Morningstar | Mineral Resources Upgrades Fiscal 2019 EBITDA Guidance on Strong Pricing. No Change to FVE. See Updated Analyst Note from 01 May 2019
We make no change to our AUD 20 fair value estimate for no-moat Mineral Resources. The company updated fiscal 2019 EBITDA guidance to AUD 360-390 million, but we don’t think there are long-term implications in the drivers, including updated spodumene concentrate and iron ore prices. Our midcycle lithium and iron ore price forecasts are little changed at USD 13,400 per tonne and USD 40 per tonne.Prior fiscal 2019 EBITDA guidance was for AUD 280-320 million, and we were at the extreme low end of that range. We now move to an updated mid-guidance AUD 375 million, resulting in a 65% increase in our fiscal 2019 EPS forecast to AUD 0.94. Our fiscal 2020 EPS forecast is little changed at AUD 1.38. In addition to the healthier commodity prices, chiefly the Vale disaster-boosted near-term iron ore price, we increase our second-half 2019 EBITDA margin assumption for the crushing segment to nearer recent historical averages of 75%. The first-half crushing EBITDA margin fell to 40% after the loss of Mining Area C and reduced tonnes at Roy Hill, but recovery seems to have been faster than we’d allowed for. Crushing comprises 40% of our group fair value estimate, and Mineral Resources has been anticipating a second-half improvement as new contracts ramp up at three sites including Koolyanobbing iron ore, Wodgina and Mt Marion lithium.
Our group fair value equates to an unchanged fiscal 2023 EV/EBITDA of 6.6, a P/E of 12.8 and dividend yield of 4.2%, all discounted at WACC. Versus today’s fair value, 2023 P/E and yield are 7.2 and 7.5%, respectively. We credit a full 750ktpa of new Wodgina lithium concentrate capacity in addition to later hydroxide capacity which is forecast to produce at a rate of 100ktpa though coming at an estimated cost of AUD 800 million. If much vaunted USD 1.15 billion cash proceeds from Albemarle were to fail to materialise as anticipated in 2019, our fair value estimate could fall back to AUD 13.50. Fair value uncertainty is consequently very high.
Mineral Resources is a provider of mining infrastructure services. These services consist of: site services, including remote mine-site accommodation services, remote power services, and aerodrome management or personnel transport; mining services, including mine scheduling and grade control, mining operations and mine site haulage, dewatering and equipment hire; plant or processing services, including crushing and mineral processing, mobile processing services, and pipeline and water solutions; transport services, including road and rail logistics, ownership of locomotives and wagons, and road transport solutions; port services, including port logistics; and commodity sales and marketing.
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