailed, but mining businesses typically have moderate NWC requirements. MinRes’s efficiency (e.g., optimized shift changeovers via MinRes Air) minimizes inventory and receivables.
• Cash Conversion Cycle: Likely short due to fixed-fee contracts (InfraCo) and spot sales (Mining Co).

FCF at Maturity: ~$2.55 billion (85% of $3 billion EBITDA), with current FCF lower due to reinvestment.

Capital Deployment

• Reinvestment: MinRes reinvests nearly all cash flow into high-ROIC projects (>25% target). Onslow Iron ($2.5 billion CapEx, 80%-100% ROIC) exemplifies this strategy.
• M&A: Opportunistic (e.g., lithium mine bought out of receivership). Acquisitions target high-ROIC assets with synergy potential.
• Dividends: Small, as MinRes prioritizes growth.
• Derisking: Stake sales (e.g., $1.2 billion for $140 million of InfraCo EBITDA) reduce net CapEx and fund new projects, enhancing ROIC.

Market, Competitive Landscape, Strategy

Market Size and Growth

Market Overview:

• Mining (Upstream): Australia is a global leader in iron ore (50%+ of seaborne supply) and lithium (hard rock mining for EV batteries). Natural gas is a smaller but growing market, with Australia among the top exporters (alongside the U.S., Qatar).
• Infrastructure (Midstream): Mining infrastructure services are a niche but critical market, driven by the need for efficient, cost-effective solutions. Western Australia’s mining boom creates steady demand.

Market Size:

• Iron Ore: Global seaborne market 1.5 billion tons/year, with Australia supplying ~800 million tons. MinRes’s 2% share (16 million tons) is small but growing with Onslow Iron.
• Lithium: Global hard rock lithium market ~500,000 tons/year (LCE equivalent), driven by EV demand. MinRes’s three mines are among the largest and lowest-cost.
• Natural Gas: Western Australia’s onshore gas market is nascent but significant, with MinRes holding large acreage.
• Infrastructure: Not quantified, but demand is tied to mining activity. MinRes’s third-party business (~$333 million EBITDA) serves major miners.

Growth:

• Volume: Iron ore steady (steel demand), lithium high (EV growth), natural gas emerging (pending approvals).
• Price: Iron ore stable, lithium volatile but supported by EV demand, natural gas TBD.
• Absolute Growth: Mining market growing ~5% annually (volume + price), infrastructure tied to mining capex cycles.

Industry Growth Stack:

• Population growth: Minimal impact.
• GDP growth: Drives steel and EV demand.
• Inflation: Impacts costs but mitigated by MinRes’s efficiency.
• EV adoption: Key driver for lithium.

3 KDs (Key Drivers):

1. Commodity demand (steel, EVs, energy).
2. Cost efficiency (low-cost position critical).
3. Infrastructure reliability (mission-critical for miners).

Market Structure

• Iron Ore: Oligopoly dominated by BHP, Rio Tinto, and Fortescue (80%+ of Australian supply). MinRes’s 2% share is small but low-cost.
• Lithium: Fragmented but consolidating, with MinRes among the top hard rock producers alongside Albemarle and Ganfeng.
• Natural Gas: Emerging, with MinRes a key player in Western Australia.
• Infrastructure: Niche, with MinRes as the most efficient operator. BHP and Rio Tinto have internal capabilities but are less efficient.

Traits:

• Regulation: Strict environmental and safety standards in Australia.
• Cyclicality: Mining exposed to commodity cycles; infrastructure stable.
• MES (Minimum Efficient Scale): High for iron ore and infrastructure, favoring large players like MinRes.

Competitive Positioning

Matrix:

• Price: InfraCo offers lowest-cost services; Mining Co is low-cost but spot-priced.
• Target Market: Major miners (InfraCo), global commodity buyers (Mining Co).

Risk of Disintermediation: Low, as MinRes’s efficiency and internal capabilities create a moat. BHP and Rio Tinto rely on MinRes for cost savings.

