Financial Markets - Investor Desk

Investment Thesis

Strong competitive position with the company being one of world’s top five lithium producers, Australia’s fifth largest iron ore producer, largest landholder of onshore gas acreage in the Perth and Carnarvon Basins and world’s largest crushing contractor.
Strong and solid fundamentals with robust lithium and iron ore demand and prices to persist.
High quality assets operated by a solid management team with appropriate expertise.
Strong track record since 2006 ASX listing with the company growing total assets 50x to $7.8bn (+30% p.a. growth), delivering 21% p.a. ROIC, generating $7.5bn in underlying EBITDA (+25% p.a. growth) and not undertaking any dilutive capital raise.
Strong shareholder returns with the company delivering 31% p.a. total shareholder returns since 2006 including +20% p.a. dividend growth.
Solid balance sheet.
Improved efficiency amid successful restructuring of the company into four operating pillars, Mining Services, Iron Ore, Lithium and Energy, with each operating as a separate business under separate management.

Key Risks

Commodity price volatility.
Deterioration in global iron ore supply & demand equation.
Unfavorable movements in AUD/USD.
Adverse weather impacting operations and earnings.
Lack of exploration success.
Metal processing issues due to issues with the metallurgical processing equipment.
Production delay or unscheduled site shutdown.

Key Highlights: Relative to the pcp and on a constant currency basis:

Revenue declined -8% y/y to $3.42bn, with Iron Ore down – 35% y/y as record iron ore exports of 19.2Mt were more than offset by lower realised prices amid sharpest fall in iron ore price in history, Mining Services up +22% y/y driven by record production volumes of 274Mt (up +10% y/y) and strong business momentum with five new contracts awarded and three contracts renewed, and Lithium up +509% y/y driven by higher prices.
Underlying EBITDA declined -46% y/y to $1bn, with earnings negatively impacted in 1H22 by the steep decline in iron ore prices and widening discounts before stabilising in 2H22, however, with record lithium prices, first earnings from conversion of Mt Marion spodumene concentrate into lithium hydroxide and record growth in the Mining Services division, 2H22 performance remained strong. Controllable underlying EBITDA was up +9% y/y (refer to Figure 2)
Operating cash flow declined -79% y/y to $344m, impacted by an increase in working capital relating to the restart of Wodgina, the increase in lithium pricing causing receivables to increase, and first earnings from conversion of the company’s spodumene concentrate into lithium hydroxide.
Capex increased +7% y/y to $800m with 54% being growth capex, 40% sustaining capex and 6% exploration.

Company Description

Mineral Resources Ltd (MIN), based out of Perth is focused on contractor crushing, mining services, iron ore and lithium operations. The company is the world’s largest crushing contractor with crushing contracts with some of the world’s largest mining companies in iron ore, gold and lithium operations, as well as its own operating assets.

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