A buffet of announcements from Mineral Resources contained good and bad news, much like the rest of its 2023 financial year so far.
The Mt Marion tolling arrangement with Ganfeng has been terminated early and will potentially save MIN around A$135m EBITDA loss in 2H23f based on lower spodumene and lithium chemical prices. MIN will now simply sell production to Ganfeng at market prices and will avoid the predicted loss. The long term nature of the relationship with Ganfeng may now be in question.
The processing plant at Mt Marion has been completed with commissioning underway. A second spodumene concentrate shipment has been moved into July so that FY23 shipment guidance is adjusted to 145-150k dmt from 160-180k dmt.
Wodgina volumes are also expected to be at the lower end of the 150-170k dmt range and lithium battery chemicals guidance of 11.5-12.5kt. Costs guidance has been lifted to $925-975/t from $850-900/t. All numbers are on a SC6 equivalent basis.
The ramp up of both assets is likely to take longer than expected which is a further unwanted distraction.
On a more positive note, MIN’s recent exploration drilling at Mt Marion has demonstrated further mineralisation at depth and in satellite ore bodies. This must be weighed against the more challenging resource geology that has been encountered.
The good news was the successful intersection of gas at the North Erregulla well (NED-1). The data suggests this is a discrete field and is not adjoined to the nearby Lockyer structure. MIN has also now appointed Darren Hardy as its new CEO of the Energy division.
Investment View
The breathless lithium prices of last year have given way to gravity and reality as MIN continues to develop its world class resources at Mt Marion and Wodgina. Project execution is now grabbing the headlines and although more mundane, this is nonetheless very important.
Projection execution risks exist in the iron ore and energy divisions too which are creating challenges. The ‘crushing’ business is more dependable and is not insignificant.
Having receded from its over-egged heights, the MIN share price is more realistic at current levels. It might be too early to upgrade our recommendation, but any further weakness might create an opportunity in a stock with good assets in a structurally appealing industry.
Risks 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 Hold recommendation.
Figure 1: EV/EBITDA