Market Share:

• Iron Ore: ~2% of Australia’s output, growing with Onslow Iron.
• Lithium: Top-tier producer, with three of the largest low-cost mines.
• Infrastructure: Dominant in crushing services, with growing third-party share.

Relative Growth: MinRes’s volume growth exceeds market averages due to Onslow Iron and lithium expansion.

Competitive Forces (Hamilton’s 7 Powers)

1. Economies of Scale:
• Strength: MinRes’s scale in Western Australia (7,500 employees, $10 billion project pipeline) enables cost leadership. InfraCo’s fixed-fee model leverages scale for high margins.
• Impact: High MES in iron ore and infrastructure limits competitors, favoring MinRes.
2. Network Effects:
• Strength: Limited, but InfraCo’s third-party contracts create a flywheel: efficiency attracts clients, increasing volumes and profitability.
• Impact: Moderate, as reputation drives partnerships.
3. Branding:
• Strength: MinRes’s reputation for speed, cost efficiency, and employee welfare is a differentiator in a commoditized industry.
• Impact: High for InfraCo, moderate for Mining Co.
4. Counter-Positioning:
• Strength: MinRes’s internal construction capability and vertical integration are superior to competitors’ outsourced models. Incumbents (BHP, Rio) face inertia in adopting MinRes’s approach.
• Impact: High, as MinRes captures value competitors cannot.
5. Cornered Resource:
• Strength: MinRes’s talent pool (attracted by employee benefits) and operational IP (30+ years of expertise) are unique. Low-cost assets (e.g., Onslow Iron) are also a resource.
• Impact: High, as competitors lack equivalent capabilities.
6. Process Power:
• Strength: MinRes’s operational efficiency (30% better per shift) and project delivery (half the time, one-third the cost) are unmatched.
• Impact: High, driving cost leadership and ROIC.
7. Switching Costs:
• Strength: InfraCo’s long-term contracts (5+ years, 95%+ retention) create stickiness. Mining Co’s low-cost position reduces churn risk.
• Impact: High for InfraCo, moderate for Mining Co.

Porter’s Five Forces:

• New Entrants: Low threat due to high MES, capital intensity, and MinRes’s efficiency moat.
• Substitutes: Low threat, as mining infrastructure and low-cost commodities are mission-critical.
• Supplier Power: Moderate, as MinRes’s internal capabilities reduce reliance on external suppliers.
• Buyer Power: Low for InfraCo (sticky contracts); moderate for Mining Co (spot pricing).
• Rivalry: Moderate, as MinRes faces large but less efficient competitors (BHP, Rio).

Strategic Logic

• Capex Cycle Bets: MinRes makes offensive bets (e.g., Onslow Iron) to capture high-ROIC opportunities, leveraging internal capabilities to derisk projects.
• Economies of Scale: MinRes operates at MES in infrastructure and iron ore, avoiding diseconomies through nimble operations and focused geography (Western Australia).
• Vertical Integration: Enhances cost efficiency and contract stability, creating a flywheel between InfraCo and Mining Co.
• Horizontal Expansion: MinRes is expanding into natural gas and third-party InfraCo contracts, diversifying revenue while maintaining efficiency.
• M&A: Opportunistic, targeting high-ROIC assets (e.g., lithium mine from receivership) with synergies.

Valuation

Current Valuation: $12 billion market cap, implying a blended ~4x EBITDA multiple ($3 billion projected EBITDA). This undervalues InfraCo, which could trade at 10x-15x EBITDA ($10-$15 billion standalone).

Sum-of-the-Parts (SOTP):

• InfraCo: $1 billion EBITDA x 12x = $12 billion.
• Mining Co: $2 billion EBITDA x 5x = $10 billion.
• Total: $22 billion, suggesting significant upside from $12 billion.

