Mineral Resources (MIN): This morning (26/05/2023), the diversified miner and mining services company gave a quarterly production update, which was below expectations. We usually don’t comment on 3-month production releases as they are too volatile and can give a misleading picture, both positive and negative, but today’s share price move warrants a brief note. The HNW Equity Portfolio holds a 2.5% weight to MIN & the Income Portfolio a higher weight at 3.5%
- Mixed Quarter: Iron ore solid up +10% with higher than expected realised pricing, lithium spod production 120kt (+15% year on year) but below market expectations of between 135-140kt. As discussed above, three months is a too small sample size to gauge the efficiency of a company. Mining services volumes are off due to delays with approvals and contract awards.
- Costs Up: Not a great surprise given the market environment and some delays around mine expansions, some of which are due to government approvals. FY23 cost guidance was raised to $1,200/t from $900/t, though lithium remains very profitable for MIN with realised price US$5,400/t FOB Australia. Most of this growth in production costs are not permanent and relates to the expansion in lithium.
- Expansion: Expansion of Mt Marion lithium on track for mid-May 2023 and pleasingly in line with an initial budget of $120M – this will double production from 450Kt to 900Kt per annum with a 6-8 month ramp up, and all spod being converted to higher value add lithium battery chemicals.
- Why is the stock off: the market did not like the higher cost guidance and some slippage in volumes for FY23, though this is understandable given the significant expansion that MIN is undertaking in lithium.
CEP Strategy: MIN is a diversified miner and mining service with four main business segments mining services, lithium, iron ore and gas. Lithium is the jewel in MIN’s crown, with the company now the world’s 5th largest lithium miner with two operating Tier 1 hard rock mines in Western Australia as well as downstream processing. The company has a unique business model of owning assets and providing mining services to its own and external clients. This gives investors a per-tonne annuity income stream that is not correlated with commodity prices. MIN trades on an undemanding forward PE of 10x with a 4% fully franked yield that will grow in 2024.
Nothing in this quarterly update changes our investment thesis. We note that last Friday, Chile raised plans to nationalise their lithium mines, and this saw US lithium companies with mines in Chile fall between -10% and -20%. This move will likely reduce supply in the future and is positive for companies such as MIN, with mines only in Australia.
MIN finished (26/04/2023) down -9.6% at $72.69 in what looks to be an overaction to a weaker than expected quarter in lithium as MIN dramatically expands production.