Messy March Quarter Leads to MinRes Selloff
A weak March quarter update from Chris Ellison’s Mineral Resources saw the shares fall more than 10% at one stage on Wednesday after the company revealed delays to a key lithium expansion project and dropped full-year production guidance by up to 12.5% for its core mining services division thanks to a dearth of new contracts.
The slide came despite a record quarter for spodumene concentrate shipments from its WA lithium mines.
But the bottom line from the report with its downgrades and higher costs is that MinRes is going to have a tough 2022-23 to report at the June 30 balance data and earnings that will be nowhere near the $1 billion earned in 2021-22 (which was down 46% from 2020-21’s record).
MinRes shares ended the day down 9.7% at $72.59, the lowest they have been for nearly six months.
Mineral Resources (MinRes) reported delays at its key Mt Marion lithium expansion project in WA less than a week after blocking the acquisition of Essential Metals by Tianqi and IGO via a joint 50 cents a share offer.
Essential has a lithium operation near MinRes’ Pilbara mines and the feeling among analysts is that Ellison wants to buy it and consolidate its business into his
But while the expansion of the Mt Marion lithium project is currently within budget, with completion expected to begin next month, MinRes revealed there are problems elsewhere in lithium business.
MinRes said "Mt Marion FY23 volumes are expected to be at the lower end of spodumene concentrate guidance of 160-180,000 dry metric tonnes (dmt, SC6 equivalent) and lithium battery chemicals sold guidance of 19.0-21,300 tonnes.”
"This reflects the impact of a delay in the plant expansion and mine sequencing, resulting in the drawdown of contact ore stockpiles. Accordingly, Mt Marion FY23 spodumene FOB cost guidance has been revised to $1,200-$1,250/ a tonne (SC6 equivalent) (previously $850-900/a tonne)."
That’s a substantial 40% lift in costs!
MinRes said its Wodgina mine "remains on track to achieve FY23 spodumene shipped guidance of 150-170k dmt (SC6 equivalent) and lithium battery chemicals production guidance of 11.5-12.5,00 tonnes.
"Reflecting current marketing arrangements and market dynamics, FY23 lithium battery chemicals sold guidance is expected to be 5.0-6,000 (previously 8.5-9,500 a tonne).” Again, that’s a 30 to 40% drop!
Both falls point to a substantial weakening in revenue and earnings for the June 30 year for the company.
And then there’s the company's core Mining Services where production volumes were lower in the third quarter at 52 million tonnes (Mt) "following completion of two external mining contracts”.
"Equipment and people were moved to joint venture projects but delays in approvals impacted volumes. During the quarter, one new external crushing contract and two new mining contracts were secured, along with an extension to an existing haulage contract.
"As a result of the delays in approvals and delays associated with the award of new contracts, FY23 volume guidance has been reduced to 245-255 Mt from 270-280 Mt.”
There was some good news from the small iron ore operation with iron ore shipments of 4.5 million wet metric tonnes, up 10% quarter on quarter and in line with FY23 guidance of 17.2-18.8 million wet metric tonnes.
Average realised iron ore price was $US109 per dry metric tonne (dmt), 12% higher than in the December quarter.
But there are cost pressures here with the company revealing that iron ore FY23 Free on Board (FOB) costs “are expected be at the upper end of the guidance range of $65-75/ a tonne for Utah Point and $85-95/ a tonne for Yilgarn.”
MinRes reported a record total of 111k dry metric tonnes (attributable) of spodumene concentrate (SC6 Eq 85k dmt) was shipped, up 15% from the December quarter. A total of 7,666 tonnes (attributable) of lithium battery chemicals was converted, stable quarter on quarter with a 14% fall in the amount sold at 5,925 tonnes (attributable).
The average realised lithium battery chemicals revenue was $US56,996/t (exclusive of China VAT), down 14% from the three months to December.
Pilbara Minerals is now due to release its quarterly report today (Thursday).