MIN is a Perth-based mining services provider focusing on the iron ore and hard-rock lithium sectors in Western Australia. Notably, MIN is Australia’s leading pit-to-port mining services provider, a top-five lithium miner with joint ownership of the largest hard rock lithium deposit, and Australia’s fifth largest iron ore producer. MIN has been a listed company since 2006 and is still led by its founder and Managing Director, Chris Ellison.
The company has three areas of operation
- Iron ore
- Hard-rock lithium mining
- Mining services
There are a couple of potentially game-changing projects for MIN which ought to lead to a step-change in earnings and scale for the company.
Iron Ore
Australia’s 5th largest iron ore producer is from the Yilgarn hub (Parker Range) and Utah point hub (Wonmunna).
In full-year 2021 exports of 17.3Mt generated a record EBITDA of $1,537 Million. However, given the sharp fall in the iron ore price and the current high cost of production, this profit potential is not likely to be repeated in FY22.
MIN has an expansion program to lift its iron ore production from 20 million tonnes a year to 90 million tonnes in 5 years. The iron ore-focused Fortescue Metals (FMG) produces 180 million tonnes annually and has a 54 billion market cap. To put this into context, MIN is looking to do half the volume of FMG, yet it’s currently worth one-fifth ($8 billion) of FMG. So, leaving aside the iron ore price, the volume expansion story alone offers considerable upside.
Lithium Assets
With the lithium segment, MIN has an aim of converting all its spodumene production to higher-value lithium hydroxide.
1. Mt Marion – Total production 475kt of production, MIN owns 50%, so its share of production is 235kt p.a
2. Wodgina – Currently not in production operation in care and maintenance, targeting restart by third quarter 2022, initial production 250kt. Production increases overtime to 750 kt p.a. MIN owns 40%, so its share of production is 300 kt p.a
3. Lithium hydroxide plant under construction at Kemerton ( 17km northeast Bunbury). The plant will process all spodumene from the Wodgina mine into lithium hydroxide.
Mining services
This business segment entails open pit mining, crushing, and processing across several different commodities such as iron ore and Lithium predominately.
Mining services contracts have a long time frame, typically over five years, and the services offered are not related to the strength of commodity prices. As such, they consistently generated positive EBITDA in FY21 $420 Million, with this only likely to increase over time as commodity prices remain elevated.
In summary
When you compare the production upside potential from the Lithium assets, and the currently elevated spot prices for spodumene US$1,700/t and lithium hydroxide US$17,000, the Lithium division will start to generate significant profitability in the near term.
Along with the growth in earnings from the Lithium business, you also get the profits from the mining services business, which are not reliant on the underlying commodity price.
The opportunity to invest in the company at levels significantly below the recent high of $65 in late July exists because of the falling iron ore price. However, a sustained recovery in the iron ore price is unlikely until after the Chinese Winter Olympics in February 2022.
If MIN can execute in all segments, they have the potential to materially transform the company into a much larger, lower-cost iron-ore producer and a world-class lithium hydroxide producer.
Trade Action
MIN closed yesterday at $45.75.
Buy 300 MIN at a limit price of $44.50 (We have decided to enter a buy price under the last traded price because of a potential for a pullback this morning).
If the order to buy is successful
Stop Loss $35.00
Profit target $55.00