Rationale:

• InfraCo’s stability and growth justify a premium multiple (U.S. railroads trade at 10x-15x).
• Mining Co’s low-cost position and growth (Onslow Iron, lithium) warrant a slight premium over peers (4x-6x).
• Market mispricing (mining-centric lens) creates a margin of safety.

Risks:

• Commodity Prices: Mining Co exposed, but low-cost position mitigates risk. InfraCo unaffected.
• Key-Person Risk: Chris Ellison’s departure could impact capital allocation.
• Talent Retention: Loss of operational IP could erode efficiency.
• Leverage: $4 billion debt is manageable but a concern during CapEx peaks.

Key Takeaways and Dynamics

1. Unique Business Model:
• Vertical Integration: The symbiotic relationship between InfraCo and Mining Co creates a flywheel of efficiency, with Mining Co feeding projects to InfraCo and InfraCo enhancing Mining Co’s profitability. This integration is rare in the mining industry, where most players outsource infrastructure.
• Internal Construction Capability: MinRes’s in-house construction team delivers projects at half the time and one-third the cost, enabling high-ROIC projects that competitors cannot match. This capability is a cornerstone of MinRes’s moat.
• Fixed-Fee Infrastructure: InfraCo’s fixed-fee model insulates it from commodity cyclicality, resembling a high-margin infrastructure business (e.g., railroads) rather than a traditional mining service provider.
2. Capital Allocation Discipline:
• Chris Ellison’s “beauty parade” approach prioritizes high-ROIC projects (>25%), with Onslow Iron (100%+ ROIC for Mining Co, 80%+ for InfraCo) as a prime example. Stake sales (e.g., $1.2 billion for $140 million EBITDA) derisk projects and fund growth.
• Opportunistic M&A (e.g., lithium mine from receivership) generates outsized returns, showcasing Ellison’s ability to capitalize on distressed assets.
3. Employee-Centric Innovation:
• Investments in employee welfare (resorts, MinRes Air, subsidized childcare) attract top talent in a labor-scarce region, reducing turnover and enhancing efficiency. This is a competitive advantage in an industry plagued by labor shortages.
• Operational innovations (e.g., optimized shift changeovers via MinRes Air) minimize costs and CapEx (e.g., fewer rooms at Onslow).
4. Mitigating Cyclicality:
• InfraCo’s fixed-fee revenue eliminates commodity exposure, providing stability. Mining Co’s low-cost position ensures profitability even at depressed prices, as evidenced by no contract losses during the GFC or 2015 commodity bear market.
• MinRes’s focus on through-the-cycle ROIC (vs. short-term earnings predictability) aligns with long-term value creation.
5. Growth Runway:
• Onslow Iron and lithium expansion will double EBITDA to $3 billion within a few years. Third-party InfraCo contracts offer additional growth as major miners seek cost savings.
• A $10 billion project pipeline ensures sustained reinvestment at high ROIC, supporting continued compounding.
6. Competitive Moat:
• MinRes’s efficiency (30% better per shift), internal capabilities, and long-term contracts create a moat that competitors (BHP, Rio) cannot replicate due to inertia and outsourcing reliance.
• The company’s reputation as a partner of choice for major miners strengthens its third-party business.
7. Valuation Opportunity:
• The market’s mining-centric lens undervalues InfraCo, creating a margin of safety. A potential split could unlock value, but synergies between segments justify the current structure.

Conclusion

Mineral Resources is a rare compounder in the mining industry, blending the stability of an infrastructure business with the upside of low-cost commodity assets. Its unique business model—driven by vertical integration, internal construction, and employee-centric innovation—sets it apart from peers. Chris Ellison’s capital allocation prowess and focus on high-ROIC projects have delivered 28% annualized returns for 18 years, with a $10 billion project pipeline ensuring continued growth. The market’s mispricing of InfraCo offers a compelling opportunity for investors who recognize MinRes’s through-the-cycle resilience and competitive moat. By prioritizing good explanations for its operational and financial success, MinRes exemplifies how a well-executed strategy can transform a cyclical industry into a compounding machine.

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