Monsters of Rock: Finally, the rock has come back to lithium

MinRes lifts with lithium sector as it reports strong spodumene pricing for the June quarter
Prepayment boosts cash balance but raises analyst eyebrows as Onslow Iron build wraps up
Quick hits on Bellevue, ERA, Capricorn and Metals X

Some good news for lithium bagholders in the latest Mineral Resources (ASX:MIN) quarterly, with the ASX mining giant trading 77,000t of spodumene concentrate from its Wodgina mine at US$1124/dmt on a 5.5% Li2O basis, or a massive US$1243/dmt SC6.

Its sales prices at Bald Hill (32,000t at US$1015/dmt 5.1% and US$1198/dmt SC6) and Mt Marion (76,000t at US$797/dmt 4.2% or US$1178/dmt SC6).

All were well above spot levels, judged by Fastmarkets yesterday at US$935/t, and realisations posted by rival Pilbara Minerals (ASX:PLS) in its results earlier this week.

Some analysts reckon its customers converting the dirt in China aren’t making anything.

“Lithium prices continue to trend down. At the same time, Mineral Resources Limited has posted strong sales and production vol. in its Quarterly results today,” Benchmark Mineral Intelligence’s principal lithium analyst Dr Cameron Perks said on LinkedIn.

“Average prices of US$1,212/dmt SC6 suggest that MinRes’ converters are not making any money at all.”

Benchmark’s own lithium index, incorporating a range of products in different markets and at different stages of the value chain was down 3.2% this week.

All up MinRes shipped 487,000t of spodumene in FY24, translated to the 6% Li2O benchmark, including a record 218,000t from its half-share of Mt Marion (guidance 190-220,000t), 201,000t from its half at Wodgina (210-240,000t guidance), 24,000t of chemicals tolled from Wodgina material in China (18,000-23,000t guidance) and 68,000t at Bald Hill.

MinRes’ conference call today featured two Chris(es), investor relations head Chong and iron ore boss Soccio. No Ellison though. With the way the names were announced we finally got to feel like AFL players in the final rounds of the Brownlow Medal count.

Chris Chong said MinRes saw a 15% price increase in the quarter, but is still keeping an expansion at its Wodgina JV with Albemarle in the cryo chamber to avoid putting more supply on the market. (Also in contrast to PLS, which will ramp up to a capacity of 1Mtpa at Pilgangoora from September next year).

MinRes expects cost curve support at current levels, comments that did echo PLS’ boss Dale Henderson this week.

“We believe current prices are unsustainable over the medium term we expect cost curve support around here,” he said.

“The long term fundamentals remain strong, and we’re just in the early stages of global EV adoption. We’ve operated through two pricing cycle downturns before, we’ll continue to watch the market closely while focused on improving performance and generating cash.

“We want to retain the flexibility to match the market though we are cognisant of bringing on too much production into the current market, particularly if there’s no benefit. We want to preserve value.”

MinRes shares were up 6.2% in early trade. It came back to 3.7% at 4pm AEST.

But iron ore prepayment does heads in

Analysts continue to butt heads with the MinRes’ executive though, about accounting.

Having sold down a $1.1bn stake in the haul road at its new Onslow Iron operation to Morgan Stanley’s infrastructure management business to improve its balance sheet, MinRes is again in the firing line of analysts for its leverage.

MinRes reported net debt of $4.4bn and has $900m in cash “reflecting peak investments in Onslow Iron”. But $600m has dropped in in the form of a prepayment to be returned in iron ore sales due from FY26-28.

Analysts got nowhere trying to find out the exact terms, which are shrouded in confidentiality agreements with one, Chris Ellison’s previous sparring partner Ben Lyons of Jarden, calling it ‘fascinating accounting treatment’.

The payment will ease liquidity concerns ahead of the receipt of the payment for the haul road share, with the remaining capex at the $3bn, 35Mtpa Onslow expected to be divulged in the miner’s annual results. Guidance is also expected in a month’s time.

“No FY25 guidance was provided, which is expected in the Aug results,” RBC’s Kaan Peker said.

“Importantly, FY24 net debt is expected to be ~$4.4b, which includes an iron ore customer prepayment of US$0.4 b($0.6 b), we had expected $5b (consensus at A$4.8b). This will likely be seen as a positive.”

As for its existing iron ore operations, including the discontinuing Yilgarn hub, MinRes delivered a strong quarter with sales up 6% to 4.8Mt and finishing well above consensus.

Yilgarn iron ore shipped 7.6wmt from Esperance, 28% of it lump, at the lower end of its FY24 guidance of 7.5-8.3Mt. Costs of $108/wmt were slightly above guidance.

Shipments in the Pilbara came in near the top end of guidance at 10.4/wmt and costs also within at $74/t, with pricing of US$94/dmt 84% of the Platts 62% Fe IODEX.

Some reports you may have missed

While MinRes was the headliner today there were a few other items of note. Bellevue Gold (ASX:BGL) fell more than 20% after shareholders reacted to its surprise $175 million placement launched yesterday and completed by this morning. They’d been hoping cash flows from the mine would take up the slack, but BGL says it wants to reinvest in exploration, pay down debt and grow mining rates early to reduce costs and bump up production from an initial 165,000-180,000oz to 250,000ozpa in five years.

The NT Government dropped a bombshell, saying the Jabiluka mining lease under the auspices of Rio Tinto’s Energy Resources of Australia (ASX:ERA) will not be renewed. ERA had promised not to mine the site under a veto right it issued to traditional owners the Mirarr People, but has overseen a series of cost blowouts in the remediation bill for its Ranger mine, closed in 2021 and now expected to cost $2.3bn or more to fix up as per traditional owner wishes.

ERA had argued the end of the lease leaves it open for another company to pick up the site and develop it without the veto agreement it held with the Mirarr. Applications for mineral licences over the area will not be allowed for at least two years under arrangements previously announced by the NT Government.

Capricorn Metals (ASX:CMM) rose 0.6% despite a rough night for gold and its production numbers of 113,007oz at AISC of $1421/oz for FY24. Those costs were 4% above guidance for the Karlawinda gold mine, largely due to wet weather.

Its guidance has been set for FY25 at 110,000-120,000oz at $1370-1470/oz and growth capex of $10-20m.

Piedmont Lithium (ASX:PLL) rose after announcing a 23% lift in spodumene output at the North American Lithium operations run by Sayona Mining (ASX:SYA) in the second quarter. After producing 40,400t in the March quarter and 49,660t in June, 96,500t is expected in the second half at the Quebec spodumene mine.

And Metals X’s (ASX:MLX) half-owned Renison tin mine in Tasmania produced a ‘record breaking’ 1061t of tin in concentrate in June, with quarterly output up 10.3% to 2506t. Its cash balance swelled by $14.16m to $181.65m, helped by higher average tin prices of US$33,200t.

While falling gold prices bit overnight, the materials sector rose 1.42% on Friday.