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ASX:MIN
Mineral Resources Ltd
Investment Summary
The fund managers believe that Mineral Resources Ltd presents a compelling investment opportunity despite recent challenges. They emphasize that all key areas of the business—iron ore, lithium, and mining services—possess favorable medium-term tailwinds. The Onslow Iron project is expected to deliver a significant enhancement in earnings, with first production targeted for mid-FY25 and strong cash flow contributions thereafter. The managers note that while lithium markets are currently volatile, the company is on track to more than double its lithium production to over 1,000kt of spodumene concentrate. They are optimistic about the financial health of the company, particularly following the sale of a 49% stake in the Onslow haul road for A$1.3 billion, which should improve balance sheet flexibility. Despite governance issues and recent share price declines, the managers assert that the shares remain undervalued compared to the intrinsic value of its core segments, indicating potential for significant upside as market conditions stabilize.
Commentary From The Managers
L1 Capital
28 Feb 2025
$22.71
- L1 Capital continues to hold an investment in Mineral Resources despite a 35% decline in shares due to delays and additional capital expenditure.
- The recent share price reaction is viewed as excessive, reducing market capitalisation by over $2.6b.
- At current levels, Mineral Resources is considered incredibly undervalued with a market capitalisation of just over $4b and an enterprise value of $9.2b.
- The company has three key business segments contributing to its value:
- A high-quality mining services business growing EBITDA at over 20% per annum, expected to generate close to $1b p.a. in FY27.
- A rapidly growing iron ore business expected to deliver about $750m in FY27 EBITDA, post ramp-up of the Onslow project.
- A lithium business with significant potential value, possibly around $3b, despite current pricing challenges.
- Concerns over the company’s balance sheet are recognized, but improvements in gearing metrics are expected over the next 12 months.
- No near-term debt maturities and several asset sale options are available for deleveraging.
- Progress in corporate governance is noted, with a new Chair expected to be announced in the June 2025 quarter.
- L1 Capital believes the current share price of around $21 presents a compelling risk-reward scenario with significant upside potential.
L1 Capital
31 Dec 2024
$34.25
- L1 Capital continues to hold a position in Mineral Resources Ltd.
- Shares declined primarily due to ongoing governance issues.
- Company announced a leadership transition plan, seeking CEO succession over the next 12-18 months.
- Further insights can be found in the October Monthly Report.
- L1 Capital believes all core segments of Mineral Resources should see material improvement over the medium term.
- The Onslow Iron Ore project is ramping up towards a positive cash flow contribution expected from mid-FY25.
- The mining services business anticipates a positive step-change in volumes and earnings in the coming 18 months.
- The lithium business has significant volume optionality to produce over 1,000kt of spodumene concentrate when market conditions improve.
L1 Capital
30 Nov 2024
$35.72
- Mineral Resources (Long -15%) shares have declined due to ongoing governance issues.
- The company is implementing a leadership transition plan for CEO succession over the next 12-18 months.
- L1 Capital refers to the October Monthly Report for a more detailed perspective.
- L1 Capital believes that each of Mineral Resources' core segments should see material improvement over the medium term.
- The Onslow Iron Ore project is set to ramp up towards positive cash flow by mid-FY25.
- The mining services business is expected to see a positive step-change in volumes and earnings in the next 18 months.
- The lithium business has significant volume optionality to produce over 1,000kt of spodumene concentrate when market conditions improve.
L1 Capital
31 Oct 2024
$39.40
- L1 Capital notes a decline in Mineral Resources shares due to governance investigations and the Chairman's announcement to step down.
- L1 Capital encourages a stronger corporate governance framework and accountability measures for the board.
- Support is expressed for financial penalties imposed on the CEO for governance breaches.
- L1 Capital believes retaining Chris Ellison as CEO is beneficial for shareholders, with improved governance in place.
- Investment in Mineral Resources has been long-term, with L1 Capital major investors since 2017 and the largest shareholder post-Chris Ellison.
- Following a recent sell-off, L1 Capital has increased its shareholding amid a substantial market cap drop from ~$10b to ~$7.5b.
- Chris Ellison has successfully grown Mineral Resources from $150m market value in 2006 to a $10b leader prior to the recent dip.
- Shareholders have experienced over 80-fold returns during Chris Ellison's tenure, demonstrating strong performance in Australian equities.
- The recent sale of gas assets for $1.1b addresses balance sheet concerns and exceeds market expectations.
- L1 Capital appreciates the company's optionality, particularly in iron ore volumes over time.
- Upcoming developments in the Onslow Iron Ore project are projected to improve cash flow by mid-FY25.
- Positive changes in the mining services business are expected in the next 18 months.
- The lithium segment holds significant potential, aiming to produce over 1,000kt of spodumene concentrate as market conditions improve.
