Sandstone Insights: Mineral Resources advances Onslow Iron project and lithium shipments lead growth

ASX code: MIN

Suggestion: Buy

Need to know

• Onslow Iron's first ore delivery and the selldown of the haul road confirm management’s project execution credentials
• Group unit iron ore costs to fall as Yilgarn closes December 2024 and Onslow ramps up
• Lithium volume and cost guidance in-line, prices recovering
• Net debt improved to $4.4 billion.

Onslow Iron's progress and strategic operations

Mineral Resources has advanced its stake in the Onslow Iron project to 57% by delivering the first ore on ship ahead of schedule in May 2024. The colmpany has a further 3.3% stake through its shareholding in Aquila Resources.

• Haul road and transshipment strategy

The project has begun ramping up with the deployment of the first six autonomous 330-tonne haul road trucks, which are part of a total fleet of 120 trucks traversing the 150 km haul road to the Port of Ashburton. The first two transshipment vessels (of 5x 20kt) are currently loading mini-cape vessels, with a third transhipper set to be commissioned in August.

This haul road and transshipment strategy is expected to allow Mineral Resources to move ore at a free on board (FOB) cost of A$40/dmt, excluding royalties– a cheaper option than rail. The haul road is to be fully sealed and fenced, enhancing operational efficiency. The target for Onslow is to reach 35 Mtpa production in approximately 18 months, with potential to scale up to 50-60 Mtpa with further infrastructure investment.

• Additional sites

The Ken’s Bore mine site has the 15mt crusher in operation, with the stacker now also in action. The 500-room accommodation site has 350 rooms in use, and the dedicated airport is open for Mineral Resources’s new internal airline (MinRes Air) flying weekly direct flights from Brisbane.

As the Yilgarn hub closes at the end of the year, this will improve group iron ore metrics.

Lithium record shipments and price recovery

Record shipments of spodumene concentrate from Wodgina and Mt Marion have coincided with what could be a turning point for prices. The average realised price achieved in the quarter of US$970/dmt was 15% ahead of the prior corresponding period (pcp).

Lithium battery chemical price

Wodgina

• 2024 sales: 6300t
• 2024 average price: US$11,667/t
• 2023 average price: US$50,936/t

Mineral Resources

• 2024 sales: 23,995t
• 2023 sales: 7,286t
• 2024 average price: US$17,177/t

With the addition of Bald Hill ($260million in November 2023, ~160ktpa spodumene mine with 26.5mt resource), Mineral Resources is at the beginning of creating a lithium hub based around the Mt Marion asset. There is potential to build a processing plant in the region to cater for a range of adjacent mines around the Norseman and Coolgardie townships. Other companies have resources in the region which could support the concept with Mineral Resources' Mining Services division also playing a role.

Emerging energy ventures

The energy division is in the early stages but shows promise.Mineral Resources has submitted two production licence applications for the Lockyer and North Erregulla gas fields in the Perth Basin. The company is awaiting approval from the Western Australian government for partial export of gas, which will determine the investment decision on building the Lockyer Gas Plant.

Investment implications

Mineral Resources’ fourth-quarter 2024 production statement was in line with market expectations, and the better-than-expected spodumene pricing is likely to bolster investor confidence. The balance sheet has strengthened following the partial sale of the Onslow haul road.

Key financial metrics:

• Iron ore shipments: +6% QoQ with the first ore from Onslow contributing. FY24 shipments 18.1mt, +3.3% YoY
• Average iron ore price: US$94/dmt
• Yilgarn hub unit costs: $108/wmt
• Pilbara hub unit costs: $74/wmt
• Onslow unit costs: expected to be closer to $45/wmt
• Lithium pricing: improves to US$970/dmt, production higher at Wodgina and Bald Hill now contributing.
• Mining Services: volumes down -12% QoQ
• Haul road selldown: proceeds of $1.1billion expected to complete in the first half of 2025, and an undrawn bridging facility will be cancelled
• Lockyer Gas Project: Energy – FID delayed while WA Government considers agreement for partial export of gas.

Valuation

Despite recent share price fluctuations and concerns over balance sheet gearing, the successful selldown of the Onslow Haul Road has largely alleviated these concerns, refocusing attention on the rapid and timely development of the Onslow Iron Ore project.

With the peak of Mineral Resources’ capital expenditure program now past, the company aims to double its business within two years, expanding its mining services, lithium assets, and iron ore production, and constructing a major gas plant. This ambitious expansion underpins our 'Buy' recommendation for Mineral Resources

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• _{The information provided by Sandstone Insights does not constitute investment advice and does not have regard to the specific needs of any person who may receive it. No warranty is given as to the accuracy or completeness of the information and any person acting on it does so entirely at their own risk.}