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Mineral Resources Ltd (ASX: MIN) shares are racing higher on Thursday morning.
At the time of writing, the mining and mining services company’s shares are up 4% to $72.49.
Why are Mineral Resources shares racing higher?
Investors have been buying the company’s shares today after responding positively to the release of an announcement after the market close on Wednesday.
According to the release, Mineral Resources has entered into a binding agreement with Morgan Stanley Infrastructure Partners (MSIP) for the sale of a 49% interest in the Onslow Iron project’s dedicated haul road.
Management expects the sale to generate total proceeds of $1.3 billion.
Mineral Resources will retain a 51% interest in the asset. It will also have exclusive rights to use, operate and maintain the road. The arrangement with MSIP will ensure seamless mine-to-ship delivery of Onslow Iron product to customers.
What is the Onslow haul road?
The Onslow Haul Road is a key component of an innovative transportation infrastructure solution that was developed by Mineral Resources. The company highlights that the road unlocked stranded iron ore deposits in the West Pilbara region of Western Australia.
The 150 kilometre dual lane road links the Ken’s Bore mine site to the Port of Ashburton. It will be fully sealed, fenced and equipped with fibre optic cabling to support the operation of autonomous road trains.
Transaction details
The release reveals that the transaction vehicle will receive a life-of-mine CPI-adjusted tolling fee per tonne of iron ore transported through the Onslow Haul Road of $8.041 (100% basis). This will be capped at 40 million wet metric tonnes per annum (Mtpa).
The tolling fee will be reset at a reduced rate after 30 years. Any tolling payments for volumes above 40Mtpa will be fully owned by Mineral Resources.
Management notes that the transaction values the Onslow Haul Road (100%) at $2.7 billion. This represents a 9.4 times pro-forma EBITDA multiple based on the 35Mtpa nameplate capacity.
The gross proceeds are payable in cash and comprise upfront consideration of $1.1 billion and a deferred consideration of $200 million. The latter is subject to achieving a 35Mtpa run rate for any quarter before 30 June 2026.
‘World-class credentials’
Mineral Resources managing director Chris Ellison commented:
I am proud of the strategic relationships we have formed with global industry leaders and pleased to welcome Morgan Stanley Infrastructure Partners as a partner in the Onslow Haul Road.
This transaction is a strong endorsement of Onslow Iron’s world-class credentials, after the project last month delivered first ore on ship ahead of schedule.
As the first transaction of its kind in the Australian iron ore industry, it showcases the considerable value of MinRes’ portfolio of infrastructure assets and our ability to unlock significant capital.
The transaction also establishes access to a new pool of capital to further accelerate our growth and continue to deliver returns for our shareholders.