Iron ore wave leaves Mineral Resources riding high, but border closures crimp growth

Iron ore prices helped Mineral Resources lift full-year profit 26pc but Covid restrictions are putting pressure on its operations.

Bulk carriers docked at Port Hedland. Picture: Getty Images

Mineral Resources is riding high on the back of record iron ore sales in “a year like no other”, but cost pressures are building in the West Australian mining sector.

The minerals company delivered a statutory net profit of $1.268bn for the year ended June 30, up 26 per cent, following a $33m post-tax charge related to intangibles, plant and equipment and inventory.

Mineral Resources will pay a fully franked final dividend of $1.75 a share, more than double last year’s final dividend of 77c. It takes the total for the 2021 financial year to $2.75 a share.

The strong profit was underpinned by continued growth in the mining services segment of the business and record iron ore prices and volumes.

Mineral Resources managing director Chris Ellison says the company had delivered a record year in a “culmination of continued strong growth” in the company’s core mining services division.

“This has been a year like no other,” he said.

“This result positions Mineral Resources well to build our business with further significant investment in iron ore in particular, and seeking additional growth in our mining services division through the delivery of highest-quality, value adding and innovative solutions for our clients.”

Mr Ellison says despite rising cost pressures in the West Australian resources sector the company’s focus remained on attracting and retaining “the best people in our industry”.

The business, which listed 15 years ago, has expanded from its roots as a mining services company to several mine sites across Western Australia.

But border closures are putting pressure on the company’s operations and limiting road train exports from some mine sites.

Mineral Resources CEO Chris Ellison. pic Colin Murty The Australian

Many of Mineral Resources’ drivers hail from the eastern states, with major outbreaks of Covid-19 in NSW, Victoria, and Queensland meaning many need to quarantine if they wish to enter WA.

“We had a lot of disruption with Covid moving people across borders, people getting locked out,” said Mr Ellison.

Mr Ellison said international border closures were only adding to labour issues.

“We’ve got to be able to get fresh people into Australia,” he said.

“We’re going to need 30-40,000 people in the mining industry in WA.”

All operations remained Covid-19 free, while time lost to injury jumped by 30 per cent.

Mining services production rose by 20 per cent on the prior corresponding period.

The company exported 17.3 million wet metric tonnes of iron ore and 485,000 dry metric tonnes of spodumene, a source of lithium.

While Mineral Resources has boomed on the back of the iron ore price, the company is pressing ahead with plans to boost lithium mining and production.

Volumes of spodumene are up but depressed prices across the year did not yield strong profits.

However, Mineral Resources CFO Mark Wilson said interest in lithium would grow.

“The only part of the business that hasn’t contributed strongly to the business is the lithium commodity business,” he said.

The company recently paid its final tax instalment of $333m on its sale of 60 per cent of its Wodgina lithium project.

Mineral Resources also recently invested $65m in ASX-listed Venutrex, which opens exposure to copper zinc sulphur springs projects in Western Australia.

Net assets in the business were up 41 per cent on the prior year, to $3.2bn.

However, return on invested capital fell 11 per cent to 39 per cent.

In its 2022 guidance Mineral Resources flagged a 5-10 per cent increase in costs at its iron ore Yilgarn hub.

It also noted an expected 15-20 per cent increase in income from its mining services business.

Mineral Resources is sitting on $1.5bn cash at the bank.

Ord Minnett said the company’s profits and earnings results were a 7-9 per cent shortfall of expectations.

The final dividend was in line with expectations. But analysts noted the company’s guidance was mixed, “slightly below on iron ore and lithium”.

Originally published as Iron ore wave leaves Mineral Resources riding high, but border closures crimp growth