Mineral Resources interim profit slashed on iron ore falls
The iron ore price was not been kind to MinRes, but the miner is hatching fresh plans to move further up the value chain in battery metals production.
Mineral Resources has ditched its interim dividend after booking a half-year profit of only $20m, down from $519.3m at the same time in 2021, with the company signalling on Wednesday it plans to tie its future growth to downstream lithium production.
Falling iron ore prices and the company’s struggle to find workers to get its iron ore to export markets led to the dramatic tumble in MinRes’ half-year profit, with the company booking an underlying net loss of $36m for the half.
MinRes paid a $1.75 a share dividend on the back of the first half of last financial year, but elected not to pay an interim dividend this year.
Mr Ellison told analysts on Wednesday that, while the half-year result was MinRes worst in three years, the period had been the most productive in its history from a business development perspective.
He said that, over the last six months, MinRes brought two major iron ore expansion projects to fruition through its successful push into the long-stalled West Pilbara Iron ore project, and through its deal with Gina Rinehart’s Hancock Prospecting that helped win the rights to develop a new iron ore berth at Port Hedland.
“We have certainly been focused on making sure that we‘ve got projects in hand that we’re going to deliver over the next five years. They’re going to set the business up for 30 or 40 years out and there’s going to be a good mix of diversity in terms of the type of products we’re going to be able to deliver,” he said.
Mr Ellison said the company had also been working to reposition its lithium business to ensure it captured more of the downstream value created from lithium concentrate produced by its mines.
But the results were well under market expectations, with analysts noting iron ore costs were well above expectations and discounts on MinRes iron ore shipments were larger than expected.
Morgan Stanley analyst Rahul Anand said the MinRes result was “very weak”, noting that the company had shifted its guidance to factor in higher costs for its iron ore exports through the rest of the year, at more than 10 per cent above analyst expectations.
“Costs have been increased across assets, noting we were already above the previously provided guidance,” Mr Anand said in a client note.
On Wednesday MinRes signalled it plans to build its future business in downstream lithium hydroxide production, with Mr Ellison telling analysts the company was looking be selling up to 100,000 tonnes of lithium hydroxide into the market within a few year.
The company said it will no longer sell lithium concentrate produced at its Mt Marion mine, instead reclaiming its 51 per share of the mine’s output from February and cutting a deal with partner Ganfeng Lithium for the toll treatment of the ore in China.
And MinRes has also cut a deal to reshape its partnership with another global giant, Albemarle, saying it is negotiating to re-take control of the Wodgina lithium mine in the Pilbara.
Wodgina is currently 60 per cent owned by Albemarle. MinRes said it hopes to buy back an additional 10 per cent stake in the mine, which will return to production this year. Under the deal it would resume its role as the manager of the operation, although Albemarle will retain its rights to market production from the operation.
Their jointly-owned lithium hydroxide refinery at Kemerton will now be fed by the giant Greenbushes operation in the state’s south west, after Greenbushes owners – including Albemarle – ticked off on a major expansion of the mine.
But Albemarle and MinRes are now looking to establish a new joint venture to build a new lithium hydroxide refinery outside of Australia, pushing MinRes further downstream in the battery metals supply chain.
Mr Ellison said on Wednesday he was not yet in a position to comment on where Albemarle planned to build those refineries, but said he hoped to be able to give more clarity to the market in coming months.
MinRes revenue fell only 12 per cent to $1.4bn in the first half of the financial year, but underlying earnings before interest, tax, depreciation and amortisation were down 80 per cent to $156m.
Its core mining services division performed well despite skilled labour shortages in WA, booking a 34 per cent lift in revenue to just over $1bn, and EBITDA of $281m for the half, up 20 per cent.
But MinRes iron ore division tumbled to a loss of $104m for the half – down $686m on the first half of last financial year as iron ore prices fell and discounts widened for lower grade ores.
And the sharp rebound in the lithium pricing failed to make up for the losses in iron ore, with MinRes Mt Marion mine delivering EBITDA of $67m – having broken even in the first half of the last financial year.
The company’s final result was also impacted by a $200m outlay on a future iron ore expansion, with MinRes paying $200m to ASX-listed Red Hill Iron to lift its stake in the 30 million tonne a year West Pilbara iron ore project (WPI). MinRes will pay another $200m to Red Hill when it ships the first iron ore from the project.
MinRes offloaded its 5 per cent stake in rival lithium producer Pilbara Minerals for $330m to fund the Red Hill deal.
But, while MinRes is likely to take a hit from the market on the withdrawal of its dividend, the second half of the year is looking far brighter for the company.
Benchmark iron ore prices are back up to just under $US150 a tonne, after hitting a low of $US87 a tonne in the first half of the financial year, with analysts suggesting the current price surge may still have some way to come.
MinRes said on Wednesday it is still on track to meet revised annual production guidance of 18.5 to 19.5 million tonnes of iron ore.
MinRes shares closed down $5.16, or 8.9 per cent, to $52.72 on Wednesday.
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