Owning the rock

1H23 RESULT

Need To Know

• Miss on EBITDA, softer margins and higher costs
• MARBL JV finalised
• Capex guidance increased to $2.34bn, mostly in lithium

A busy result for Mineral Resources that is more to do about the company’s future than a spot measurement of its performance.

Result. EBITDA of $939m was comprised of a huge lift in lithium contribution to $548m due to higher average spodumene concentrate and lithium hydroxide prices.

MIN spent $741m on capex in 1H23 (FY23 guidance $2,340m) with significant amounts to be spent on the Onslow Iron Ore and lithium projects in 2H23. MIN had net debt of $1,394m at the end of the half year.

MARBL JV details. After a very long gestation period, the restructured MARBL JV with Albemarle (ALB) has been finalised and announced. In simple terms, MIN loses 12.5ktpa of chemical conversion capacity at Kemerton in exchange for an additional 10% of the value of operations and resources at Wodgina. 

The combined expanded MARBL JV could reach more than 180ktpa LCE (lithium carbonate) production with the Wodgina Train 4 and yield improvements. Wodgina T1-3 will produce ~100ktpa.

MIN also gets a share of the profits generated dated back to 1 April 2022 (~A$150m). A new downstream JV will be formed to convert Wodgina spodumene and produce chemicals through jointly owned conversion assets or through third party tolling arrangements.

MIN will pay US$350m immediately for its share of the Wodgina Conversion Arrangement. The full cost of MIN’s share of the new JV is about US$660m

Iron Ore. The main news here is the FID for the Onslow Iron Ore Project which will lift divisional shipments from ~19mtpa towards 55mtpa at full capacity. Onslow is a $3bn capex, 30-year mine life, 35mtpa initial capacity project with Baowu taking 50-75% of the production.

Energy. MIN has now secured 62.67% of Norwest Energy in its off-market takeover bid. The key project here is the Locker Deep Gas Project in the Perth Basin.

Mining Services. This division will benefit from the various MIN projects including the Mt Marion expansion, the Onslow Iron Ore Project, the Wodgina trains plus any third party contracts.

Capex. MIN is guiding FY23 capex to $2.34bn. The Onslow Iron Ore Project will be $1.1bn of that and various lithium projects will total $664m.

Investment View

In our view, increasing MIN’s ownership in Wodgina will be highly value accretive (approximately $1bn). The relationship with Albemarle, one of the world’s largest lithium players, is stronger and has led to the buy-in of ALB’s chemical conversion assets. 

This could be the first step in a blossoming relationship on conversion capacity either in Australia or China where ALB has operated for a number of years. The value to MIN lies in the resources at Wodgina. Although the capex required to be deployed in Chinese conversion capacity is significant at around A$1bn, the risk is manageable.

MIN is now a top 5 global lithium producer with ~100ktpa attributable lithium chemical production and this will increase to ~140ktpa when Train 4 is active. This is roughly the same production as ALB is likely to sell in CY23 (ALB market cap is A$40bn, MIN A$15.7bn). In 1H23, lithium contributed 72% of MIN group EBITDA.

MIN MD Chris Ellison said: “Owning the rock and converting it into battery chemicals, sold by MinRes, means we capture more margin of the value chain.”

Figure 1: MIN 1H23 EBITDA

Specific Disclosure: Sandstone Insights analyst holds a position in the subject company.