Minerals Resources Limited

MIN Details

Q1FY22 (Ending 30 September 2021) Key Takeaways: Mineral Resources Limited (ASX: MIN) provides mining services across iron ore and lithium projects in Western Australia. The Mining Services’ production volume was reported to be up by ~7% on QoQ and ~22% on a pcp basis in Q1FY22.

• Iron ore Production: The company reported ~5.03 million wet metric tonnes (mwmt) of iron ore production in Q1FY22 versus ~5.23 mwmt in Q4FY21. The iron ore shipments increased by ~40% YoY from ~4.95 mwmt in Q1FY22 to ~3.54 mwmt in Q1FY21.
• Lithium Production: At the jointly owned Mt Marion lithium project, MIN produced 99,536 dmt spodumene in Q1FY22, 13% down on Q4FY21. The lithium shipments in Q1FY22 were reported to be 54% lower than Q4FY21 due to shipment delays.
• Progress on Ashburton Project: The company advanced on engineering and detailed design on its Ashburton Project and completed costing and design. MIN is ready to implement project design and engineering once it receives the final approvals.
• MARBL JV Update: Albemarle Corporation (NYSE: ALB) (Albemarle), the 60% JV partner for the Wodgina Lithium project is progressing with the construction of the Kemerton Lithium Hydroxide Plant in Q1FY22.

Net Income Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces the COVID-19 impact of lockdowns and border closures on its operations, via no staff movement and a persistent shortage of road haulage drivers.

Outlook:

• The company targets to meet the estimated guidance for iron ore production of 21-22 mtpa and lithium production of 450-475 ktpa in FY22.
• ALB has restarted the operation of processing lines at the Wodgina lithium project. MIN expects to begin the spodumene commercial production on the project in mid-2022/ Q3CY22 with the re-start of the Wodgina Mine.
• The company will hold an Annual General Meeting (AGM) on 18 November 2021 and release the Q2FY22 report on 25 January 2022.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MIN gave a negative return of ~35.85% in the past three months and a positive return of ~7.82% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $24.790 - $65.380. The stock has a support level of ~36.00 and a resistance level of ~43.40. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ median EV/Sales multiple, considering the restart of operations at the Wodgina Lithium Mine, increase in iron ore shipments in Q1FY22, and an increase in Mining Services’ volume expected in FY22. For this purpose of valuation, few peers like BHP Group Limited (ASX: BHP), Northern Star Resources Limited (ASX: NST), Western Areas Limited (ASX: WSA), and others have been considered. Considering the current trading levels, restart of the Wodgina mine, increase in Mining Services’ volume & iron ore shipments in Q1FY22, valuation upside, plans to start spodumene production in 2022, we give a ‘Hold’ rating on the stock at the closing price of $38.610, down by ~2.355% as of 4 November 2021.

MIN Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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