Mineral Resources released an updated Resource and Reserve update that showed the Mt Marion reserve to be lower than its previous JORC resource in June 2019. But the update does not provide the full picture. Like an iceberg, Mt Marion is much bigger than the JORC update suggests.
Mt Marion is a 50/50 JV with Ganfeng. The updated mineral resource is 51.4Mt at 1.45% Li2O with Reserves of 17.2Mt at 1.56% Li2O. Importantly, the mineral endowment is 80% unexplored and there is a high probability that further drilling will add to the existing Reserves and Resources. The new resource statement is a downgrade on contained lithia compared to the previous resource of 72.9Mt at 1.37% Li2O, despite the higher grade. The previous resource was in June 2019 and there has been approximately 7Mt of mining depletion accounting for part of the difference. The remainder may be due to unfavourable mineralogy.
Maiden Reserve misaligned with Mine Plan. Mt Marion has been operating since 2017, but this announcement contains a maiden reserve statement of 17.2Mt at 1.56% Li2O for 268kt of Li2O.
It is important to note this reserve has only been derived from the Indicated Resource. The pit design in the current Mine Plan includes an additional 12.6Mt at 1.54% Li2O of inferred mineral resource. This implies total mining inventory of 29.8Mt at 1.55% for 462kt of contained Li2O.
Based on the feed rate for the 900ktpa (100% basis) expansion project (A$120m), this total mining inventory implies a mine life of about 10 years. If a 100% resource conversion is assumed, mine life becomes 15 years. Further resource definition through drilling and exploration will eventually extend mine life beyond 15 years.
Wodgina R&R unchanged. The Resource and Reserve statement for Wodgina was largely unchanged from the previous statement in September 2018. The Mineral Resource is 259Mt at 1.17% Li2O with Reserves at 147Mt at 1.2% Li2O.
The MARBL JV is under a proposed restructure so that MIN’s ownership would change from 40% to 50% at Wodgina. The JV partners would jointly fund a new LiOH conversion plant and MIN’s ownership of the Kemerton LiOH plant would reduce from 40% to 15% (Albemarle to operate).
LithCo selldown? Recent market speculation, denied by MIN, is suggesting the company is considering spinning off a portion of its lithium business into a US-listed float. We estimate that a 30% selldown, based on US peer multiple valuation metrics, could release ~A$3.9-5.2 billion of net cash proceeds. This would create a read-through valuation for MIN between A$98-126 per share, in our view. A selldown could accelerate other projects within MIN such as the Perth Basin energy project, or the Onslow Iron Ore project.
Investment view
MIN and Ganfeng have invested substantial capex into Mt Marion on the basis of a mine life that is likely to be at least 15 years or more, in our view. MIN’s ownership of two of the world’s top five lithium mines places it squarely in the target zone for EV battery makers who are keen buyers of the products.
According to Wood Mackenzie data sourced by MIN, global consumption of lithium chemicals has increased from 173kt in 2020 to 447kt in 2022. Vehicle manufacturers are rapidly increasing planned production of electric vehicles towards 60 million units by 2030 and even this level is more than likely to be exceeded.
Demand for lithium as a key component in battery manufacture continues to exceed supply leading to sustained higher lithium commodity prices (spodumene concentrate and lithium hydroxide).
Risk to investment view
EV battery technology is improving, and some variations do not use lithium although it currently dominates. EV adoption may take longer than expected which would slow the rate of demand growth for lithium. Supply of lithium is uncertain as it depends on investment criteria that might make some projects uncommercial. Lithium pricing is also uncertain as changes in supply particularly may alter contract prices. MIN is exposed to the usual development and production risks associated with mining projects including operational, regulatory and financial risks.
Recommendation
We have retained our Buy recommendation.
Figure 1: MIN 5-year plan for lithium