Blackwattle Investment Partners
31 Oct 2024
$39.40
- Mineral Resources (MIN) faced governance breaches, including undisclosed related party transactions.
- Concerns arose regarding founder Chris Ellison's personal tax matters.
- While acknowledging Ellison’s business achievements, the allegations diminish their significance.
- The board is at a crossroads due to Ellison's central role in the business.
- Poor governance can lead to poor business culture, which is a major concern for long-term success.
- Leadership instability amidst the Onslow project ramp-up added to the decision to exit.
- Based on these factors, Blackwattle Investment Partners sold their position in Mineral Resources.
L1 Capital
30 Sept 2024
$52.04
- Mineral Resources shares rallied by +30% following Chinese stimulus measures.
- Iron ore prices rebounded by +8% over the month.
- The company completed the A$1.3b Onslow Haul Road sale, providing additional funding during elevated capital spending.
- L1 Capital increased its position in Mineral Resources at ~$30/share, viewing the stock as materially oversold.
- The shares closed the month at $52/share.
- The company is approaching a favourable inflection point with the Onslow Iron Ore project ramping up towards positive cash flow by mid-FY25.
- Mining services volumes are expected to materially increase over the next 18 months.
- Mining services volumes should support EBITDA generation of ~$1b, underpinned by long-life contracts.
- Despite volatility in the lithium market, Mineral Resources has optionality to produce over 1,000kt of spodumene concentrate when conditions improve.
- L1 Capital believes that each of the company’s core segments will see material improvement over the medium term.
Blackwattle Investment Partners
31 Aug 2024
$39.51
- Blackwattle Investment Partners continues to hold Mineral Resources Ltd (MIN) despite recent underperformance.
- Recent capital expenditure guidance for FY25 was disappointing, with group expenditure reaching $1.9bn, which exceeded market expectations.
- Total spend includes $0.6bn on stage 1 Onslow and ongoing waste stripping in lithium operations.
- Investor concerns have emerged regarding the balance sheet due to a drop in iron ore prices to US $92/t and lithium prices sinking below production costs.
- Blackwattle believes that while iron ore prices may drift lower, Onslow Iron will still yield good returns for shareholders.
- According to Blackwattle's analysis, lithium prices are approaching bottom levels, potentially rising to US$1000/t -US$1200 SC6 in the long-term.
- Chris Ellison highlights the current market condition stating that no lithium companies are currently generating profit.
L1 Capital
31 Aug 2024
$39.51
- Mineral Resources (Long -26%) shares have declined due to softness in key commodity markets, particularly with a 20% drop in lithium spodumene price.
- The company reported an outlook for FY25 that includes lower lithium production volumes and continued elevated growth capital spending in both iron ore and mining services segments.
- Mineral Resources is approaching a favorable inflection point with its Onslow Iron Ore project ramping up towards positive cash flow contribution expected from mid-FY25.
- Mining services volumes are projected to materially increase in the next 18 months, supporting EBITDA generation of ~$1b.
- The mining services are underpinned by long life contracts, providing strong earnings support for the business.
- Despite volatility in the lithium market, Mineral Resources holds significant volume optionality to produce over 1,000kt of spodumene concentrate when conditions improve.
- L1 Capital continues to believe that each of the company's core segments should see material improvement from current levels over the medium term.
L1 Capital
30 June 2024
$54.94
- Mineral Resources (Long -25%) shares declined due to softness in key commodity end markets, particularly lithium spodumene and iron ore prices down 16% and 7% respectively.
- Negative market trends offset positive operational announcements, including early delivery of first ore from Onslow Iron project.
- L1 Capital highlights the sale of a 49% interest in the Onslow haul road for A$1.3b, positioning the company well for future growth and shareholder returns.
- Despite market volatility in lithium, Mineral Resources is on track to more than double production to exceed 1,000kt of spodumene concentrate over coming years.
- L1 Capital continues to believe in the favourable medium-term tailwinds across all key business areas: iron ore, lithium, mining services, and gas.
- The shares are considered significantly undervalued by L1 Capital.
Blackwattle Investment Partners
30 June 2024
$54.94
- Blackwattle Investment Partners notes that Mineral Resources (-24%) has detracted from performance due to weakening lithium markets.
- Lithium mining accounts for 30%-50% of the company's valuation, contributing to concerns over high debt levels from the Onslow Iron Ore project.
- The announcement of the sale of a 49% interest in the Onslow Iron Haul Road for $1.3bn aims to reduce debt and improve balance sheet capacity.
- Proceeds will facilitate an increase in Onslow Iron Ore production from 35mt to 50mt over 2024-25.
- Onslow Iron is a new major iron ore project, costing $3bn, with a projected C1 cost of A$45/t.
