Analysis: What is the market looking for from the Mineral Resources earnings call?

In its recent earnings call on 25 January, Mineral Resources ("MinRes") reaffirmed the profitability and cash flow positivity of its three key lithium projects – Wodgina, Mt Marion, and Bald Hill – amidst the market downturn.

The company’s quarter activities report highlighted a robust performance at these Western Australian mines:

• Mt Marion has a 30% increase in spodumene concentrate production at 83,000 tonnes and a 34% rise in shipments at 86,000 tonnes in previous quarter.
• Wodgina achieved quarterly spodumene concentrate production of 55,000 tonnes, and shipments of 65,000 tonnes. Wodgina’s lithium battery chemical sales were up 52% quarter-on-quarter to 6,474 tonnes.
• After finalising the acquisition, Bald Hill produced 26,000 tonnes of spodumene concentrate, with 20,000 tonnes shipped over eight weeks.

The update was relatively well-received in the market, as shown by a more than 7% surge in Mineral Resources’ shares in early trading on the same day.

The questions raised by analysts following the presentation give a snapshot of the market’s general concerns regarding Australian lithium producers today, which can be summarised into three themes: operational efficiency with cost cuts, future investments with financial prudence, as well as pricing and partnerships amidst market volatility. For MinRes, the market also craves for more disclosure about the newly operating Bald Hill project.

Several questions raised seek clarity on the operation situation in Mt Marion and Wodgina especially when the industry as a whole is retreating to prioritise cost cuts. Chris Ellison, the Managing Director of Mineral Resources, thus highlighted the expectation on the ramp-up in Wodgina and commencing underground mining in Mt Marion.

The existing three trains at Wodgina have a total nameplate production capacity of 750,000 tonnes of spodumene concentrate a year. MinRes is currently alternating trains because there is no “sufficient rock for all three”, as disclosed during the call. The company hopes to see the feedstock increase gradually from January and satisfy all three trains at the end of June. A fourth train would further boost the capacity to 1 million tonnes a year, and MinRes has no intention pulling back on the spending on building Train 4, according to Mr. Ellison.

Regarding the timeline for initiating underground mining production at Mt Marion, Mr. Ellison provides an optimistic estimate of approximately 18 months since drilling operations have only recently commenced. In the long run, the tentative operation plan will be 20% underground and 80% open pit, which would alter the cost curves through various factors such as grades and operation specifics.

Adding to that, when asked about plans to secure more potential cash inflow, the executive’s answer steers more towards the company’s investment strategy of land banking and greenfield explorations that could discover low-cost mining opportunities. He also mentions the possibility of leveraging partnerships with junior miners to enhance the portfolio.

For the existing partnerships and pricing mechanism, questions bring up Ganfeng, the Mt Marion co-owner who, in mid-2023, terminated the tolling agreement with MinRes about converting spodumene from Mt Marion into lithium hydroxide, and Albemarle, another major lithium producer whom MinRes has a Joint Venture with.

Mr. Ellison describes the partnership with Ganfeng as “fluid” and adaptive enough to withstand the disproportionate price diversions between spodumene concentrate and lithium chemicals, protecting both sides. At the same time, the company also maintains ongoing dialogues with Albemarle to align with the broader lithium market dynamics. No further financial figures are given regarding the transactions with Albemarle.

Finally, many Bald Hill related questions are raised, such as the economics on the Bald Hill production and potential offtake contract details, but no guidance is given by the management team beyond the quarterly report except Mr. Ellison’s confirmation on its profitability on today’s prices and the company’s intention to bring down operational costs.

In conclusion, Mineral Resources’ latest earnings call offered an overview of its current standing and future strategies in the lithium market. While this earnings call was specific to the company, the underlying market concerns suggest a universal checklist relevant to all lithium producers. These include operational adaptability, strategic foresight in investments and partnerships, and financial resilience - key factors that will determine which companies succeed in the volatile lithium market.

Author: Hongqiu Su | Battery Metals Analyst Associate | London Office, Shanghai Metals Market

Email: lilysu@smm.cn