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Mineral Resources Ltd (MIN) $35.99

MIN has been in the “wrong place, at the wrong time” over the last few years as the price of iron ore and lithium fell away, not helped by China’s property crisis. The stock has even become a vehicle of choice to fade these two commodities. As of a week ago, before the release of Chris Ellison’s tax evasion scandal almost 12% of the stock was held short – they will be happy today. The sensitivity to China’s economy was evident in recent weeks as MIN surged over 80% following the stimulus announcements from Beijing.

Chris Ellison has been the driving force behind MIN, almost a ‘god like’ figure to some investors and if he was forced out it would concern many. Interestingly he “self-reported” to the ATO, repaid amounts owed and disclosed the matter to the board in 2022, arguably because he would have been found out for the actions taken around 15-20 years ago, i.e. bad behaviour even catches up with billionaires. The AFR may have brought the story to light, but they’ve also destroyed a few billion dollars of shareholder wealth in the process, a classic two-edged sword.

MIN opened higher on Wednesday before Barrenjoey downgraded the stock to neutral from overweight with a price target (PT) of $42 sent another wave of selling through the miner. Their logic made sense, essentially increasing the risk premium used in their model on corporate governance concerns, elevated levels of debt in a weak commodity price environment, and operational concerns, however, it was clearly the tax evasion scandal which tipped the balance with debt levels and operational concerns already well understood – previously they had a PT of $54.

The move in MIN is nothing to do with earnings, these will be largely influenced by Li and Fe prices hence the risk/reward is improving as the stock declines.

  • We like MIN into weakness in the $30-33 region, but we see no short term end to current volatility.
MIN
MM is bullish MIN, seeing value into current weakness
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Mineral Resources Ltd (MIN)
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