Company Overview: Mineral Resources Limited is a provider of mining infrastructure services in Australia. The Company is engaged in the integrated supply of goods and services to the resource sector. The Company operates in three segments, which include Mineral Services and Processing, Mining, and Central. The Company provides pit to port solutions across the mining infrastructure supply chain, including mining, crushing, processing, materials handling and support logistics. Its integrated infrastructure services include remote, mine-site accommodation services; remote power services; dewatering; equipment hire; mobile processing services; pipeline and water solutions; port logistics; ship loading; commodity sales and marketing; mine scheduling and grade control, and beneficiation services. It operates as a mining services contractor, infrastructure owner, infrastructure manager and mine operator based on prudent selection of critical infrastructure projects.
 

MIN Details

MIN Becomes Net Cash Positive Following JV with Albemarle: Mineral Resources Limited (ASX: MIN) is involved in integrated supply of goods and services to the resources sector, with a specific focus on the iron ore and hard-rock lithium sectors in Western Australia. Its subsidiary Energy Resources Limited (ERL), holds nine oil and gas exploration permits across the onshore Perth Basin, extending from south of the Perth metropolitan area to the Shire of Mingenew north of Perth and covering an area of 6,603 square kilometers. This makes ERL one of the largest permit holders in the onshore Perth Basin. During September’19 Quarter, ERL, under its exploration strategy, completed ecological surveys in preparation for future seismic acquisition programs. Looking at the past performance over FY16 to FY19, total revenue of MIN has grown at a compound annual growth rate (CAGR) of 8.69%. Total revenue improved from $1,177.6 Mn in FY16 to $1,512.0 Mn in FY19, and net profit improved from a loss of $24.9 Mn in FY16 to a profit of $163.7 Mn in FY19. Company held cash and cash equivalents of $265 Mn on June 30, 2019, as compared to $240 Mn on June 30, 2018. Company’s profitability margins, Return on Equity and current ratio stood better than the industry median for FY19.

The quarterly result for September’19 quarter indicates that production in the next two quarters is expected to improve, underpinned by addition of rail capacity at Mt Marion Lithium project. Going forward, acquisition of the Parker Range project and completion of the Wodgina Lithium Project transaction and establishment of MARBL Lithium Joint Venture with Albemarle Corporation, etc., are expected to help the company in delivering a sustainable return for its shareholders in the coming times.


FY19 Performance (Source: Company Reports)

September’19 Quarter Key Highlights: Iron Ore shipments for the quarter were reported at 3.5 million wet metric tonnes (wmt), an increase of 114% on the prior corresponding period in FY19. Mining operations at Koolyanobbing continued at a targeted rate of 7.5 Mtpa in the quarter. With an additional rail capacity to be brought on line in the second quarter of FY20, it is expected that the company may increase production to 11.0 Mtpa by the early third quarter of FY20.

Other important development includes completion of the construction of Wodgina Lithium Project’s three-stage 750,000 dry tonne per annum spodumene concentrate plant. The company also finalised the acquisition of the assets that comprise the Parker Range project from Cazaly Iron Pty Ltd. The development is expected to help the company in expanding its iron ore presence in the Yilgarn region of Western Australia.
 

Production and Commodity Shipments Data (Source: Company Reports)

Update on Company’s Other Important Projects:

Mt Marion Lithium Project:
Mining activities at Mt Marion Lithium Project increased during the quarter with 727,000 wmt of ore mined and 7.2 million wmt of total material moved. Spodumene concentrate production from the Mt Marion Lithium project in the quarter increased by 28% than the previous quarter. Mt Marion Lithium Project is a joint project between MIN (50%) and Jiangxi Ganfeng Lithium Co. Ltd (50%), which is one of the world’s largest lithium producer.

During the quarter, the processing plant’s utilization increased by 7% up to 88%, and the throughput rate increased from 334 tonnes per hour (tph) to 341 tph, which resulted in an increase of feed tonnes from 600,216 wmt in the previous quarter to 665,376 wmt.

A total of 95,262 wmt of Spodumene concentrate was shipped during the quarter, an increase of 16% than the previous quarter. The proportion of high-grade (6%) spodumene concentrate decreased from 69% in the previous quarter to 64% in the September quarter. An updated production outlook for FY20 is expected to be completed in Q2 FY20 for review by the co-owners either later this year or early in calendar year 2020.


Mt Marion Lithium Project Operational Metrics (Source: Company Reports)

Iron Valley:
A total of 2.1 million wmt of iron ore was shipped from Iron Valley, supported by strong iron ore prices and high crusher throughputs. The Iron Valley crushing operations produced 1.4 million wmt of product for the quarter.


Iron Valley Operational Metrics (Source: Company Reports)

Koolyanobbing:
The iron ore production increased by 20% to 1.7 Mn wmt as compared to the previous quarter, mainly due to mining at a targeted rate of 7.5 Mtpa, with the addition of an EX3600 excavator and additional road train haulage units in the quarter.


