Mineral Resources’ blend of mining services revenue and lithium exposure underpins long-term growth outlook

About Mineral Resources

Mineral Resources Limited (MinRes, MIN or the Company) is a Perth-based mining services provider that since listing in 2006 has evolved from a mining services contractor to now owning and operating its own commodity projects. Principally focused on lithium and iron ore, and more recently onshore natural gas, the Company is Australia’s fifth-largest iron ore producer and is the largest acreage holder of conventional gas exploration permits in the Perth and Carnarvon Basins. Its lithium mines are extensive, long-life assets and are among the largest in the world.

The Company owns the largest pool of minerals processing equipment, parts and spares in Australia.  Its mining services offer a full suite of pit-to-port mining logistics capabilities that cover exploration, planning, mine design and construction as well as the construction and design of minerals process facilities, commodity transportation, crushing, processing, and marketing services.

Falling lithium prices and rising inventories appeal to contrarian investors

Lithium spot prices are down 10 percent this month and down 70 percent for the year, as significantly higher production and weaker electric vehicle sales create short-term uncertainty and price volatility. This has resulted in a significant increase in lithium inventories globally. At the same time, electric vehicle sales in the US and Europe, although strong, have recently declined after triple-digit year-on-year growth since 2021.

Lithium prices peaked at record levels in 2022 which encouraged a significant run up in global production volume in 2023. However, the history of commodity markets is that the best cure for high prices is high prices. This is because high prices incentivise greater production, but also depress demand, eventually resulting in lower prices. This explains the 70 percent price decline of lithium over the past year.

However, this has not deterred contrarian investors who make their money by not following the crowd. Contrarian investors think and act independently when significant price fluctuations present investment opportunities. But simply ‘buying the dip’ in commodity or share price declines isn’t always the right move. Instead, discerning investors look to understand reasons for a price decline and search for the factors that may see the decline reversed.

The long-term demand for lithium batteries used in electric vehicles, iPhones, power tools and electrical energy storage facilities is assured. This anticipated increased demand, in the face of slowing production volumes, is likely to eventually see lithium prices move higher in the medium-term.

Investors now must determine the most suitable risk-reward strategy to capture the potential upside in lithium prices.

Mineral Resources well positioned to capture lithium price growth

Mineral Resources is a low-risk resources play because its revenue and EBITDA comprises a blend of mining services and lithium production revenues. The Company’s mining services income is based on commodity volume and not commodity prices. This provides a relatively low-risk exposure to the commodity price cycle. Lithium, on the other hand, is a strategically important commodity that is an essential component of the global energy transition to clean energy.

In the 2023 financial year, 24 percent of Mineral Resources’ EBITDA was generated through mining services, and 66 percent from its world-class lithium operations.

The other notable feature of Mineral Resources’ investment thesis is the significant economic interest of the CEO and non-executive directors in Mineral Resources’ shares. The CEO owns 12 percent of the Company, or 22.5 million shares worth approximately $1.27 billion and the non-executive directors own $3.7 million of stock. Twenty-five percent of the Company’s non-executive directors’ fees are paid in shares.

Mineral Resources provides an exposure to a recovery in lithium prices over the medium term with a lower risk profile than many other resource companies.