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Investing.com -- Fitch Ratings has downgraded the Issuer Default Rating (IDR) of Australia-based Mineral Resources Limited (MinRes) to ’BB-’ from ’BB’, pointing to the company’s high leverage and increased deleveraging risks over the medium term. The outlook is negative. The ratings agency also downgraded MinRes’ US dollar senior unsecured notes to ’BB-’ from ’BB’.
The downgrade is a reflection of MinRes’ high leverage and the increased risks of deleveraging in the medium term. Fitch anticipates that EBITDA net leverage will worsen to 7.3x in the financial year ending June 2025 (FY25), up from 4.9x in FY24, and remain above 3.0x in FY26-FY28. The company’s reported net debt increased by AUD656 million to AUD5.1 billion at the end of December 2024, despite cash proceeds of AUD1.9 billion from the sale of a 49% stake in the Onslow Iron haul road and gas assets. Approximately AUD320 million of the increase in the company’s debt was due to the revaluation of its USD3.1 billion in bonds.
The negative outlook is a reflection of the execution risks associated with its planned cost improvements, capex discipline, and production ramp-up at its Onslow iron ore project. These may keep leverage above Fitch’s expectations, which could result in further negative rating action.
MinRes’ high leverage is due to its weaker financial performance in the first half of FY25, accompanied by a build-up of working capital and revaluation of its US dollar bonds. The company also revised its full-year guidance for its Onslow project due to increased capex for a haulage road upgrade and slower production ramp-up.
Fitch expects MinRes’ performance to improve in FY26 due to cost-cutting initiatives, capex discipline, and higher production volume at Onslow. This is expected to stabilize the leverage ratio at about 3.4x on average in FY26-FY28, assuming no new significant investments.
The company reported a loss of AUD15 million in its lithium segment EBITDA in the first half of FY25, driven by a continued decline in average realized spodumene concentrate prices compared with FY24, while costs at the Mt Marion and Wodgina mines increased. MinRes has continued to optimize production at its lithium mines to reflect softer market conditions. The Bald Hill mine was put into care and maintenance, while costs are expected to drop to MinRes’ reaffirmed FY25 guidance for Mt Marion and Wodgina.
The company revised its guidance on the Onslow project in February 2025, increasing growth capex by around AUD200 million to AUD1.6 billion in the first half of FY25, driven by the road upgrade. The company also expects a slight delay in the project ramping up due to weather-related disruptions in January-February 2025, with FY25 attributable production guidance decreasing by around 2 million tonnes.
The downgrade also reflects a deficiency in MinRes’ corporate governance, which may exacerbate its credit risks. The MinRes board has been reviewing and investigating some issues over the past few months. It has introduced new practices that will enhance internal processes for related-party transactions, investment decisions, disclosure, and leadership succession.
MinRes has a long-term EBITDA leverage target of 2.0x and has been monetizing investments to support its balance sheet and fund an extensive capex pipeline over the past few years. It sold the 49% stake in its Onslow Iron haul road for up to AUD1.3 billion in FY24, with net proceeds of AUD1.1 billion to be received in FY25. It also received AUD780 million as the initial consideration for its gas assets sold in the first half of FY25. Additional contingent considerations for these transactions total AUD0.55 billion.
MinRes’ rating reflects its strong position in upstream lithium and rising production of iron ore. The company is expected to increase iron ore production to 29-31 million tonnes over the next two years, with a material improvement in its average cost position on the iron ore industry curve.
MinRes had AUD720 million in cash as of December 2024 and AUD800 million in undrawn revolving facilities expiring in 2027. The company’s debt is largely made up of bonds, with the nearest maturity of USD700 million in May 2027. The remainder of its debt maturities is well-spread-out. The repayment of the AUD600 million prepayment will be achieved through the delivery of iron ore; with AUD400 million expected to be effectively repaid in FY26 and FY27.
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