Koolyanobbing Operational Metrics (Source: Company Reports)

FY19 Financial Highlights for the period ended June 30, 2019: Group’s revenue for the period was reported at $1,512 Mn, a decline of 7% on the previous corresponding period. Normalised earnings before interest, tax, depreciation and amortization (EBITDA) for the period was reported at $433 Mn, a decline of 14% than the previous corresponding period. However, the result was above FY19 guidance of $360 Mn to $390 Mn. Reported net profit after tax (NPAT) for the period was reported at $165 Mn, down by $107 Mn than the previous corresponding period.

MIN held cash and cash equivalents of $265 Mn on June 30, 2019, as compared to $240 Mn on June 30, 2018. Moreover, the group had access to substantial undrawn debt facilities of $366 Mn to support business development activities. Net cash from operating activities before interest and tax was reported at $269 Mn in FY19, down $269 Mn on pcp, reflecting working capital outflow associated with increasing ore stockpile levels for the ramp-up at Koolyanobbing and build-up for commencement of spodumene concentrate production at Wodgina. Net cash used in investing activities for the period was reported at $840 Mn, an increase of $507 Mn on pcp, primarily related to $858 Mn of capital outlays on key investment projects.


FY19 Key Financial Metrics (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 36.87% of the total shareholding. Ellison (Christopher James) and Airlie Funds Management Pty Ltd hold maximum interest in the company at 11.60% and 7.09%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

A Quick Look at Key Metrics: Gross margin for FY19 stood at 93.0%, better than the industry median of 42.0%. Net margin for FY19 stood close to the industry median at 10.9%. Its ROE for FY19 stood at 12.4%, broadly in-line with the industry median of 12.3%. Its current ratio for FY19 stood at 2.84x, better than the industry median of 1.75x, which implies that the company is in a better position to address its short-term obligations.


Key Metrics (Source: Thomson Reuters)

Recent Updates:
With an update on 05 November 2019 to the ASX, the company informed that Airlie Funds Management Pty Ltd (‘Airlie’) on its own behalf and on behalf of Magellan Financial Group Limited and its related bodies corporate in Annexure A, has increased its voting power from 6.09% to 7.09%.

On November 1, 2019, MIN announced the completion of the Wodgina Lithium Project transaction. The company also intimated about the establishment of the MARBL Lithium Joint Venture with Albemarle Corporation (MIN 40% & Albemarle 60%). Under the arrangement, the company transferred a 60% interest in the Wodgina Lithium Project to a subsidiary of Albemarle. For this transaction, MIN received consideration of US$820 million (cash payment subject to certain completion adjustments) and a 40% interest in the Kemerton Modules. This Joint Venture has also made a decision to place the Wodgina Lithium Project on care and maintenance, where the transition is expected to occur in four weeks. The decision was made under consideration of challenging global lithium market conditions and to preserve the value of the world-class Wodgina spodumene orebody. This transaction has helped MIN to be at net cash position. Both the cash and 40% interest in the Kemerton modules will be assessable for corporation tax purposes, with the majority of the tax payment due for settlement in December 2020. The tax liability to be paid at that time has been estimated at around ~$400 Mn. The decision to place the mine on care and maintenance does not impact company’s mining services EBITDA guidance of range $280 Mn and $300 Mn.

Earlier on October 28, 2019, MIN informed the market that Commonwealth Treasurer on advice of the Foreign Investment Review Board (FIRB) under the Foreign Acquisitions and Takeovers Act 1974 (Cth), has highlighted that it has no objection to the acquisition of a 60% interest in the Wodgina Lithium Project and associated arrangements.

What to Expect: As per the release, the company acquired Kumina Iron Ore Project, located in the West Pilbara region, from BCI Minerals Limited in December 2018. This acquisition is consistent with the company’s strategy of identifying new value-adding development opportunities and is expected to help the company in leveraging its workforce and logistics supply chain in the Pilbara. On August 30, 2019, the company has finalized the acquisition of the assets that comprise the Parker range project from Cazaly Iron Pty Ltd, a wholly owned subsidiary of Cazaly Resources Limited. This is expected to help the company expand its iron ore presence in the Yilgarn region of Western Australia.


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodologies:
Method 1: Price to earnings Multiple Approach (NTM):

Price to earnings Multiple Approach (Source: Thomson Reuters), *NTM-Next Twelve Months

Method 2: Price to Cash Flow Multiple Approach (NTM):

Price to Cash Flow Multiple Approach (Source: Thomson Reuters), *NTM-Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation: MIN’s share generated a negative YTD return of 3.07% and is trading below the average of its 52-week high and low of $18.120 and $12.390, respectively. Company’s decent production and shipment results for Q1FY19 as compared to the previous quarter derives positive sentiments across the investor community. Its decent cash position along with profitability margins are expected to help fuel its operations. Moreover, recent acquisition of Parker Range projectand completion of MARBL Lithium Joint Venture with Albemarle Corporation, are expected to help the company to focus on deliver better value for its customers and shareholders. Looking at the business prospects over the long-term, we have valued the stock using a relative valuation method, i.e., price to earnings and price to cash flow multiples, and arrived at a target price of lower double-digit growth (in % term). Hence, we give a “Buy” recommendation on the stock at the current market price of A$14.660 per share, up 1.103% on November 06, 2019.

 
MIN Daily Technical Chart (Source: Thomson Reuters)

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