- At stage 1 ramp-up, the project’s EBIT for Mineral Resources could reach $670m to $1.2bn based on iron ore prices of US$80/t to US$105/t.
- Current lithium markets are oversupplied, following 2022 boom-time prices, indicating a need for market adjustment.
- Research shows that Chinese lepidolite all-in cash costs are near US$10,200/t, affecting spodumene pricing.
- Development of new projects like Pilbara Minerals (PLS)’s P2000 may not be viable at current prices, highlighting the challenge for new entrants.
- Blackwattle Investment Partners emphasizes the importance of tier 1 assets that are low on the cost curve, including those managed by Mineral Resources and IGO Limited.
Endeavor Asset Management
30 June 2024
$54.94
- Endeavor Asset Management notes a 25% decline in Mineral Resources' share price in June.
- This decline was attributed to a drop in iron ore prices and negative sentiment towards lithium demand.
- Increased supply from Africa has also impacted market sentiment.
- Despite these challenges, Mineral Resources reported $1.3 billion from the sale of 49% of their Onslow Iron project asset.
- The net proceeds of approximately $1.2 billion (after tax) are expected to be used to reduce debt.
- Endeavor Asset Management continues to hold positions in Mineral Resources based on potential recovery in market conditions.
L1 Capital
30 June 2024
$54.94
- Mineral Resources (Long -24%) shares declined due to softness in key commodity end markets.
- Lithium spodumene and iron ore prices down 16% and 7% in June, impacting performance.
- Positive operational announcements include delivery of first ore from Onslow Iron project ahead of schedule.
- Sale of 49% interest in Onslow haul road for A$1.3b positions the company for future growth.
- Once the sale closes, the company will be well placed to drive growth and shareholder returns.
- Despite volatility, Mineral Resources is on track to double production to exceed 1,000kt of spodumene concentrate.
- L1 Capital believes all key areas of Mineral Resources’ core business have favourable medium-term tailwinds.
- Valuation remains attractive, supported by the long life and Infrastructure-like earnings from the Mining Services division.
Endeavor Asset Management
31 Jan 2024
$59.95
- Endeavor Asset Management notes that shares of Mineral Resources Ltd (MIN) detracted in January due to lower lithium prices driven by reduced EV demand.
- Concerns arose regarding MIN's near-term cash flow and balance sheet stability.
- These concerns were alleviated by the release of the December quarterly activities report.
- The report indicated MIN's intention to sell a 49% stake in the Onslow Iron haul road, estimated to value between $700 million and $1.2 billion.
- This potential sale could strengthen MIN's balance sheet.
- Additionally, the Onslow Iron (Ashburton) project is progressing well and is expected to be completed within budget.
- Endeavor Asset Management eagerly anticipates updates on the haul road sale and the initial ore from the Onslow project expected in June.
L1 Capital
31 Dec 2023
$70.62
- Mineral Resources (Long +14%) shares have seen strong performance due to a 7% increase in iron ore prices in December, reaching a 2023 high.
- This increase in iron ore prices counters ongoing weakness in lithium markets, which are adjusting from a supply deficit to a more balanced outlook.
- L1 Capital highlights that the company’s exposure to iron ore is set to increase as progress on the Onslow Iron project continues.
- The Onslow Iron project aims to transform Mineral Resources’ existing smaller-scale operations into a large, long-life, low-cost operation, with first production expected in June 2024.
- In the lithium segment, the company is forecasted to more than double production to exceed 1,000kt of spodumene concentrate in the coming years.
- L1 Capital believes that all key areas of Mineral Resources’ core business—iron ore, lithium, mining services, and gas—are supported by favorable medium-term tailwinds.
- The shares of Mineral Resources are perceived to be undervalued in the current market.
L1 Capital
31 Oct 2023
$57.76
- Mineral Resources shares declined ~15% as lithium prices fell ~23% over the month.
- Lithium markets are adjusting from a significant supply deficit to a more balanced outlook in the short term.
- First quarter production report indicated continued ramp-up of lithium assets.
- Forecast to more than double lithium production to exceed 1,000kt of spodumene concentrate in the coming years.
- Significant progress on the Onslow Iron project, noted during a recent site visit.
- Onslow Iron project expected to transform the current iron ore business into a sizeable, long-life, low-cost operation.
- First production from Onslow targeted for June 2024.
- L1 Capital believes all key areas of Mineral Resources’ business have favourable medium-term tailwinds.
- Shares of Mineral Resources are considered undervalued.
L1 Capital
30 June 2023
$71.43
- Mineral Resources (Long -11%) shares declined due to weakness in the Chinese economy impacting iron ore prices.
- The company delivered a market update indicating lower-than-previously-guided lithium production and higher costs.
