Trafigura Struck $400 Million Cash-for-Iron Ore Deal With MinRes

The deal comes as Mineral Resources’ net debt has rapidly risen, as it builds its Onslow mine along with a haulage road.

SEATTLE (Scrap Monster): Trafigura Group has struck a $400 million prepayment deal for iron ore with Mineral Resources Ltd., as the Australian miner focuses on preserving cash amid a downturn in its two main commodities.

The prepayment was reported by Mineral Resources in July, but the Perth-based mining company did not say who the buyer was and rebuffed analysts’ questions for more details about the deal.

Trafigura, one of the world’s biggest commodity traders, was the buyer, people familiar with the matter told Bloomberg News, asking not to be identified as the transaction is private.

For Trafigura, the deal represents the latest step in a push into iron ore trading. Between 2012 and 2022, the company boosted its iron ore volumes more than fivefold to 31 million tons, according to its annual reports. The trading house has advanced further in 2024, thanks to higher volumes at its Brazilian port and “increased trade of iron ore from Australia and India,” it said in its half-year report.

“Due to confidentiality restrictions, we cannot disclose the terms or the customer that the transaction was undertaken with,” a spokesperson for Mineral Resources said in a statement to Bloomberg on Wednesday. The prepayment is repayable via delivery of iron ore between fiscal 2026 and 2028, they added. A spokesperson for Trafigura declined to comment.

Prepayments are a common way for traders to secure access to resources by helping to finance commodity producers. They are much like loans and generally incur interest, but are structured as advanced payments for future supplies.

The deal comes as Mineral Resources’ net debt has rapidly risen, as it builds its Onslow mine along with a haulage road. The company’s iron ore projects are producing at a higher cost to most other miners in the region. Earlier in the year, it closed its Yilgarn iron ore project due to falling margins.

Prices of both iron ore and lithium, the company’s two key commodity products, have slumped this year. Meanwhile, shares of Mineral Resources have dropped more than 50% since mid-May to the lowest in more than three years.

“We’re throwing everything off the deck just to make sure we can preserve cash,” billionaire Chief Executive Officer Chris Ellison told analysts last week.

Net debt at Mineral Resources rose to A$4.4 billion ($3 billion) at the end of June, up from $698 million two years before. The latest debt total was reduced by the A$600 million of cash received under the prepayment deal.

On the July call with analysts, Mineral Resources was peppered with questions about the deal.

“Just on the prepayment again. My parents always told me there’s no such thing as a free lunch. So on the A$600 million prepayment, what is the gentleman on the other side, the company on the other side getting in return?” asked Glyn Lawcock, head of resources research at Barrenjoey. “Is there a bigger discount, or are you paying interest? Like, there must be a rub on the other side?”

The deal and its terms were “not dissimilar” to other prepayments, said Mineral Resources Investor Relations Manager Chris Chong, while declining to comment further. The company said it’s still fully exposed to market prices under the prepayment deal.

Courtesy: www.finance.yahoo.com

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