Most miners have had a tough few months with gold the notable exception. The effect of tariffs on China’s exports is also a headwind for its economy and in turn, commodity demand led by iron ore and copper. China also accounts for ~75% of seaborne iron ore demand.

Lithium, coal, and mineral sands the cheapest on price/fair value

Mineral Resources Ltd MIN ★★★★★

  • Fair Value Estimate: $66.00 
  • Share Price: $18.18 (as at 28/04/25) 
  • Moat Rating: None 
  • Uncertainty Rating: High 
  • Price to Fair Value: 0.28 (Undervalued) 

What is happening at Mineral Resources?

Mineral Resources (“MinRes”) holds a portfolio of mining operations across lithium and iron ore. The business consists of three core pillars: Mining Services, Commodities, and Innovation and Infrastructure.

The WA-headquartered lithium and iron ore miner has landed in hot water over the last year amidst falling lithium prices and allegations of misconduct and governance issues.

A plunge in lithium prices has been the primary weight on MinRes. The first half of fiscal 2025 saw the company report a dramatic decline in net profit after tax to negative $198 million, compared to positive $224 million in the prior corresponding period.

Following a 74% share price plunge over the last 12 months, investors continue to offload on new fears of trade tariffs slowing the sale of electric vehicles – a key end user of lithium.

min res share price chart

No moat in sight

In respect to iron ore, MinRes sits at the highest quartile of the cost curve. Lower margins primary result from price discounts from selling a lower-grade product in contrast to the 62% iron ore benchmark.

The company is ramping up production from its new Onslow iron ore mine and will be considerably lower cost than exiting smaller operations. But despite this, Onslow’s grades will still leave MinRes in the top half of the cost curve for iron ore.

The crushing and screening business is superior to the iron ore business, as it owns fixed plant and equipment at customers’ mines. Loss of contract is unlikely given plants are integrated with the client’s process, and as a specialist, MinRes is the low-coast solution.

We think this business is somewhat moaty, drawing upon cost advantage and switching cost sources, though not to the point of an actual moat. On average, it has comprised less than 30% of group EBIT over the past five years.

Debt concerns grow

Given the volatility of lithium and iron ore prices, debt levels need to be watched. We consider

Investor sentiment has darkened as the company grapples with comparatively high current debt levels coupled with low lithium prices. At the end of December 2024, the firm had $5.1 billion in net debt with gearing elevated at 134%. We don’t expect gearing to reverse back to a more palatable 30% before fiscal 2030, unless an equity sell-down accelerates deleveraging.

The current circumstances are unusual, as the company has operated on little to no net debt including for the eight years to fiscal 2018 – a sensible position for the volatile mining services space.

High risk and uncertainty

Morningstar ascribes MinRes a High Uncertainty Rating given its earnings depend on volatile lithium and iron ore prices, both directly via sales and indirectly via the provision of mining services.

Its own iron ore production is high cost and highly leveraged to the iron ore price which we expect to be less favourable in contrast to recent boom prices.

What we think

We reduce our fair value estimate for no-moat MinRes by 6% to $66 per share.

We project a 14% 10-year group EBITDA compounded annual growth rate to $3.9 billion by fiscal 2034 at a midcycle EBITDA margin of 44%. This is well ahead of the group’s fiscal 2024’s 20%, driven by low lithium spodumene pricing.

Morningstar’s nominal midcycle spodumene price assumption holds at USD 1,150 per metric ton however we assume better in the interim, over USD 2,000 per metric ton. This pushes our group EBITDA margin assumption to 45% - 50% from fiscal 2027 to fiscal 2031, and EBITDA above $4 billion.

Fiscal 2024’s EBITDA was down 40% at $1.06 billion and we expect to hit a low of $940 million in fiscal 2025 with lithium pricing below the marginal cost of production, in addition to the Onslow iron ore project now ramping up.

Despite this, MinRes is currently undervalued over its balance sheet and lower near-term iron ore and lithium prices. But Equity Analyst Jon Mills thinks earnings will rise as its lower-cost, long-life Onslow iron ore mine ramps and as lithium prices recover. This, in turn, likely drives deleveraging of the firm.

While net debt of AUD 5.1 billion at the end of December 2024 is high, driven by hefty Onslow expenditures, we expect net debt/EBITDA to peak at levels around 4 before declining to more palatable levels.

Currently priced at $18.18 per share (28/04/25), the miner presents investors with significant upside potential, trading almost 75% below its fair value.

Don’t forget

Before you get to choosing investments, we recommend you form a deliberate investing strategy. You can read more about how to form your strategy here.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.