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One of my dogs of 2024 key loser..i actually wonder if any value will be left by December ....Leaked report a glimpse into MinRes’ troubled road to nowhere
Slicing through the Pilbara at a cost of hundreds of millions of dollars, the Onslow road, which opened last year, was meant to be paved with gold. Instead, it is crumbling.
Mark Wembridge and Mark Di Stefano for AFR
Mar 3, 2025 – 5.00am
The radio chatter started just a few hours after the maiden road train left Mineral Resources’ flagship Pilbara iron ore mine bound for a port 147 kilometres to the west. The surface of the company’s new road was already deteriorating, the truck drivers warned each other.
It’s no ordinary road. Described by MinRes, a major diversified miner and contractor, as one of the country’s “most impressive pieces of transport infrastructure”, the Onslow haul road is the only way to get the iron ore from the company’s biggest mine, Ken’s Bore, to its customers.
To achieve MinRes’s shipping targets, triple-trailer road trains each weighing more than a fully laden Airbus A350 aircraft have to leave every five minutes, every hour of the day, for the next three decades.
The haul road was only officially finished late last year. So how could it already be crumbling? Since August, five trucks have crashed on the road network, MinRes has slashed iron ore production forecasts, and new costs have emerged.
Last month, MinRes shares slumped more than 20 per cent in one day after the company said it would have to spend $230 million repairing and resurfacing the road. That revelation left investors and brokers asking if MinRes had taken too many risks with its $3 billion Onslow project.
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Mineral Resources said it needs to repair and resurface its 147-kilometre iron ore haul road.
But MinRes, which is run by billionaire mining mogul Chris Ellison, has had plenty of warnings about the road, and the mine and the port. In one report handed to the company last February and obtained by The Australian Financial Review, Min Res is warned over 225 pages and two dozen examples that it was underestimating the project’s risks. The report, by mining advisors AMC Consultants, has never been released.
It is that report – known as Project Mulloway, a nod to the game-fish found in Western Australian waters that are favourite of Ellison’s – that estimates that a truck has to leave every five minutes around the clock to hit MinRes targets. That would mean, AMC concluded, “more than 550 ‘truck passing interactions’ every hour on the haul road, day and night”.
“Any disruptions along the haulage path, or at the port, will require this departure interval to be reduced in order to catchup on the lost loads,” the report reads. In other words, so much hinges on so little going wrong.
Last year was a difficult one for Ellison. The Financial Review revealed the blunt-speaking billionaire from New Zealand’s South Island had engaged in an extensive offshore tax evasion scheme, a move that had also enriched him at the expense of the company he founded. A board review found he had ordered company employees to work on his boat and manage his finances. He apologised and said he would resign by the middle of 2026.
MinRes chairman James McClements is also leaving. Meanwhile, the Australian Securities and Investments Commission is in the midst of a formal investigation into the company’s handling of the tax issues.
But it is the Onslow road that threatens to bring the company undone.
An existential gamble
MinRes staked almost everything on its private haul road between its Ken’s Bore mine and the port near Onslow. Other Pilbara iron ore producers – Rio Tinto, BHP, Fortescue and Gina Rinehart’s Roy Hill – use rail to connect mines to port. MinRes opted for a road, due to the huge cost of building rail infrastructure to Ken’s Bore, a more isolated site than other projects.
But the construction of the Onslow project has saddled MinRes with big debts. To service the $5.8 billion it owes, the company needs regular cash from taking the iron ore along the road to port and to customers.
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MinRes was founded by Chris Ellison. He says he will step down next year. Trevor Collens
MinRes, in which Ellison still has an 11 per cent stake, has often marvelled at its own project. When the first iron ore was shipped, in May, the company said it was a milestone achieved less than a year after ground was broken at the Ken’s Bore mine. The “innovative mining and transport infrastructure” was designed and built by MinRes, the company said.
Ellison has previously said the road was built to exacting standards and was designed to withstand the Pilbara’s torrential cyclonic downpours. This year, he blamed those downpours for damaging the road, forcing a costly upgrade from bitumen to asphalt. It was “once in 40-year” bad weather, he said.
The road, the construction of which was brought in-house after contractor QH & M Birt walked off the job over concerns about the quality of materials used, was “about 95 or 96 per cent right”, Ellison added.
The AMC report estimated that the total cost of the project’s “haul roads, overpasses, bridges and tunnels” was $568 million. That would mean the repair bill is about 40 per cent of the original price.
Long-time Pilbara road construction managers are sceptical about the $230 million repair price tag. Speaking on condition of anonymity, they said the bill should be at least $100 million higher for such major work.
“It’s underquoting. If they’re going to redo the whole road, a conservative cost is about $2.3 million per kilometre. The road is rutted, which means that the sub-base is moving, and there is deformation further down. Asphalt will not fix anything because the base needs to be done first,” they said.
