Rising Costs And Regulatory Burdens Will Stall Mining Expansion

Key Takeaways

• Structural shifts in global demand, cost inflation, and increased regulatory risks threaten long-term revenue growth, profitability, and major project execution.
  
• Heavy reliance on volatile commodity markets and large capital projects exposes Mineral Resources to unpredictable cash flow and constrained investment returns.
  
• Strong project ramp-up, resilient contracted services, capital discipline, scalable lithium operations, and ongoing operational improvements support long-term earnings stability and upside potential.

Catalysts

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

• The increasing pace of global decarbonization policies and accelerating adoption of recycling and substitution technologies threaten to structurally cap long-term demand for both lithium and iron ore, potentially leading to persistent pressure on Mineral Resources' revenue growth and triggering the risk of asset write-downs or stranded assets if demand for primary resources stagnates.
  
• Ongoing cost inflation in labor, energy, and consumables, combined with the company's expanding large-scale mining and downstream processing operations, may outpace any future rise in commodity prices, thus compressing net margins and leaving profitability sensitive to further commodity price downturns.
  
• Greater regulatory scrutiny and emerging resource nationalism across key jurisdictions raise the likelihood of heavier compliance burdens, higher operational costs, and project approval delays for Mineral Resources, diverting capital from growth initiatives and potentially stalling major projects, which could slow future earnings expansion.
  
• Heavy reliance on volatile iron ore and lithium markets exposes Mineral Resources to amplified earnings swings, with recent operational strategy indicating production restraint during downturns and care and maintenance or idling of assets if prices fall, which could result in unpredictable cash flow and lower returns over the cycle.
  
• Extensive capital commitment to projects like Onslow Iron and future expansion plans, combined with execution risk in downstream ventures, heightens the possibility of project cost overruns, delays, and impaired returns, which would negatively affect balance sheet strength and constrain free cash flow available for dividends and reinvestment.

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 6.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Mineral Resources will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Mineral Resources's profit margin will increase from -20.2% to the average AU Metals and Mining industry of 19.0% in 3 years.
• If Mineral Resources's profit margin were to converge on the industry average, you could expect earnings to reach A$703.0 million (and earnings per share of A$3.59) by about September 2028, up from A$-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 bearish analyst cohort, the company would need to trade at a PE ratio of 5.3x on those 2028 earnings, up from -7.7x today. This future PE is lower 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

• The rapid and successful ramp-up of the Onslow Iron project with record production volume and industry-first infrastructure, combined with its expected low-cost, long-life operation, sets the platform for robust recurring earnings, improved cash flow, and increased return on invested capital over coming decades.
  
• The Mining Services segment is highly resilient, demonstrated by a 19% compound annual EBITDA growth rate since IPO, life-of-mine contracts exceeding 15 years, and an exceptional contract retention rate, providing long-term revenue stability and predictable net margins across commodity cycles.
  
• Prudent capital allocation discipline, strategic asset recycling, and major asset sales (such as the Onslow Iron haul road stake) have strengthened the balance sheet and improved liquidity, reducing the risk of equity dilution and setting the stage for increased profitability and potential future shareholder returns.
  
• Operational flexibility across lithium assets, with facilities able to quickly scale up production as prices recover, positions the company to capture upside from the accelerating energy transition and long-term demand for battery metals, which could substantially boost future revenues.
  
• Continued reinvestment in technological and operational improvements, as well as proactive cost management and ESG-driven initiatives, supports superior productivity, cost competitiveness, and market access, which are likely to have a positive long-term impact on both net margins and overall earnings.

Valuation

• The assumed bearish price target for Mineral Resources is A$15.0, 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$15.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$3.7 billion, earnings will come to A$703.0 million, and it would be trading on a PE ratio of 5.3x, assuming you use a discount rate of 8.5%.
• Given the current share price of A$35.73, the bearish analyst price target of A$15.0 is 138.2% 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.