Ground Breakers: RBC says MinRes shares are worth $77, gold miners hit for ... around four as market falls

RBC initiates coverage on MinRes with $77 price target, but neutral rating
Investment bank analysts have conservative forecasts on spodumene, lithium and iron ore prices
Markets fall, with gold miners hit for six (or more like four)

Is Chris Ellison’s Mineral Resources (ASX:MIN) undervalued?

The chorus of support for this thesis is growing among analysts, with Canadian investment bank RBC Capital Markets initiating coverage today with a $77 price target and “sector perform” rating.

If the lithium and iron ore miner, which also boasts divisions in mining services and gas, were to hit that mark it would present 9% upside to its previous closing price, up from $71.17 today.

RBC’s Kaan Peker, Alex Barkley and Paul Wiggers de Vries say they see “limited upside” at current levels because of its strong run of late.

That’s not a screaming buy, by any means, but commodity price forecasts seem to have a lot to do with it.

But its long term prices for MIN’s commodities of US$1000/t spodumene, US$15,000/t hydroxide and US$75/t are also arguably extremely conservative.

RBC says growth plans, including a fourfold increase in lithium carbonate equivalent production to 120,000t, will lead to an 87% growth in EBITDA to FY24 “in spite of assuming a ~40% drop in spodumene and iron ore prices (vs FY22”).

While Mineral Resources has caught the eye of investors for its lithium of late, RBC says at 1x NAV and 4.5x FY23 estimated EBITDA MIN is trading in line with iron ore players but 1.5-2x lower than lithium peers IGO (ASX:IGO) and Pilbara Minerals (ASX:PLS) and behind mining services players Monadelphous (ASX:MND) and Orica (ASX:ORI).

“As a result our forward multiple for Mineral Resources is a sum of parts where we attach industry specific multiples for each part of the business. We believe Mineral Resources will start to attract a higher multiple in the near term as its lithium business ramps up and expands,” Peker, Barkley and Wiggers de Vries said.

On the other hand a plan to increase iron ore production from 20Mt to over 70Mt over the next 7-8 years could be challenged by falling iron ore prices, with MinRes having approved the $3 billion, 35Mtpa Onslow JV this year.

Little wonder rumours are growing that MinRes will look to spin out its lithium assets into a new company listed in the States.

Mineral Resources (ASX:MIN) share price today:

Market carks it, showing last week’s miracle run was hardly a trend

A massive Wall Street sell off triggered a dire morning for most blue chips.

The total number of large and mid-cap mining companies in the green this morning can be counted on one hand, with Fortescue Metals Group (ASX:FMG), Rio Tinto (ASX:RIO), Zimplats (ASX:ZIM) and Iluka Resources (ASX:ILU) the only major players trading higher at 12.40pm AEDT.

Gold miners were thwacked harder than England’s Alex Hales and Jos Buttler whacked the Aussie bowling line-up in yesterday’s T20 international in Perth, with the All Ordinaries Gold sub-index down 3.92%, as a strong US jobs report and run in the US dollar sent gold tumbling back to the sub US$1700/oz swamp.

The Materials sector in general fell 1.05%, ameliorated by Rio and Fortescue’s good fortune, while energy stocks dropped by 1.42%.