2 key takeaways from MinRes' December quarter report

Mineral Resources (ASX: MIN) shares are set to have their best day since August 2023 after the company reassured investors that its lithium assets remain profitable at current prices and delivered stronger-than-expected iron ore shipments for the December quarter.

The stock was trading 7.4% higher in early trade but remains down around 15% year-to-date.

Strong shipments, stronger prices

Quarterly iron ore shipments surged 23% quarter-on-quarter to 4.8 million wet metric tonnes, following improved haulage operations and load rates at ports. This was ahead of the 4.7 million tonnes expected by analysts.

Despite the strong uplift in shipments, iron ore production at the Yilgarn and Pilbara Hub fell 8% and 27% respectively. This reflects extensive pre-stripping activities (the removal of unwanted material that lie on top of the desired ore).

MinRes said the average realised price for its iron ore for the quarter was US$119 per dry metric tonne, up 20% quarter-on-quarter and realised 93% of the Platts 62% Iron Ore Index in the December quarter.

For context, realised prices for iron ore can deviate from the Platts benchmark due to:

• Grade: For example, Champion Iron produces iron ore with grades around 66.0% and it receives a substantial premium against the benchmark price. Whereas a lower-grade producer like Fortescue will sell at a discount

• Grade spread: The price difference between high and low-grade iron ore constantly fluctuates. When profit margins are high for end users (e.g. steel mills), they are more willing to invest in higher-grade ore to boost efficiency and output. During periods of low profitability, they might shift towards cheaper, low-grade options to minimise costs, which reduces the spread between high and low-grade iron ore

MinRes was realising around 58-62% of the Platts Index back in Q2-4 FY22.

Profitable lithium operations

Mt Marion spodumene production (50% ownership basis) rose 30% quarter-on-quarter to 83,000 tonnes, driven by higher plant utilisation and improved ore recoveries. This was above the 71,000 tonnes expected by analysts.

Wodgina spodumene production (50% ownership basis) rose 22% quarter-on-quarter to 55,000 tonnes, also due to improved plant recoveries. This was slightly below analyst expectations of 119,000 tonnes.

The report dropped a simple line that reiterated the profitability of its lithium assets: "Wodgina, Mt Marion and Bald Hill are profitable at current prices."

But 'current prices' could refer to one of two things: a) the December quarter or b) current spot prices – which are two completely different things.

Pilbara Minerals (ASX: PLS) reported its December quarter report on Wednesday, noting average realised spodumene prices of US$1,113 a tonne.

"Pricing for the December Quarter was influenced by the majority of sales being shipped in the month of December due to congestion at Port Hedland port during the months of October and November," management said in the quarterly report.

The shipment delays had a substantial impact on average realised prices for PLS (because it could not grab the higher prices in October and November). As a result, the US$1,113 a tonne figure was 30% below Morgan Stanley estimates and 18% below consensus.

Current lithium prices are even lower, sitting at around US$850 a tonne, according to S&P Platts.

So which is it? The >US$1,000 a tonne or the US$850 a tonne? Or both?