Citi upgrades Min Resources on back of longer-than-expected pandemic recovery boom

Wed 09 Mar 22, 4:41pm (AEST)

Key Points

  • Citi’s upgrades the mining services company to Buy
  • Underlying earnings of $156m for the six-months, 58% lower than consensus forecasts
  • Ord Minnett expects the iron-ore price to retreat in the June half

Mineral Resources (ASX: MIN) was up around 2% at noon today following Citi’s upgrade on the mining services company to Buy from Neutral.

The broker views the company as a lithium play in the short run, with the target price of $58 suggesting a 23% discount to the current price ($46.95).

The broker’s commodity team has raised near-term commodity price forecasts, in the expectation that the Russia/Ukraine war will prolong the pandemic recovery boom. 

As a higher cost iron ore producer, Citi also notes that the company also has high earnings leverage to iron ore price increases.

Big miss

Today’s upgrade is a welcome kicker for Mineral Resources after higher costs and lower revenue – due in part to unprecedented collapse in the price of iron ore - dragged the company to its worst first-half financial result in three years.

Due to increasing transport costs and labour constraints, the company reported a higher-than-expected 60% increase in production costs.

The net effect was underlying earnings of $156m for the six-months, 58% lower than consensus forecasts.

Lithium to the rescue

In light of a -96% fall in net profit to just $20m, the company did not issue an interim dividend.

In an attempt to put the pain endured by the company in context, managing director Chris Ellison noted that iron ore had plummeted $US128 a tonne in just 67 days.

Ellison also noted that the fall in iron ore prices was partially offset by a spectacular rebound in the lithium market, on the back of demand for raw materials needed to build batteries for EVs.

In the wake of the interim result, management has reemphasised the pivotal role the company’s “world-class” lithium business will play.

Equally encouraging is the company’s transition from high-cost, small-pit iron ore mines to larger, lower-cost operations that would help to offset commodity price swings.


A one year look: Mineral Resources share price.

What other brokers think

Based on the five brokers that cover the stock (as reported on by FN Arena), Mineral Resources is trading with 17.2% upside to the current price.

With cost pressures and discounting in iron ore expected to subside, Macquarie retains an Outperform rating, with the target price falling -7% to $70 due to forecasted weakness in near-term earnings.

Ord Minnett expects the iron-ore price to retreat in the June half, and with the price continuing to trade above valuations, the broker retains a Sell rating with the target price falling to $45 from $46.

Despite reported earnings being -50% below Morgan Stanley’s forecast (10/02/22), the broker retains an Equal-weight rating and $45.70 target price.

Despite lower revenues for iron ore and higher costs at Mt Marion, the broker notes mineral services earnings were in line. 

Consensus on Mineral Resources is Moderate Buy.

Based on Morningstar’s value of $56.21, the stock appears to be undervalued.


Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. 

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