Doubling in two years

RESULTS ANALYSIS

Need To Know

• Lithium expansions on track at Mt Marion and Wodgina.
• Onslow Iron Ore project also underway, first delivery by June 2024.
• Growth projects suppressing cash flow for now. Patient investors will be rewarded.

Investment Implications

FY23 results overview:

Underlying EBITDA $1.8bn +71% on pcp

Dividend 190cps fully franked

Post-tax impairments -$552m (iron ore)

FY23 result. Underlying EBITDA of $1,754m benefitted from higher spodumene prices. The average achieved iron ore price increased 12.5% so that iron ore prices contributed positively against a lower benchmark iron ore price. Higher costs (labour, freight fuel, parts etc) were a headwind to profitability but are slowly dissipating.

Cash conversion at 100% was a strong outcome given capex of $1.8bn. Free cash flow (before growth capex) of over $1bn was a good outcome. MIN will spend $2.75bn on capex in FY24 including $1.97bn on Onslow Iron.

Divisionally, Iron Ore EBITDA was $185m, Mining Services $484m, Lithium $1,325m, Energy -$9.5m.

Outlook. Production guidance for FY24 was as expected with Mt Marion spodumene production at 190-220kdmt and Wodgina 170-220kdmt (both SC6 equivalent). Wodgina will produce 20-25kt of lithium battery chemicals. Mining Services tonnage will be between 260-280mt.

The Onslow Iron project is expected to deliver its first shipment by June 2024. The project is aiming for 35mtpa ($40/t FOB cost ex royalties) and a 30-year mine life at a cost of $3bn.

MIN has further iron ore projects up its sleeve with the South West Creek project in conjunction with Hancock/Roy Hill. MIN will share the third shipping berth at Stanley Point with Hancock giving access to 20mtpa.

MIN is preparing to build Train 4 at Wodgina with Trains 5 and 6 under study now. Ramp-up of the various projects at Mt Marion and Wodgina has been slowed by the requirement to strip a mountain that will take 12 months. MIN is still considering options for downstream processing of its spodumene concentrate. A preference to build capacity in Australia is being weighed against the lower cost options in SE Asia or simply utilising easily available Chinese capacity.

MIN’s Energy division faces a decision pending the WA Government’s attitude on the export of gas. If it allows gas to be exported, MIN could build a plant with capacity of 300 TJ/day and would seek to expand its investments in the sector. If not, it may build a 50 TJ/day plant and find better things to do with its capital. Mr Ellison firmly believes gas has an important part to play in Australia’s energy transition.

Investment View

MD and largest shareholder Chris Ellison said the business was going to double in size over the next two years with the Onslow Iron Ore project and the expansions at the lithium projects at Mt Marion and Wodgina. Invested capital will rise to around $5.4bn.

MIN was keen to point out the optionality sitting inside the business. The huge road trains being built for the Onslow project, for example, can be replicated to suit third party requirements. There are 30 such units out on long term contract already. These road trains can haul 330 tonnes at ~4c per tonne per km. These road trains will eventually become driverless (saving 500 staff with associated safety issues) and fully electric in three years (diesel cost savings and benefits).

The private haul road to the Ashburton Port could also be monetised by selling a share and releasing capital for other projects. The road itself could provide mine to port access for third party mines that are presently stranded. The company gave several other examples of its flexibility, particularly in Mining Services where company expertise can be deployed to help other businesses via its innovation in building crushing plants.

MIN’s balance sheet remains in a strong position (MIN has never raised equity) to cope with the expansion work underway and potentially beyond. The company has a singular focus on return on invested capital which has for many years been in the vicinity of 25%. Doubling the asset base with a similar ROIC provides shareholders with a clear view of where MIN is headed.

The share price has performed meekly after the frenzy of last year’s lithium pricing run. On an FY24 EV/EBITDA multiple of 6.1x consensus estimates, it appears fairly valued. We point to the potential payoff of the growth projects in around two years’ time that could re-rate the stock. We retain our Hold recommendation with a positive long term view.