Mineral Resources (ASX.MIN) met or exceeded fiscal 2026 volume and cost guidance across all business segments, including record annual volumes for mining services, iron ore, and lithium. Net debt fell 20% across the fiscal year to $4.3 billion, with net debt/EBITDA declining to 1.5 from 5.9.

Why it matters: We increase our fiscal 2026 EPS forecast by 38% to $5.24, implying a 1H:2H split of 26:74. Full-year volumes exceeded most recent guidance midpoints by 5% for mining services, by 6% for Onslow iron ore, and by 10% and 13% for Mt Marion and Wodgina lithium mines, respectively.

  • Unit costs also benefited, with full-year guidance midpoints beaten by 7% at Onslow and 4% at Wodgina. Robust improvement across the fiscal year saw average fiscal 2026 lithium price achievement double on fiscal 2025. Iron ore recorded modest 4% average price improvement.
  • The strong increase in lithium saw Mineral Resources restart the Bald Hill mine in the fourth quarter, with ramp-up to full 140,000 metric tons on track for December-quarter 2026. We think restart makes sense if associated costs prove appropriately modest. Bald Hill is higher cost than other Mineral Resources mines.

The bottom line: Our $77 fair value estimate per share for no-moat Mineral Resources stands. The restart of Bald Hill is earnings-accretive, but an increase in our assumed weighted average cost of capital to 9.0% from 8.7% counters. Under our updated discount rate framework, a beta of 1.4 better reflects our view of cyclicality.

  • Shares are up more than 8% since the announcement but at around $58 still trade below fair value. We suspect the market is still gun-shy from the recent lithium price rout and elevated group debt levels.
  • We expect average lithium carbonate prices above USD 20,000 per metric ton through to 2033, at our marginal production cost estimate, against recent lows below USD 10,000. We expect strong lithium demand growth, led by secular EV demand and energy storage systems.

Mineral Resources: Pricing and volumes combine to drive earnings

Mineral Resources grew significantly following listing on the Australian Securities Exchange in 2006. Demand for crushing and screening services grew strongly with iron ore output from the major Western Australian iron ore miners. Cost inflation encouraged large mining companies to outsource capital-intensive, lower-returning processes. The miner also rapidly expanded its own iron ore mining business, though lacking the integrated rail and port infrastructure of major competitors and at a competitive disadvantage, albeit reduced after construction of the lower-cost Onslow mine. More recent diversification into lithium production at Mt Marion and Wodgina delivered earnings momentum.

The financial record to now is impressive. Mineral Resources has diversified its earnings streams and improved financial disclosure. In fiscal 2010, the company was a mining service provider and minerals producer as now. But disclosure extended to just iron ore production tonnage, and segment earnings. Mining services and processing contributed 96% of group EBIT. Step forward, and Mineral Resources had materially improved its level of financial disclosure; the greater depth of clients and number of project sites also reduces risk. We think the business model is demonstrably maintainable. The volume-linked crushing and screening business should be somewhat more resilient to commodity price weakness.

Mineral Resources’ mining services business builds, owns, and operates crushing and screening plants on behalf of mining customers. Despite generally contributing 40% of group EBIT, mining services is core. Twelve 5-15 million metric ton per year crushing and screening plants are owned and operated on 12 sites. Clients substantially include the largest mining companies, and contract books have been renewed over time, leading to volume growth. Power is supplied by mining companies, and margins are comparatively stable. Bolstering growth in the core business centered on mining services around Australian bulk commodities, Mineral Resources will selectively own and develop its own mining operations, with the aim of subsequent sell-down while retaining core processing and screening rights.

Bulls say

  • Mineral Resources grew strongly since listing in 2006. The chair and managing director have been with the business for decades and have meaningful shareholdings.
  • Australian iron ore is mainly purchased by Chinese steel producers, meaning Mineral Resources offers leveraged exposure to Chinese economic growth.
  • Mineral Resources has a recurring base of revenue and earnings from processing infrastructure.

Bears say

  • Mineral Resources’ profits are exposed to volatile iron ore price. We expect future iron ore prices to be much less favorable than the decade long boom to 2014.
  • Investments developing lithium bore fruit in the boom market, but a strong third-party supply response into a small market has hollowed out returns.
  • Mineral Resources has poor geographic diversification, with a high dependence on capital activity in Western Australia. Mineral Resources is highly dependent on likely Chinese demand for iron ore.

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