Ground Breakers: MinRes eyes increased lithium production as prices retreat

MinRes eyes step up in lithium output as Wodgina and Mt Marion expand and Bald Hill acquisition deadline arrives in November

Executive GM of corporate development James Bruce says lithium market demand is still growing 20% a year in strong case for additional Wodgina processing train

Realisations for iron ore up to 87% as low grade material receives support from Chinese market

Mineral Resources (ASX:MIN) could boost its lithium output by 140,000-150,000tpa through its Bald Hill acquisition but details about its overall plan to consolidate its lithium stronghold in the Goldfields remain scant as Chris Ellison’s diversified lithium, iron ore and mining services firm emerges as the region’s lynchpin.

The operator of the long-running Mt Marion mine, MinRes emerged as the winner of a sale process by the administrators of first generation ASX lithium miner Alita Resources, which opened the Bald Hill mine near Kambalda in WA’s Goldfields.

It boasts the only processing plant in the emerging lithium district outside of Mt Marion, giving MinRes the potential to acquire spodumene deposits in the region or toll treat friendly companies with small resources in the district.

Ellison has already shown his hand, taking the top stake in three companies boasting close to 60Mt of more than 1% Li2O ore within hundreds of kilometres of Mt Marion and Bald Hill, including Delta Lithium (ASX:DLI), Develop Global (ASX:DVP) (soon to acquire Pioneer Dome owner Essential Metals (ASX:ESS) and Global Lithium (ASX:GL1).

There remains speculation Ellison could look to insert MinRes into the registers of Pilbara players like Wildcat Resources (ASX:WC8) and the currently halted Azure Minerals (ASX:AZS), rumoured to have fielded an offer in the order of $3.50 per share or $1.56 billion from Chilean lithium giant SQM.

With Ellison absent from its quarterly call today, MinRes investors and analysts got little indication of his M&A intentions.

But executive general manager of corporate development James Bruce did give a hint of what can be expected at Bald Hill in response to questions from Citi analyst Kate McCutcheon. The deal is expected to complete in November.

“So it is a producing asset today and it has been producing for quite some number of years and really I think we’re going to have to conclude the transaction before I say anything else,” Bruce said.

“In the past it has produced at 140-150,000 tonne per annum spodumene.

“So that’s about all I can guide you to at the moment.”

The expansion of MinRes’ lithium business comes despite falling spodumene and chemical prices, which took a big hit in the September quarter.

Lithium production on the rise but prices fall

MinRes said it hit the highest production rates yet from the Wodgina JV with Albemarle, where it recently sewed up a deal to increase its ownership to 50% by trading off its 15% stake in the Kemerton lithium plant, a readjustment that will also net Ellison’s firm a US$380-400 million payment from Albemarle in the December quarter.

Wodgina produced 45,000dmt of 5.8% Li2O lithium concentrate (around 112,500t on a 100% basis), shipping 25,000t (62,500t). Unplanned port maintenance was the big bottleneck, with more shipments expected in the current quarter.

Battery chemicals from the Wodgina JV of 4,800t — up 14% QoQ — translated to 4300t sold at an average price of US$34,036/t, down 16% QoQ.

The third train at Wodgina, an inflection point for increasing production, is due to switch on in January with studies on the construction of a fourth train underway.

At Mt Marion — owned 50-50 with China’s Ganfeng — MinRes produced 128,000t on a 100% basis, shipping 78,000t, though grade discounts and later quarter shipments saw average spodumene concentrate pricing fall 28% QoQ to US$1870/dmt.

Fastmarkets’ 6% Li2O spodumene concentrate pricing has come back to US$2150/t in recent weeks, down from over US$8000/t late last year.

It could place the microscope on companies which have seen opportunity in high spodumene prices to let concentrate grades fall, accepting discounts as a trade off for higher lithia recoveries.

Con grades at Mt Marion were just 3.7% Li2O in the first quarter, expected to average 4% Li2O over the full year, though Bruce said as access to fresh rock increases they are expected to improve.

Market growing 20% a year: MinRes

Meanwhile, Bruce bristled at suggestions the back and forth between Albemarle and MinRes on its Wodgina and Kemerton JV structure may end up in ‘arbitration’ to sort out investment decisions on future expansions at the Wodgina mine.

A fourth train is being studied currently, with decisions on a further two trains expected to follow.

Albemarle pulled out of a $6.6 billion deal to acquire Liontown Resources (ASX:LTR) this month after a blocking stake picked up by Gina Rinehart put paid to its hopes of a simple yes vote on its $3 per share scheme proposal. That means it may well be reliant on more output from Wodgina to feed its strong long-term demand forecasts for lithium chemicals as the EV market grows.

With expansions increasing its production output, Bruce said MinRes expected Wodgina to be one of the lowest cost producers on the market, shipping spodumene con at costs in the order of US$500/t.

“We will be one of the lowest cost (producers) and as a result the return on invested capital for MinRes is very high,” Bruce said.

“The train four investment is $160 million MinRes’ share, and you know the payback period on that is measured in months, not years, in the way that we think about it.

“From our point of view, market demand is continuing to grow at about 20% per annum, customers wanting our product and we are prepared to supply it to them at index prices and we are considering options around volume supplied to customers as we go forward.”

Bruce said Albemarle would be “economically rational” when it comes to decisions on the expansion of the Wodgina mine.

“Our relationship with Albemarle is strong, the return on invested capital of the train four expansion is, as I referenced, very good,” he said.

“And I think Albemarle are economically rational and they look at the opportunity in the same way that we do.”

There were also some comments around ‘market manipulation’ … which we’ll get to elsewhere.

RBC: Stronger than expected

MinRes has been hit hard by falling lithium prices, and is down over 23% YTD to $57.43, well below the expectations of analysts who set price targets when the lithium and iron ore miner was seeing much healthier lithium prices.

RBC’s Kaan Peker, who has an $82 PT on MinRes, called the quarter a strong one in a note to clients.

“A stronger than expected quarter result, with mining service volumes beating, so too iron ore production and price realisation. On lithium, mined volumes increased materially QoQ (and beat our expectations), which bodes well for FY24 with more fresh ore being fed into the plants at both Mt Marion and Wodgina,” Peker said.

“1Q spodumene production was broadly in-line with our expectations as Wodgina production was ahead of our expectations, but Wodgina a touch below, while sales were impacted by port maintenance and congestion. This is to be made up in October. FY24 volume guidance remains unchanged for all operations, Onslow Iron first shipments re-iterated (June 2024).”

Its iron ore realisations were a shock to the upside, demonstrating the strong demand for low grade iron ores in the Chinese market.

“The average realised iron ore price for the quarter was US$99/dmt, and represented 87% realisation against the 62% Platts Index, above our US$96/t, 84% realisation estimate,” Peker said, noting no change had been made to its guidance of 16.5-18.8Mt (wet) in FY24, with costs expected in the Yilgarn hub of $97-107/wmt and at the Utah Point hub of $67-77/wmt.

MinRes shipped 3.9Mt due to haulage restraints from the Yilgarn hub, down 8% QoQ, but saw production lift 8% QoQ to 4.8Mt, well above consensus estimates of 4.3Mt.