Onslow Iron And Lithium Operations Will Increase Output

Key Takeaways

• Onslow Iron's ramp-up and haulage upgrades are expected to boost production, enhancing earnings and revenue growth.
  
• Improved lithium operations are anticipated to sustain better margins and profitability, with asset monetization offering flexibility for deleveraging.
  
• Leadership disruptions, increasing costs, operational challenges, and volatile mineral prices could negatively impact Mineral Resources' revenue, margins, and profitability amidst market uncertainties.

Catalysts

Together with subsidiaries, operates as a mining services company in Australia, Asia, and internationally.

• The ramp-up of the Onslow Iron project is expected to increase EBITDA as production scales up, leading to a natural decline in net debt to EBITDA ratios. This should positively impact earnings.
  
• Improvements in lithium operations with increased production volumes and reduced costs are expected to sustain better margins, potentially enhancing net margins and overall profitability.
  
• The completion of haul road upgrades for Onslow is set to increase production capacity significantly, potentially boosting revenues as the project reaches full operational output.
  
• The potential for asset monetization, such as the $10+ billion balance sheet with assets that can be sold if needed, provides flexibility to deleverage and improve cash flow, positively affecting net margins.
  
• Increased haulage and shipping capabilities at Onslow Iron, with expectations for higher monthly volumes, indicate potential for revenue growth and improved net margins.

Mineral Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mineral Resources's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -24.4% today to 9.1% in 3 years time.
• Analysts expect earnings to reach A$526.1 million (and earnings per share of A$2.08) by about August 2028, up from A$-1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, up from -5.3x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 14.0x.
• Analysts expect the number of shares outstanding to grow by 0.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.43%, as per the Simply Wall St company report.

Mineral Resources Future Earnings Per Share Growth

Risks

• Recent board resignations and vacancies in governance committees could lead to disruptions in company leadership, impacting strategic decisions and potentially leading to investor uncertainty, affecting the company's valuation and market perception. [Revenue impact]
  
• The company's net debt stands at $5.4 billion, and while liquidity is currently strong, increased interest rates on potential refinancing could elevate interest expenses, thereby limiting future profitability and cash flow. [Earnings impact]
  
• Operational constraints at Onslow, such as haulage limitations and road upgrades, could delay achieving optimal production capacity, potentially impacting revenue from mineral sales and affecting quarterly earnings. [Revenue impact]
  
• Mining Services volumes are expected at the lower end of guidance, and disruptions have already impacted productivity and costs, which could suppress the EBITDA margins compared to previous expectations. [Net margins impact]
  
• Volatile iron ore and lithium prices could adversely affect revenue if market conditions deteriorate, especially with reliance on fixed contracts in a fluctuating price environment, limiting the ability to adapt to downward market trends. [Revenue impact]

Valuation

• The analysts have a consensus price target of A$29.907 for Mineral Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$58.0, and the most bearish reporting a price target of just A$14.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$5.8 billion, earnings will come to A$526.1 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 8.4%.
• Given the current share price of A$33.15, the analyst price target of A$29.91 is 10.8% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.