Mineral Resources shares continue collapse, as an Andrew Ellison-led WA garnet mine exacerbates cash crunch

A troubled garnet mine near Kalbarri run by a Mineral Resources subsidiary that Chris Ellison’s brother leads is racking up a hefty debt owed to its cash-starved parent company. Pressure on MinRes to bolster its balance sheet is growing and the mining major’s stock dropped another 6 per cent on Thursday — meaning 60 per cent of its share price value has evaporated since mid-May. This decrease equates to nearly $10 billion of paper wealth, most of which has been lost over the past month. ASX-listed Resource Development Group — 64 per cent owned by MinRes — had a bumper 2024 financial year according to its annual report lodged last week. It generated a 26.6 per cent rise in profit to $17.4 million and more than trebled operating cash flow from $9.2m to $33.4m — likely buoyed by work at MinRes’ Onslow Iron project. In October last year, RDG secured a $140m contract for the construction of bridges, overpasses and approach roads at Onslow. RDG boss Andrew Ellison saw his pay jump from $525,296 to $948,107 for FY2024 and construction director Gary Reid raked in $1.05m versus $543,629 the fiscal year prior. Cash reserves grew from $3.9m to $8.3m over the 12 months to June 30, but no dividends were paid. The biggest liability on RDG’s balance sheet is a $125m loan owed to MinRes for the development of the Lucky Bay Garnet project 20km south of Kalbarri. The loan limit was upped from $100m to $125m at some stage during FY2024 and the first repayment date was pushed out from September 30 this year to the same date next year. RDG had drawn down $117.1m of the $125m loan limit by June 30. “MinRes will not request that the loan be repaid until such time as the Lucky Bay Garnet project transitions to commercial production and generates positive cashflows,” RDG’s annual report states. “A recent series of modifications and upgrades to the plant is providing strong signs of increase in production and reliability, confirming the company’s goal of increasing production is firmly achievable in the near future.” Lucky Bay eked out first garnet in early 2023 but is still yet to reach its nameplate capacity of 130,000 tonnes per annum. Garnet is commonly known as a gemstone, but the garnet-rich sand scooped up at Lucky Bay have finer grains that are used as an abrasive in waterjet cutting and the blasting process to apply protective coatings. The operational woes at Lucky Bay come as MinRes faces intense scrutiny from investors and analysts over its creaking balance sheet. MinRes’ cash pile was reduced by $471m to $900m over the year to June 30, while net debt has ballooned from $1.9b to $4.4b. To make matters worse prices of the key commodities it mines — lithium and iron ore — are trending downwards. MinRes declined to comment when asked by The West Australian if it had any potential plans to call in the RDG loan payments early to improve its liquidity position. Chris Ellison last week said the MinRes he helms was “throwing everything off the deck” to conserve cash and flagged the possibility of asset sales to inject more capital into the business. “I mean, this is the sh**tiest time to be the manging director of the company. You’ve got to really carve the costs out of everything you’re doing,” he said. MinRes is in the processing of culling 140 people from its Perth headquarters as part of the forage for cash. It also pre-sold $600m of iron ore in July from Onslow, at a discount, to ease the debt strain.