Mineral Resources tightens belt after lithium, iron ore prices fall

Mineral Resources, which is an iron ore and lithium producer, as well as being the world’s largest crushing contractor, posted a 40% drop in full-year earnings and a 79% drop in underlying net profit after tax to A$158 million ($107.4m).

While earnings before interest, tax, depreciation and amortization (EBITDA) in the company’s mining services division rose to a record A$550 million, EBITDA for the lithium business plunged 71% to A$384 million, while margins fell from 70% to 27%.

“We’re in a tough market. We’re in one of those downturns. It’s nothing we need to panic about. You just need to close your eyes and go, ‘we’re in a downturn’. No one’s making money,” Ellison told analysts during a briefing in Sydney Thursday morning.

MinRes operates the Mt Marion mine in joint venture with Ganfeng Lithium, the Wodgina mine in JV with Albemarle Corporation and the more recently acquired Bald Hill mine, all in Western Australia.

In response to market conditions, MinRes will pull back production at Mt Marion to 150,000-170,000 tonnes of spodumene this financial year from 218,000t in FY24.

Ellison said he was surprised by how far the lithium price had fallen and anticipated it could remain at current levels for another six months.

But he said there wasn’t a particular price that would prompt the company to shut down operations, as maintaining the workforce was important and low-cost modifications being made to each plant would lower unit costs.

“If the price of lithium continues to drop, there won’t be a mine on the planet that’s making money, so we will really just start pulling harder and harder on the spend until we strangle it,” Ellison said.

‘Boring’ iron ore
MinRes has just commissioned its 35 million tonne per annum Onslow Iron project in the Pilbara and is shutting down its higher cost production in WA’s Yilgarn region.

Group iron ore guidance for FY25 as Onslow Iron ramps up is 21.5-24.7Mt, up from 18Mt in FY24, including 10.5-11.7Mt at free-on-board (FOB) cash costs of A$58-68 per tonne from Onslow Iron.

Ellison described iron ore as “boring” but said it was the only reason the world’s mining majors were so large.

“Iron ore is not the sexiest commodity, like lithium, diamonds or copper, but it’s the best,” he said.

“Even in a bad year, it’s going to make A$1.5 billion for us.”

Ellison believes the iron ore price has found support at $100 per tonne and will rise back to $130/t “in the next few years”.

“You only need 12 or 18 months in the sun with iron ore until you say ‘what debt?’”

Balance sheet concerns
Capital expenditure in FY24 was A$3.3 billion due to the development of Onslow Iron.

MinRes reported gross debt of A$5.3 billion and net debt of A$4.4 billion, which is expected to peak in the current half.

The company did not declare a final dividend and is moving to defer expansion projects and conserve cash.

MinRes has already cut 140 jobs from its head office in Perth.

Capex guidance for FY25 is A$1.94 billion, mainly relating to Onslow Iron.

Ellison played down concerns over the company’s balance sheet, saying when he met with US bondholders, they were more interested in talking about fishing.

“I’ve got a nervous bunch of Nellies in Australia,” he said.

“If the lights go out and we don’t do any more development for the next 30-40 years, the business is going to make a lot of money no matter what. We’ve sunk the capital, we’ve got a bit more … after that, we’ll just be getting parked up, catching fish and watching the cash come in.”

‘Conservative’ year
Ellison said FY25 would be a “very, very conservative year” for MinRes with every dollar spent scrutinized.

“Why are we doing that? Because if we come out the other side of this with a bucketload of cash, that’s where the opportunity sits in these times,” Ellison said.

Mining services volumes are forecast to grow from 269Mt in FY24 to 295-315Mt.

Group lithium production is expected to be 480,000-545,000t on a 6% spodumene basis.

FOB cash costs are guided at A$800-890/t for Bald Hill and Wodgina and $870-970/t at Mt Marion.

Ellison predicted Onslow Iron would be cashflow positive by December and fully ramped up by June or July 2025.

“It’s not the best set of annual results we’ve ever turned out, but we’re victims of the circumstances, like everyone, but be assured that we will continue to do what we’ve done for a long time. We’ll manage the cash, we’ll manage the business, and we’ll come out as we always do. We’ll come out much stronger,” he said.

MinRes shares plunged by more than 10% in early ASX trade on Thursday to a near three-year low and closed 8% lower at A$40.61.

The stock, which peaked at more than A$96 in January 2023, has halved in value since May.