Are Mineral Resources shares one of the best ASX 200 stocks to watch in 2023?

Mineral Resources (ASX: MIN) shares have become one of the prime beneficiaries of the lithium and iron commodity surge of 2022. MIN’s share price is now up fourfold since the pandemic began, has more than doubled over the past year, and increased by 20% over the past month to AU$82.75.

The ASX 200 company is a leading mining services operation with a world-class portfolio split mostly between iron ore and lithium. Already the fifth-largest iron ore producer in Australia, MIN plans to quadruple its iron production over the next five years, even as its newer lithium venture turbocharges growth.

And there could be further runway in 2023.

Mineral Resources share price: Q1FY23 results

Mineral Resources published its Q1 activities report in late October, which made for quality investor reading material. Iron ore operations are progressing as expected; despite seeing a 3% quarter-on-quarter reduction in shipments to 4.5 million wmt, the company remains broadly in line with its prior FY23 guidance for 17.2-18.8 million wmt.

However, MIN only achieved an average realised iron ore price of US$72.77/dmt, down 15% compared to the previous quarter as fears grew over the prospects of a Chinese slowdown.

But in some good news, the ASX miner has confirmed its final investment decision to develop the Red Hill Iron Ore Joint Venture alongside industry titans, POSCO, AMCI, and China’s state-owned and largest steelmaker, Baowu.

Mineral Resources enthuses that the AU$3 billion project will see the development of ‘a new mine, processing plant, airport, accommodation resorts, sealed 150-kilometre haul road, port, marine infrastructure and transhipping vessel fleet.’

The Project’s first phase should initially be capable of producing 35 million tonnes annually, with ramp ups expected through the 30+ years of expected mine life. This makes it one of the largest iron ore developments in Western Australia, and ‘a flagship iron ore project for MinRes as we transition to low cost, long life operations with compelling project economics through commodity price cycles.’

In addition, MIN is functioning as the manager of the Joint Venture, earning an additional 17% interest in the Project through funding AU$1.3 billion of its capex via a loan agreement.

In its lithium sector, the company’s flagship Mt Marion Project shipped 56,000dmt (51% share) of spodumene at an average realised price of US$2,364, including discounts and grade adjustments. While this was lower than in Q2, due to ‘continued mining of lower-grade transitional ore and plant shutdowns,’ its secondary Wodgina Project is finally ramping up. With the first cargo only produced in July, the Project shipped 36,000dmt (40% share) through the quarter.

Overall, Mineral Resources saw 4,703 tonnes of lithium hydroxide converted in Q1, which is being sold on or processed by partners Jiangxi Ganfeng Lithium and Albemarle.

Where next for Mineral Resources?

MIN has reaffirmed that Marion will ship between 300,000 and 330,000dmt (51% share) and Wodgina 190,000 to 210,000 dmt (50% share) through FY23. With Onslow set to start deliveries a year from now, 2023 could see another share price rocket for the ASX 200 stock.

Indeed, Bell Potter argues that MIN shares remain undervalued compared to fellow lithium miner Pilbara Minerals, saying intriguingly that ‘MIN has traded mineral inventory for a more developed downstream conversion business, which is beginning to enhance earnings…MIN should trade at a significant enterprise value premium to PLS, highlighting the case for a demerger of MIN’s lithium business.’

The financial advisory firm further notes that ‘as business development concludes, MIN’s value should be re-rated. However, if MIN decides not to wait, a lithium demerger is an option to maximise value earlier. Either way, shareholders have two-ways-to-win.’

Of course, the real danger to the company’s near-term prospects is the danger of a Chinese slowdown, especially given the country’s rolling pandemic lockdowns and weakening mortgage market.

Despite drastically cutting its 76,000-tonne surplus prediction for 2023, Goldman Sachs recently reiterated its view that ‘overcapacity and slowing (electric vehicle) sales’ could soon seriously slow the lithium market. And fellow investment bank Credit Suisse has warned investors of ‘speculation in China that a major cathode producer might have slashed production targets and some Chinese firms forecasting softening in the market later in 2023.’

However, Pilbara Minerals has once again set a new record for its spodumene at the online Battery Material Exchange. Yesterday, its ‘cargo of 5,000dmt at a target grade of ~5.5% lithia’ was sold for US$7,805/dmt (SC5.5, FOB Port Hedland basis) which on a pro rata basis for lithia content and inclusive of freight costs equates to a price of ~US$8,575/dmt (SC6.0, CIF China basis).’

If these prices can be sustained, Mineral Resources may well soar further in 2023.

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