Onslow Spending And Commodity Oversupply Will Weaken Outlook

Key Takeaways

• Heavy investment and reliance on asset financing strain financial flexibility, raising risks of higher debt, constrained cash flow, and potential dilution or increased interest costs.
  
• Exposure to lithium and iron ore increases vulnerability to commodity price swings, regulatory tightening, and technological shifts that could hurt volumes, margins, and growth.
  
• Ongoing lithium expansion, operational efficiency measures, and flexible production strategies support robust profitability and resilience amid fluctuating commodity markets, while strong liquidity reduces financial risk.

Catalysts

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

• Large-scale capital expenditure requirements at Onslow, lithium operations, and ongoing haulage infrastructure projects will place sustained pressure on balance sheet flexibility, with $1 billion in spending expected next year and notable ongoing reliance on asset financing; this increases net debt burdens and the risk of dilutive capital raises or rising interest expenses, constraining free cash flow and future earnings growth.
  
• Over-reliance on lithium and iron ore leaves Mineral Resources highly exposed to technological disruption and substitution risks; long-term adoption of battery recycling, alternative chemistries, or decreased steel demand from shifts in infrastructure policy could structurally depress sales volumes and commodity prices, directly eroding revenue and net margins.
  
• Global moves toward decarbonization, with tightening ESG and regulatory frameworks, are likely to further escalate compliance costs, stall permit timelines, and threaten social license for new or expanded mining operations, undermining the company's ability to bring new projects online and hampering top-line growth in outer years.
  
• Persistent operational risks-including weather disruptions, logistical bottlenecks at Onslow, and higher-than-expected strip ratios-continue to threaten cost control, with increases in deferred stripping and future catch-up costs likely to be incurred, putting sustained downward pressure on operating margins.
  
• The risk of global oversupply in lithium and iron ore, driven by new market entrants and capacity expansions by large incumbents, could drive prolonged commodity price declines, resulting in lower realized revenues, EBITDA contraction, and heightened earnings volatility over the coming cycle.

Mineral Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mineral Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mineral Resources's revenue will decrease by 1.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -24.4% today to 7.1% in 3 years time.
• The bearish analysts expect earnings to reach A$342.2 million (and earnings per share of A$-0.17) by about August 2028, up from A$-1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.8x on those 2028 earnings, up from -5.4x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 14.5x.
• 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 8.4%, as per the Simply Wall St company report.

Mineral Resources Future Earnings Per Share Growth

Risks

• Ongoing expansion in lithium operations, including significant improvements in recoveries and cost reductions at both Wodgina and Marion, positions Mineral Resources to benefit from long-term growth in battery minerals demand, potentially increasing both revenue and net margins.
  
• Strong operational execution in mining services, marked by record external volume growth and consistently solid EBITDA per tonne, suggests a growing and resilient services business that could enhance earnings stability.
  
• Substantial investments in automation, mine planning technology, and agile logistics are improving operational efficiency and cost management, which could drive higher sustained net margins and bolster free cash flow.
  
• The company's ability to flex production, optimize stripping schedules, and maintain high-quality ore feed-particularly at key assets like Ken's Bore and Wodgina-may allow continued low unit costs, supporting profitability even in volatile commodity price environments.
  
• A robust liquidity position, with over $1.1 billion at FY-end, declining net debt-to-EBITDA ratios, and favorable access to credit markets for refinancing, reduces financial risk and supports ongoing capital investment and shareholder returns.

Valuation

• The assumed bearish price target for Mineral Resources is A$14.6, which represents the lowest price target estimate amongst analysts. 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 more bearish 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$14.6.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$4.8 billion, earnings will come to A$342.2 million, and it would be trading on a PE ratio of 10.8x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of A$33.98, the bearish analyst price target of A$14.6 is 132.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.