A passing risk
The AMC report was commissioned as part of a process to sell half of the road, and a long-term revenue stream, in a bid to cut MinRes’ debt. It warns that the width of the road was not ideal for such large trucks. The lanes are four metres wide. The trucks are 2.5 metres wide. That meant there was only a small gap as the trucks passed one another, increasing chances of a collision.
“Assuming the [trucks] try to drive in the middle of their lanes, this only leaves 75 centimetres on either side for clearance. Two passing [trucks] will have only 1.5m of clearance,” the report reads. “Wind forces, poor vision, and normal trailer sway ... could reduce this clearance distance significantly, especially if the [trucks] pass during cornering.”
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There have been a number of truck rollovers on the road.
At speeds of 70 kilometres per hour, trucks would pass each other every 2.5 minutes – something AMC considered “a major risk to the project given that the 148km haulage route is the major lifeline of the project”. About 80 trucks currently operate on the road. It is expected to rise to 110, with ambitions to eventually run fully autonomous trucks on the route. To get its ore to overseas customers on time, MinRes would have to load a 200,000 tonne vessel every 54 hours. Its 220,000-tonne storage space at the port amounted to just over two days worth of haulage.
The AMC consultants made other observations, too. There was a “lack of road drainage criteria and modelling”, they said. “[Mineral Resources] cost and revenue assumptions are opaque, based on internal historical data and Onslow joint venture negotiations,” the Project Mulloway report added.
In a statement on Sunday, a MinRes spokesman said “no fatal flaws” had been identified, and adding that upgrade works were going on including cement stabilisation of some sections and asphalting of the entire road.
“MinRes is confident these measures will ensure the haul road can withstand the unique conditions, deliver nameplate haulage capacity and significantly decrease maintenance costs over the long term,” he said.
“The review identified a number of risks within the study, which were responded to in full and were considered in detail by MinRes in the finalisation of project planning. Many matters identified by the review were resolved in the design, construction and operational schedule of the project.”
Morgan Stanley rides shotgun
Last year, Morgan Stanley Infrastructure Partners, an investment unit of the Wall Street bank, paid $1.1 billion for a 49 per cent stake in the road. MSIP could tip in another $200 million should certain haulage targets be met.
(The road also operates as a private tollway that can be used for a fee of $8.04 per tonne of iron ore that passes along the route.)
In its Friday statement, MinRes said the consultant’s report has been available to prospective buyers of the stake in the road who had “considered the review and MinRes’ response to identified risks, and conducted due diligence with the support of their own independent experts”.
Last month, in a call with analysts, Ellison was more defiant. MSIP, he said, had no recourse to claw back its money should MinRes fail to meet its forecasts for haulage along the road. “If I could get youse to more focus on the share price – if you could get that up that would get my debt ratio down – that’s your part,” Ellison told the analysts on the call.
There are now unanswered questions about whether MSIP insisted on putting “take or pay” provisions into its contract with MinRes. They would guarantee revenue from MinRes regardless of how much iron ore is transported along the road. Morgan Stanley has consistently refused to comment and has directed questions to MinRes.
“It’s a sad confluence of a conflicted management team and chair who do not appear to have always acted in the best interests of shareholders,” says Jarden analyst Ben Lyons, whose long term – and accurate – bearish outlook on MinRes has attracted the ire of Ellison,
“A company whose cash flows are entirely at the mercy of two commodity prices – lithium and iron ore. There’s poor disclosure, and a completely inappropriate balance sheet structure which is over-geared and now also displaying short-term liquidity issues.”
Lyons noted Onslow was critical to MinRes’ attempts to solidify its balance sheet because it “is vastly more leveraged to iron ore prices than lithium”.
Investors have followed Lyons’ advice and savaged Ellison and MinRes over explanations around the road. The company’s shares, which nudged $80 last May, are now changing hands below $23. A new group of short sellers – investors who bet on the share price to fall – have arrived, making MinRes the most shorted on the ASX, according to S&P Global Market Intelligence.
With a market capitalisation of $4.5 billion, MinRes is worth less than its $5.1 billion net debt, increasing the prospect it will raise money at a depressed price.
“The market has become keenly aware that MinRes is carrying far too much debt for a commodity producer, and with the equity value now trading well below net debt, an equity recapitalisation becomes increasingly difficult ... and increasingly dilutive,” said Lyons. “We expect further underperformance even without factoring in the potential for equity dilution.”
MinRes said: “We have a number of other levers at our disposal to release further capital if needed, and we are not contemplating raising equity."
It was a road that was meant to be paved with gold for MinRes. Instead, its Onslow project is yet another headache for the already beleaguered Ellison.
