Small miss, strong outlook
FY22 result
Need to know:
- Earnings 5-10% below consensus, dividend ahead
- Working capital build, net-debt balance sheet
- FID for Onslow iron ore project, 35Mtpa
Investment implications
Earnings: Soft result with earnings missing estimates by 5-10% primarily driven by lower iron ore earnings. Balance sheet net debt for only the third time in two decades. Strong qualitative outlook across iron ore, lithium, and mining services. No update on the potential tolling agreement.
Earnings Detail: U/L EBITDA $1.0bn vs $1.06bn market, U/L NPAT $400m vs $460m, EPS 212cps vs 254cps. Dividend 100cps vs 87cps.
Operating cash flow $280m vs $383m expected. Net debt $700m vs $413m.
Guidance: Production guidance for FY23 in-line, iron ore costs guidance looks below. Mining services volume guidance flat. Lithium volumes look below market for FY23. Capex of $2bn 5% head of the market with 75% of spending on growth projects.
Onslow iron ore JV: now reached first Final Investment Decision (FID) which will eventually develop into a 140Mt operation. Stage 1 is 35Mt at a cost of $3bn, with the first ore due in Dec 2023. JV partners include Baosteel (China), Posco and MIN. MIN will be responsible for $1.3bn CAPEX, offset by a 17% increase in production ownership. Overall, stage 1 is larger in size, with higher CAPEX, but lower operating costs.
Our view: MIN has presented a bullish outlook around the medium-term prospects for the business. All four core operations contain strong medium-term growth outlooks. Optionality exists in gas markets, and battery manufacturing - neither of which the market currently attributes much value to.
News flow over FY23 (AGM 17 November) is likely to see an extension of the lithium tolling agreement for Mt Marion operation with Ganfeng, and funding options for various growth options.
In the absence of a material fall in the iron ore price, MIN’s share price is likely to be well supported.
This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.
FIGURE 1: MIN MINING SERVICES GROWTH
Stock overview
Share Price
Company overview
Mineral Resources is a mining services company with iron ore, lithium and energy assets in Western Australia.
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