Mineral Resources the cheapest after updating our commodity price assumptions

The iron ore price is broadly flat compared with last quarter. While China’s steel production in the first quarter of 2026 is down 5% year on year to about 250 million metric tons, its iron ore imports are up 11% to around 315 million metric tons.

Why it matters: Our iron ore price assumptions are unchanged. We still assume it averages about USD 100 per metric ton from 2026 to 2028 based on the futures curve, and around USD 75 midcycle from 2030 based on our estimate of the long-run marginal cost of production.

The bottom line: Fair value estimates for our iron ore coverage are also unchanged. No-moat Mineral Resources is the cheapest, with shares 15% below its AUD 75 fair value due to lingering concerns over the lithium rout and elevated debt levels.

  • Big picture: The Iran war is likely to keep commodity prices even more volatile than usual until it is resolved. Higher energy prices due to the conflict could hurt global economic growth and commodity demand, while also pushing up miners’ operating costs.
  • In particular, given that it is the biggest source of demand for most commodities, any slowdown in China’s economic growth is likely to be bearish for commodity prices.
  • However, we think the Chinese government will respond with increased stimulus should the country’s economic growth soften materially.

Debt set to decline as cash flows turn around

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 decadelong 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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Terms used in this article

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.