Ground Breakers: MinRes tumbles on tough quarterly read as lithium, iron ore stocks tank
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It’s been a tough, tough morning for investors in boom lithium and iron ore miner Mineral Resources (ASX:MIN), which lost over 8% as of 12pm AEST on a disappointing quarterly results read.
A host of guidance downgrades for FY23 dotted the report, with mining services volumes expected to fall from 270-280Mt to 245-255Mt.
Guidance on lithium spodumene shipments of 150-170,000t SC6 equivalent and battery chemicals production of 11,500-12,500t from the Wodgina operation has been maintained but sales guidance has fallen from 8500-9500t to 5000-6000t.
At Mt Marion, spodumene and lithium chemical sales are expected to come in at the lower end of 160-180,000t and 19,000-21,300t respectively, impacted by delays in an expansion due to begin its completion in May, which has also seen cost guidance lifted from $850-900/t to $1200-1250/t.
The Mt Marion mine’s $120m expansion to 900,000tpa will ramp up over FY24, with higher grade feed to enter the plant progressively over the next year, as shipped concentrate grades fell to just 3.8% Li2O in the March quarter, with grade adjustments and discounts leading to realised spodumene prices of US$3367/dmt.
The delivery of the third train at the Wodgina mine has also been delayed, though mining and environmental approvals have now been received for a cutback to extend the mine. Ore feed sufficient to support three processing trains is expected at the end of 2023 with a six to eight-month ramp-up period.
It had previously been forecast to run at nameplate capacity from July, “subject to approvals”.
While the performance of the Chris Ellison-led firm’s iron ore business was solid and it recorded a 15% quarter on quarter rise in spodumene shipments to a record attributable amount of 111,000t (85,000t on an SC6 basis), perhaps more concerning for fans of the broader lithium sector was news that its chemical sales fell 14% QoQ to 5925t with prices down 14% to US$56,996/t in the March quarter.
Furthering the negative sentiment, an appraisal well at the Lockyer-2 target in the Perth Basin, near MinRes’ Lockyer Deep-1 discovery, failed to excite.
“The primary target, Kingia Sandstone, had low levels of background gas and wireline data indicates that the reservoir is water saturated,” MinRes, which is nearing the compulsory acquisition mark in its chase of JV partner Norwest Energy (ASX:NWE) with 88.08% voting power on Monday, said.
Spot rices for lithium chemicals, led by weakness in China, have been on the slide for all of 2023 so far.
From over US$80,000/t late last year, North Asian hydroxide prices are now slightly above US$40,000/t on the spot market.
Carbonate, impacted by a ramp-up in Chinese lepidolite operations, is down to under US$30,000/t.
But speaking to analysts today MinRes executive GM of corporate development James Bruce, said “if anything” the long term dynamics for lithium demand were improving.
“I can’t talk for what Albemarle’s view is, but our view is based upon direct conversations that we’re having with OEMs, through our marketing agreements with (Mt Marion JV partner) Ganfeng, and obviously through our engagement with (Wodgina JV partner) Albemarle as well,” he said.
“But our view is that the medium and long term demand profile in this industry, if anything, has even increased in the last three to six months, that the current dynamics in the market are specific to China and China alone.
“And that’s why you’re seeing differential pricing between Chinese pricing and what I’d call Western world pricing.
“We think that the Chinese specifically with regard to hydroxide, you know, there’s a limited period of time that you can store hydroxide for — it’s up to six months. And so that’s of course (created) some near term dynamics, where the market has been slightly over supplied, there’s been an inventory movement.
“But we expect that to normalise in the months and quarters ahead. So this market remains very tightly constrained from a supply side of the industry and demand continues to be very strong.”
Despite some margin crunch, Bruce said MinRes’ lithium arm remained a “highly profitable business”.
Meanwhile, MinRes says the first shipment from its 35Mtpa Onslow Iron project is expected at the end of June 2024.
It would be a significant expansion of the company’s iron ore business, which performed creditably in the March quarter.
Shipments from its Yilgarn and Utah Point hubs totalled 4.5Mwmt, up 10% and in line with its FY23 guidance of 17.2-18.8Mwmt.
Higher demand in China for its lower grade iron ore amid a margin crunch at steel mills also helped a 12% lift in prices to US$109/dmt, an 87% realisation of the Platts 62% Fe index, identical to peer Fortescue Metals Group (ASX:FMG).
FY23 costs are expected to be at the upper end of $65-75/t for Utah Point and $85-95/t for Yilgarn, where royalty relief from the WA Government ended in February.
A 16,000m stage 2 RC program is expected to begin in late May targeting magnetite resources which could be tapped to convert the Yilgarn hub from a low grade hematite project to a supplier of high grade magnetite concentrate for low emissions steelmaking and blending.
Reuters reported the China Iron and Steel Association warned steel makers in a meeting to curb production if they were losing money with iron ore futures falling ~3% to a touch over US$100/t yesterday.
Despite a strong morning for gold, the ASX materials sector dropped ~0.6%.