Data Insights

Mineral Resources has not been this oversold since the GFC

Mon 24 Jun 24, 9:57am (AEST)
Conveyor belt for mineral export at port mining
Source: Shutterstock

Key Points

  • Mineral Resources faces multiple challenges, including the closure of its Yilgarn iron ore mines, high capex, and falling commodity prices, leading to a 30% stock decline since May
  • Historical data shows MinRes stock, currently at oversold levels (RSI 16), tends to rebound, but timing remains crucial to avoid potential further declines
  • Despite short-term headwinds, MinRes plans significant growth across its businesses, with analysts cautiously optimistic about long-term value creation potential

Mineral Resources (ASX: MIN) has been on a relentless downtrend, shedding nearly 30% of its value since late May and down 19 out of the last 22 trading sessions. The sharp selloff stems from long list of bearish catalysts, including:

  1. The decision to close its Yilgarn iron ore mines

  2. Substantial capital expenditure overhang

  3. A strained balance sheet

  4. Falling iron ore prices

  5. Falling lithium prices

The stock's rapid descent has pushed it into deeply oversold territory. Its Relative Strength Index (RSI) now stands at 12 – a level of weakness not seen since the depths of the 2008 Global Financial Crisis. For perspective, even during major market selloffs like the COVID-19 pandemic, MinRes' RSI only dipped to the low 20s.

Historic returns from oversold levels

MinRes' diversified portfolio has historically buffered it against iron ore price fluctuations, as seen during China's Evergrande collapse in 2021 and the prolonged sub-US$50/tonne period of 2015-2016.

Since 2008, MinRes has traded at an RSI below 26 – which represents two standard deviations from the mean – only 56 times. And around half of these instances occurred in 2008 and 2014. In other words, you rarely see the stock this oversold.

To analyse the forward returns from oversold conditions, we examined the first instance of RSI below 26 in each month, which yielded 16 data points. The results show:

2024-06-21 15 27 00-ASX MIN, 1D - Excel
Source: Market Index

While forward returns generally improve over longer periods, the probability of positive returns ('% Positive') only reaches the mid-60s at best.

As simple as it sounds, an oversold stock can become even more oversold. Buying too early risks catching a falling knife scenario, much like what happened in 2008. During that year, the 22 instances of RSI below 26 resulted in average returns of:

  • 1 month: -24.8%

  • 3 month: -17.7%

  • 6 month: 0.8%

  • 12 months: 112.2%

So it did take a while for things to turn around.

Today's problem

Earlier this week, MinRes announced the closure of its Yilgarn hub by the end of 2024, earlier than anticipated by with minimal impact on FY25-26 earnings. The strategic move allows for the redeployment of resources to higher-margin assets like Onslow.

While the closure will reduce short-term cash flow, the sale of a 49% interest in the Onslow iron ore project for $1.2 billion is is expected to provide a substantial cash injection, strengthening MinRes' balance sheet.

Analysts have been concerned about recent capital expenditures and debt levels but the sale proceeds should significantly aid in debt reduction.

To add some perspective, here's what Citi has forecasted over the next three years. I've included some other metrics from their model (CAPEX, free cash flow and price-to-earnings) to provide some extra context.

Profit & Loss (A$m)










Reported net profit










Free cash flow (ex acquisitions)





Free cash flow yield










While we're not facing a global financial crisis, MinRes is navigating an unprecedented CAPEX cycle. This situation casts a shadow over the company as dividends are slashed and free cash flow yield turns negative. However, the company has laid out an ambitious plan to grow volumes across its mining services, lithium, and iron ore businesses by 200-400% over the next five years.

2024-06-24 09 38 07-6A1194852.pdf
Source: MinRes half-year FY24 results presentation

Despite these short-term challenges, analysts remain cautiously optimistic. They're focusing on the company's potential for long-term value creation through strategic resource reallocation and growth in other operations.

The latest broker ratings on MinRes include:

  • Morgan Stanley – Overweight with $79.00 target price

  • Citi – Buy with $80.00 target price

  • Macquarie – Neutral with $62 target price

The key questions now are: At what point can we look beyond the near-term pain? And are there any more CAPEX surprises on the horizon?

Related Tags

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free