Mineral Resources tightens belt after lithium, iron ore prices fall

Australia’s Mineral Resources (ASX: MIN) is slashing costs to ride out the weak lithium price but founder and chief executive Chris Ellison said the company wasn’t panicking. 

The iron ore and lithium producer, which is also the world’s largest crushing contractor, posted a 40% drop in earnings and a 79% drop in underlying net profit after tax to A$158 million (US$107.4 million) for the year ended in June. 

While earnings before interest, tax, depreciation and amortization (EBITDA) in the company’s mining services division rose to a record A$550 million, EBITDA for the lithium business plunged 71% to A$384 million, while margins fell from 70% to 27%. 

“We’re in a tough market. We’re in one of those downturns. It’s nothing we need to panic about. You just need to close your eyes and go, ‘We’re in a downturn. No one’s making money,’” Ellison told analysts during a briefing in Sydney last week. 

MinRes operates the Mt Marion mine in joint venture with China’s Ganfeng Lithium, the Wodgina mine with Albemarle (NYSE: ALB) and the more recently acquired Bald Hill mine, all in Western Australia. 

In response to market conditions, MinRes will pull back production at Mt Marion to 150,000-170,000 tonnes of spodumene this financial year from 218,000 tonnes in the year that just ended. 

Ellison said he was surprised by how far the lithium price had fallen and anticipated it could remain at current levels for another six months. 

But he said there wasn’t a particular price that would prompt the company to shut down operations, as maintaining the workforce was important and low-cost modifications being made to each plant would lower unit costs. 

“If the price of lithium continues to drop, there won’t be a mine on the planet that’s making money, so we will really just start pulling harder and harder on the spend until we strangle it,” Ellison said. 

‘Boring’ iron ore 

MinRes has just commissioned its 35-million-tonne-per-year Onslow Iron project in the Pilbara and is shutting down its higher cost production in WA’s Yilgarn region. 

Ellison described iron ore as “boring” but said it was the only reason the world’s mining majors were so large. 

“Iron ore is not the sexiest commodity, like lithium, diamonds or copper, but it’s the best,” he said. “Even in a bad year, it’s going to make A$1.5 billion for us.” 

Ellison believes the iron ore price has found support at US$100 per tonne and will rise back to US$130 per tonne “in the next few years.” 

He added: “You only need 12 or 18 months in the sun with iron ore until you say ‘what debt?’” 

Group iron ore guidance for its 2025 fiscal year ending next June as Onslow Iron ramps up is 21.5-24.7 million tonnes. That’s up from 18 million in fiscal 2024, including 10.5-11.7 million tonnes at free-on-board (FOB) cash costs of A$58-68 per tonne from Onslow Iron. 

Balance sheet concerns 

Capital spending in 2024 was A$3.3 billion thanks to development at Onslow Iron. 

MinRes reported gross debt of A$5.3 billion and net debt of A$4.4 billion, which is expected to peak in the current half. 

The company did not declare a final dividend and is moving to defer expansion projects and conserve cash. It’s already cut 140 jobs from its head office in Perth. 

However, Ellison played down concerns over the company’s balance sheet, saying when he met with U.S. bondholders, they were more interested in talking about fishing. 

“I’ve got a nervous bunch of Nellies in Australia,” he said. 

“If the lights go out and we don’t do any more development for the next 30-40 years, the business is going to make a lot of money no matter what. We’ve sunk the capital, we’ve got a bit more … after that, we’ll just be getting parked up, catching fish and watching the cash come in.” 

MinRes expects to spend nearly A$2 billion on capital projects, mainly relating to Onslow Iron, in fiscal 2025. 

‘Conservative’ year 

Ellison said 2025 would be a “very, very conservative year” for MinRes with every dollar spent scrutinized. 

“Why are we doing that? Because if we come out the other side of this with a bucketload of cash, that’s where the opportunity sits in these times,” Ellison said.  

Mining services volumes are forecast to grow from 269 million tonnes in 2024 to 295-315 million tonnes. 

Group lithium production is expected to be 480,000-545,000 tonnes on a 6% spodumene basis.  

FOB cash costs are guided at A$800-890 per tonne for Bald Hill and Wodgina and $870-970 per tonne at Mt Marion. 

Ellison predicted Onslow Iron would be cash flow positive by December and fully ramped up by June or July 2025. 

MinRes shares plunged by more than 10% in early ASX trade on Thursday to a near three-year low and closed 8% lower at A$40.61. 

The stock, which peaked at more than A$96 in January 2023, has halved in value since May.