- Reported lower mining services volumes.
- Expected to finalize joint venture agreement with Albemarle over jointly owned lithium assets.
- The JV agreement will provide clarity for Mineral Resources’ lithium portfolio and support full downstream integration for >100kt of lithium hydroxide production.
- Establishes a foundation for potential separate listing or sell-down of the lithium business.
- L1 Capital continues to believe in the favorable medium-term tailwinds for all key areas of Mineral Resources’ core business.
- Shares are regarded as undervalued compared to other similar companies.
L1 Capital
31 Dec 2022
$75.11
- Mineral Resources (Long +17%) shares showed strong performance this quarter.
- Lithium markets remain tight, driven by demand for electric vehicle batteries.
- Iron ore pricing has recovered due to the re-opening of the Chinese economy.
- The company is nearing finalization of a joint venture agreement with Albemarle regarding lithium assets.
- This agreement will provide clarity to Mineral Resources’ lithium portfolio and support full downstream integration.
- The expected production capacity is for over 100kt of lithium hydroxide.
- This venture may lay the groundwork for a potential separate listing of the lithium business in the future.
- L1 Capital continues to believe that Mineral Resources’ core business areas (iron ore, lithium, mining services) have favorable medium-term tailwinds.
L1 Capital
31 Oct 2022
$73.13
- Mineral Resources (Long +11%) shares performed strongly over the quarter.
- Lithium markets remain tight, driven by demand for electric vehicle batteries.
- The company is expected to finalize its joint venture agreement with Albemarle over their lithium assets.
- This agreement will provide clarity to Mineral Resources’ lithium portfolio.
- Support for full downstream integration for >100kt of lithium hydroxide production.
- Foundation for a possible separate listing of the lithium business in the future.
- L1 Capital believes that all key areas of the business (iron ore, lithium, mining services) have favorable medium-term tailwinds.
- There is significant optionality that is not fully reflected in the current share price.
L1 Capital
30 Sept 2022
$65.75
- Mineral Resources shares rallied over the quarter supported by strong lithium prices.
- Announcement of a potential separate listing of its lithium business has generated positive market sentiment.
- Formal sanction of the Ashburton iron ore project, now called Onslow Iron, with production expected in late CY23.
- Onslow Iron expected to deliver a step-change in earnings for the company.
- Mineral Resources will have a controlling interest in a high-quality, long-life, low-cost asset with a mining services contract and infrastructure tolling.
- Company focused on developing a massive growth pipeline for lithium hydroxide production (>100kt) over the next four years.
- The lithium market remains very tight due to increasing battery demand for electric vehicles.
- L1 Capital continues to believe that all key areas of the business (iron ore, lithium, and mining services) have favourable medium-term tailwinds.
- The significant optionality in Mineral Resources’ business is not fully reflected in current market prices.
L1 Capital
31 Aug 2022
$63.97
- Mineral Resources (Long +19%) shares have rallied, driven by strong lithium prices.
- The formal sanctioning of the Ashburton iron ore project, now named Onslow Iron, is a significant milestone, with production anticipated in late CY23.
- L1 Capital believes Onslow Iron will result in a step-change in earnings for the company.
- The company will possess a controlling interest in a high-quality, long-life, low-cost asset, alongside mining services and infrastructure tolling.
- From the lithium perspective, Mineral Resources is focused on a massive growth pipeline aiming for full downstream integration of over 100kt of lithium hydroxide production within four years.
- The lithium market remains tight, bolstered by increasing battery demand for electric vehicles.
- L1 Capital continues to believe all key segments of Mineral Resources’ business (iron ore, lithium, and mining services) possess favourable medium-term tailwinds.
- There is significant optionality that is not fully reflected in current market prices.
L1 Capital
30 June 2022
$48.27
- Mineral Resources shares have declined by ~8% due to a ~20% fall in iron ore prices.
- Broader weakness in the junior miner space has impacted share performance.
- Two bearish lithium reports from major investment banks have contributed to market sentiment.
- L1 Capital believes that all key areas of Mineral Resources (iron ore, lithium, and mining services) have favourable medium-term tailwinds.
- The long-life, low-cost Ashburton iron ore project is expected to receive formal sanction soon, with production anticipated in late CY23/early CY24.
- The market has not fully priced in the impact of the Ashburton project on the mining services business and the potential of a new major iron ore region.
- Mineral Resources is poised to realize its lithium growth pipeline with full downstream integration for >100kt of lithium hydroxide production over the next four years.
- This growth will be supported by a recent US$1.25b bond issue and resilient lithium prices.
- L1 Capital's positive outlook was reinforced by a visit to Mineral Resources' new company-owned Perth headquarters, showcasing management's commitment to providing an industry-leading experience.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.
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