Company Reports

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has persistent earnings momentum.

No-moat iron ore and lithium miner Mineral Resources reported a 42% decline in underlying first-half fiscal 2024 net profit after tax to AUD 224 million or AUD 1.15 per share, less than half our expectations. It was a disappointing miss and no excuses, but this is par for the course. Extreme volatility in iron ore and lithium prices, uncertainty around the timing of revenue recognition, and low-margin iron ore operations make for wild and uncertain swings in period-to-period profitability.

Our AUD 67 per share fair value estimate for no-moat Mineral Resources stands. The iron ore and lithium miner left all fiscal 2024 volume guidance unchanged following the release of fiscal second-quarter operational results.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has persistent earnings momentum.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has persistent earnings momentum.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has persistent earnings momentum.

Shares of lithium producers plunged in 2023 as falling spot prices leave investors worried the 2022 boom turned bust. However, we see no reason to panic. For investors, the selloff creates an attractive opportunity to invest in lithium.

We still see general overvaluation among our listed mining coverage with the average price/fair value estimate sitting at a 9% premium, versus 10% in April. But some of the recent commodity price moves are yet to be factored into the share prices and we rate seven stocks as undervalued. Thermal coal miners New Hope and Whitehaven remain the cheapest of our coverage. Along with Glencore and South32, the firms trade in 4-star territory. Alumina Limited, Newcrest, and Teck Resources are also at modest fair value discounts.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has sustained earnings momentum.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has sustained earnings momentum.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has sustained earnings momentum.

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. Mineral Resources also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage. More recent diversification into lithium production at Mt Marion and the Wodgina mine has sustained earnings momentum.

No-moat Mineral Resources reported a fiscal first quarter that was largely in line with expectations. While our fiscal 2021 EPS forecast declines marginally to AUD 3.04 from AUD 3.14, the slight downgrade is more than offset by the time value of money and we increase our fair value estimate to AUD 22.50 from AUD 21.50.

We make no change to our AUD 21.50 fair value estimate for no-moat Mineral Resources. The company reported a 66% increase in underlying fiscal 2020 net profit after tax to AUD 333 million. This was below our more aggressive AUD 392 million expectations, but due largely to the higher-than-anticipated net interest expense and noncash depreciation. Net operating cash flow increased 450% to AUD 542 million though there remains a larger-than-expected AUD 416 million tax payable on the Wodgina disposal gain. The company paid a lower-than-anticipated AUD 0.77 final dividend, on an as expected 70% payout but over lower earnings.

We increase our fair value for no-moat Mineral Resources by 5% to AUD 21.50, due to an increase in iron ore price forecast and due to the time value of money. The coronavirus did not materially impact Mineral Resources during fiscal 2020 fourth quarter. Further, we upgrade our stewardship rating for the company to Standard from Poor. Management has significantly improved disclosure, and its investment strategy has consistently generated high returns on invested capital.

We increase our fair value for no-moat Mineral Resources to AUD 20.50 from AUD 20.00, chiefly due to the time value of money. The company reported a solid third quarter operationally, but declining lithium prices led us to reduce our fiscal 2020 EPS forecast to AUD 1.30 from AUD 1.47. The earnings reduction does not feature materially in our fair value which rests substantially on unchanged longer-term forecasts. Mineral Resources says coronavirus did not impact third-quarter operations and mining services continues to perform strongly.

We make no change to our AUD 20 per share fair value estimate. No-moat Mineral Resources reported a near threefold increase in underlying first-half fiscal 2020 NPAT to AUD 128 million or AUD 68 cents per share. But we don’t read any longer-term implication into that outcome. Underlying NPAT was ahead of our AUD 58 cent forecast due to better than expected cost performance from the mining segment, including lower than anticipated lithium costs from Mt Marion. Mining services’ contract volumes were also higher than expected, up 80% on the previous corresponding period and 40% on the June half. The underlying NPAT figure excludes AUD 900 million post-tax profit on the sale of 60% of Wodgina lithium to Albemarle, and AUD 145 million in post-tax exploration impairments and investments marked down.

We make no change to our AUD 20 per share fair value estimate. No-moat Mineral Resources says the Foreign Investment Review Board approval has been obtained for Albemarle’s USD 1.3 billion purchase of a 60% interest in Wodgina Lithium, and all conditions precedent for the transaction are now satisfied. Albemarle will consequently pay USD 820 million in cash and transfer a 40% interest in the first two 25 ktpa lithium hydroxide conversion units currently being built in Kemerton, Western Australia.

We make no change to our AUD 20 per share fair value estimate. No-moat Mineral Resources reported a 25% decline in underlying fiscal 2019 NPAT to AUD 201 million or AUD 1.07 per share. This was ahead of our AUD 93 cent per share forecast due to a better than expected cost performance from the mining segment. Underlying EBITDA of AUD 430 million was 15% ahead of guidance, but we don’t read any longer-term implication into that outcome. Net operating cash flow was a bit weaker than anticipated, down 75% to AUD 98 million, unhelped by inventory build-up and a rise in receivables.

We make no change to our AUD 20 per share fair value estimate. Mineral Resources and Albemarle have announced revised terms for Albemarle’s intended purchase of an interest in Wodgina lithium. Albemarle will now purchase a higher 60% stake for $1.30 billion, versus 50% for $1.15 billion previously. However, we think the value implications are fairly neutral with a slightly lower unit consideration overall offset by lower capital expenditures for Mineral Resources. Our fiscal 2019 EPS forecast is unchanged at AUD 0.94, but our fiscal 2020 EPS forecast declines 5% to AUD 1.31 on assumed lower cash at bank, hence interest income.