Global Electrification Will Drive Demand For Iron Ore And Lithium

Key Takeaways

• Superior project execution and vertical integration enable outsized long-term revenue and margin growth, driven by global electrification trends and robust lithium and iron ore demand.
  
• Resilient cash flow from long-term service contracts and operational efficiency supports aggressive reinvestment and positions the company for industry-leading performance through market cycles.
  
• Sustained pricing weakness, high capital demands, concentrated markets, expansion risks, and stricter regulations all threaten revenue growth, cash flow stability, and future profitability.

Catalysts

Together with subsidiaries, provides mining services in Australia, Asia, and internationally.

• Analyst consensus expects Onslow Iron to reach nameplate capacity and materially improve EBITDA, but the company itself now sees clear potential to exceed the original 35 million tonne per annum output with minimal capital outlay, suggesting a step-change in sustainable long-term Mining Services and iron ore revenues beyond current forecasts.
  
• While analysts believe cost reductions and operational upgrades will modestly boost lithium margins, efficiency gains-already evidenced by significant improvements in plant recoveries and operational optimization at Wodgina-combined with rapid restart capability when prices normalize, could deliver a much more explosive rebound in divisional earnings as global battery mineral demand accelerates.
  
• The company's unmatched ability to deliver large-scale, integrated mining and logistics projects ahead of schedule, paired with the structural tailwinds from global electrification and government-backed infrastructure stimulus, positions Mineral Resources for outperformance in both volume growth and pricing power across lithium and iron ore segments, directly supporting higher long-term revenue and net margins.
  
• As one of the few fully vertically integrated lithium producers outside China-with flexibility to ramp and diversify downstream-Mineral Resources is set to capture greater value from surging electric vehicle adoption, potentially achieving EBITDA expansion well above peer averages as lithium prices recover.
  
• High-value, long-tenure Mining Services contracts anchored by proprietary infrastructure and life-of-mine agreements provide a resilient, recurring cash flow base, allowing the company to aggressively reinvest in technology and maintain sector-leading net margins even through commodity cycles.

Mineral Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Mineral Resources compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Mineral Resources's revenue will grow by 30.4% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -20.2% today to 7.2% in 3 years time.
• The bullish analysts expect earnings to reach A$716.4 million (and earnings per share of A$11.85) by about September 2028, up from A$-904.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.9x on those 2028 earnings, up from -7.7x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 17.0x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Mineral Resources Future Earnings Per Share Growth

Risks

• Weakness in commodity prices, particularly lithium and iron ore, has materially reduced earnings and resulted in asset closures and deferred capital projects, which may constrain future revenue and operating margins if these pricing pressures persist.
  
• High capital intensity and significant ongoing capital expenditure requirements, as evidenced by nearly two billion dollars of capital spend in the last year and continued investment needed for large projects such as Onslow Iron and Pilbara Hub, may pressure cash flow and reduce net earnings or force further asset sales if returns disappoint.
  
• Overreliance on a concentrated customer and product base, notably iron ore to China, exposes the company to market or geopolitical shocks that could abruptly lower sales volumes and increase earnings volatility.
  
• Execution risk associated with new project ramp-ups, such as Onslow Iron and future lithium processing expansions, could result in cost overruns, delays, or operational issues that undermine expected cash flow improvements and depress returns on invested capital.
  
• Intensifying environmental and decarbonization regulations, including higher compliance costs and ESG-driven investor demands, could increase operational costs and necessitate further capital outlays to remain competitive, reducing future net margins and potentially limiting growth opportunities.

Valuation

• The assumed bullish price target for Mineral Resources is A$54.04, which represents two standard deviations above the consensus price target of A$33.89. This valuation is based on what can be assumed as the expectations of Mineral Resources's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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$15.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be A$9.9 billion, earnings will come to A$716.4 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 8.5%.
• Given the current share price of A$35.73, the bullish analyst price target of A$54.04 is 33.9% higher.
• 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.