Mineral Resources (ASX:MIN), or MinRes, reported sequential third-quarter fiscal 2026 volume declines of 6% in mining services, 14% in iron ore shipments, and 20% in lithium sales. Revenue fell only 3% with higher pricing countering cyclone impacts.

Why it matters: We increase our fiscal 2026 EPS forecast by 24% to $0.75 to align with midpoints of upgraded guidance ranges. At midpoints, guidance increased 3% for mining services, 3% for Onslow iron ore, 4% for Wodgina lithium, and 10% for Mt Marion lithium.

  • Guidance for Onslow cash costs has also been lowered to the lower end of the unchanged range. Operations have returned to nameplate capacity since tropical cyclones Mitchell and Narelle, with no infrastructure damage. The average realized iron ore price increased 2% over the quarter.
  • And a strong 92% increase in average realized lithium price over the quarter has MinRes evaluating options for a restart of the Bald Hill mine. We think a restart makes sense if associated costs are appropriately modest.

The bottom line: We increase our fair value estimate for no-moat MinRes by 3% to $77. Shares rose more than 4% on the day, but at around $64, still trade somewhat 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 2030, 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.
  • Further, we don’t see debt levels as an ongoing concern. With Onslow ramped, capital expenditure has moderated. We expect leverage to fall to 1.5 in fiscal 2026, driven by strong cash flows and anticipated AUD 1.0 billion in post-tax sale proceeds from a partial sell-down of lithium mine equity.

Commodity price strength counters impact of cyclones for Mineral Resources

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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